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by Ferdinand Dragtstra
This is the fourth in a series of blogs, where we look at challenges with pay and payments in developing and emerging markets.
All over the world, hard-working people send some of their earnings back to their loved ones in their home country: payments known as ‘remittances’.
For millions of people living in developing countries, these remittances are a lifeline, either helping cover their basic living costs, or with other expenses such as those caused by a medical emergency. According to the World Bank, US $647 billion was remitted to people in low and middle-income countries in 2022 alone, and they project that total will reach as much as US $5.4 trillion a year by the end of the decade.
However, many remittance transfer providers charge hefty fees and commissions for their services, sometimes taking as much as a 25% cut. This hits some of the world’s poorest people especially hard, and is why there are new, much needed and fairer options emerging.
The current state of play
Most developed countries have a substantial population of migrant workers, who have moved there in search of better-paying jobs, and in many cases in search of a better life, which will allow them to send money home to their family. However, the high commission rates on remittance transfers can seriously undermine the value of moving abroad for work and life.
This is just one of the barriers that these families face – at both ends of the transaction – in getting fair and viable access to these vital funds. For example, people become dependent on the provider, and often have no alternative if the opening hours and fees are restrictive, especially if those back home live in rural areas and have to travel long distances to get to the provider’s office. They’re also vulnerable to currency fluctuations which may reduce the value of the money they’ve been sent.
These issues have led some people to turn to other means to get money sent back home, such as being entrusted to truck drivers in envelopes. This is fraught with risk, as there is no guarantee the money will ever make it to its intended recipient.
How Institutions and CloudPay could help
The global community has recognized the importance of these payments to the communities involved and is taking action to try and remedy the issue of high transaction fees. As part of its Sustainable Development Goals, the United Nations has set a target to reduce the global average transaction fee to 3%, compared to the current average of 6.25%. Part of this is encouraging new and existing providers alike to deliver fairer options for remittances, that also give the workers and families involved more flexibility in how, when and where they can access their money.
CloudPay NOW, our earned wage access (EWA) solution, is a standout option for fairer remittances, and is already being used by employers and employees all over the world. This flexible payment platform allows workers to accrue wages on a day-by-day or shift-by-shift basis. Through a mobile app, they can check how much they have accrued, draw down on the available funds, then send any part of that money directly to any bank account they wish – including those of their family in another country.
This gives workers more control and flexibility over their spending, allows them to avoid costly transaction fees, and gives them access to built-in tools that can help them improve their financial knowledge and education. Perhaps most importantly, it has the potential to allow them to send money to relatives instantly and independently, once drawn down, without the need to go through a finance or payroll process, meaning they can get funds to where they’re needed in a hurry.
Deploying CloudPay Now can be beneficial for employers, too. The platform is a low-cost employee benefit that can make a real difference to employee wellbeing, motivation and therefore productivity. As a result, it supports better talent retention and acquisition, and has a practical benefit for payroll teams who can automate salary advance requests to save valuable time.
In summary
It isn’t an exaggeration to say that remittance payments can be a matter of life and death if an employee’s relative in a foreign country needs urgent medical care. Being able to send money easily and instantaneously can therefore make a huge difference to their lives, which is why a fairer, faster, and more flexible process is so important.
CloudPay NOW is a solution that can support this flexibility and make lives easier for employees and their family back home. It’s positive for them, and also positive for the employer, who gets happier workers who are less stressed and more likely to stay loyal to the business. We’re proud to be able to help those on lower incomes make easier payments and avoid costly transaction fees, and we’re looking forward to exploring future enhancements and innovations in this area, such as mobile wallet enablement.
CloudPay NOW is transforming the modern pay experience for businesses just like yours. Take a closer look at how it works here.
