Fintech Can Cut Costs of Remittances to Latin America
IMF Blog, May 7, 2019
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- Fintech Can Cut Costs of Remittances to Latin America
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Bibliographic details
- Authors: The Editors
- Published: May 7, 2019
Overview
- Traditional banking methods and money transfer operators typically charge about 6 percent on cross-border remittances; these fees are typically paid by the sender.
- A recent IMF staff Working Paper suggests fintech, like mobile banking, can provide a more cost-effective approach for remittances to Latin America.
- Latin America’s total remittances were about $80.5 billion in 2017.
- Remittances accounted for about 1.5 percent of Latin America’s output in 2017.
Key findings
- Mobile operators and mobile money can transmit remittances at a relatively low cost, about 3 percent, compared to about 6 percent using more traditional financial service providers.
- Latin America’s use of mobile money for sending and receiving remittances is relatively low compared with other regions, despite Latin America’s larger share of global remittances.
- Sub-Saharan Africa accounts for the bulk of global mobile money remittance transactions, followed by East Asia and the Pacific.
Regional and country-level impacts
- In several countries remittances are a major source of income: incoming remittances exceeded 15 percent of GDP in El Salvador, Haiti, Honduras, and Jamaica.
- Fintech adoption in Latin America is evolving rapidly, with fintech startups focusing on payment-related services growing about 61 percent in 2018 (InterAmerican Development Bank and Finnovista report).
- Global fintech companies are beginning to partner with local mobile network operators, money transfer operators, and banks in the region to provide financial services.
Policy recommendations
- Streamline licensing for mobile money and international remittances to spur fintech development.
- Enable remittance service providers to both send and receive cross-border payments to support fintech solutions and tech startups.
- Support partnerships between traditional money transfer operators (such as local banks with established networks) and mobile money providers.
- Promote more global remittance hubs to connect with other remittance service providers to help lower costs.
- Maintain policies to guard against risks related to cyber security, money laundering, and terrorism financing.
IMF Blog — "Fintech Can Cut Costs of Remittances to Latin America", The Editors, May 7, 2019.
