With globalization the demand and necessity for international money transfers expanded vastly. To meet the growing demand many facilitators like banks, financial institutions, private money exchanges & many more have taken the task of advancing their money transfer channels. Today roughly $4.8 trillion worth of foreign exchange transactions occur each day. $530 billion is roughly transferred each year. International money transfers are commonly known as remittances. Immigrant workers, cross country trades. Imports & exports are the main contributors for this huge scope.
The World bank defines Personal Remittances as follows
“Personal remittances is the sum of personal transfers and compensation of employees …Personal transfers include all current transfers in cash or in kind between resident and nonresident individuals, independent of the source of income of the sender”
The traditional method of transferring money was using a bank. Banks use SWIFT ( The Society for Worldwide Interbank Financial Telecommunication) is a Belgium based global payment company for their cross border international money transfers. In 2018 half of high value cross border payments used SWIFT around the world and SWIFT has linked more than 11,000 banks and financial institutes globally in over 200 countries with an average of 32 million messages per day.
SWIFT provides a centralized store-and-forward mechanism, with some transaction management. For bank A to send a message to bank B with a copy or authorization involving institution C, it formats the message according to standards and securely sends it to SWIFT. SWIFT guarantees its secure and reliable delivery to B after the appropriate action by C. SWIFT guarantees are based primarily on high redundancy of hardware, software, and people.
Money Transfer Service Providers
The other companies involved in International Money transfers are called International Money Transfer operators (MTOs), and these financial companies (but usually not banks) engaged in cross border transfer of funds using either their internal system or access to another cross-border banking network.
Most of the MTOs have simplified these remittances by introducing their customers web applications and mobile phones apps. This advancement of digital platforms for remittance is expected to encourage customers to move toward online transactions. Many people shift to these digital remittance services.
Because of the low remittance costs, very little processing time. Value added services and the privacy and protection of consumer’s money. According to the GSM Association, in 2020, funds worth around USD 12.7 billion were processed through mobile money in cross-border remittances. These digital remittance services are very popular among low salaried immigrant workers who need to send their earnings to families back home. These foreign remittances play a vital role in their home country’s economic growth.
Growth of Digital Transactions
The outward digital remittance segment led the market in 2022 and accounted for more than 58.0% share of the global revenue and money transfer operators segment dominated the market and accounted for more than 40.0% share of the global revenue in 2022. The inward digital remittance segment is anticipated to register the highest growth rate over the forecast period
The global digital remittance market was evolving considerably at a compound annual growth rate (CAGR) of 10.4% since 2000. Market value in 2016 was above the $530 billion mark. In 2022 market size was valued at USD 19.65 billion and is expected to expand at a CAGR of 15.6% from 2023 to 2030. The Remittance Market is projected to reach $1,227.22 billion by 2030.
The global digital transactions were valued at over USD 390 billion in 2022 and is expected to reach USD 21.83 billion in 2023. The personal segment led the market and accounted for more than 44.0% share of the global revenue in 2022. And as per financial experts the global digital remittance market is expected to grow at a compound annual growth rate of 15.6% from 2023 to 2030 to reach USD 60.05 billion by 2030. Also don’t forget to read our blog on Are Digital Transactions Helpful?
Remittance Fees
Pressure from the G20 and the UN to lower costs for senders has resulted in fees for transfers declining year-on-year since 2008. It now costs on average 7.21% to send money abroad. This lower transaction costs also helped the growth of the International Money Transfer market. The adoption of digital remittance is expected to reduce reliance on cash agents in both sender and receiver nations, which is now contributing to the maintenance of high transaction costs.
Region wise the USA send the most money, India receives the most money and China has the most even balance between sending and receiving. North America has a global share of 28.43% in the digital remittance market and makes them the key player. This is mainly due to the huge number of people migrating to the USA in search of better job opportunities and education as well as for business purposes.
And North America is the home region for major prominent financial services and communication. Furthermore, in the North American region, the trend of faster money transfer has gained traction with the introduction of numerous payment applications. The Asia Pacific region is considered as the fastest growing region for international remittance. With millions of people from this region working as immigrants in North America, Gulf region and Europe sending money to their homes.
People from Asia Pacific region send thousands of trillion dollars in remittances yearly to colleagues, children studying overseas or business partners and families in foreign countries. Region giants such as China and India are largely focusing on the adoption of mobile banking, cashless payments, and mobile-based payment solutions, thereby contributing to the regional market growth. The growing population in this region also contributes to the market growth of international money transfer.
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