In an increasingly competitive fintech environment, where regulations to prevent money laundering and other illicit activities demand greater efforts from companies, the digitalization of remittances has disrupted businesses and helped them handle the boom of these cash flows.
Digitalizing the services of remittance facilitators allows them to more effectively comply with international Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations as fraud and cyber financial crimes grow more complex and diverse.
Leading companies in the remittance sector are adopting technologies to centralize key KYC/KYB functions for global identity verification. They are also implementing comprehensive fraud management tools that allow them to define policies, rules, user scoring, whitelist and blacklist management, and anti-money laundering restrictions.
These advanced solutions also include detecting suspicious activity through user profile configurations, limits, and event-based alerts to identify risks in real-time, with automated notifications enabling agile and effective responses to potential threats.
According to a global survey by Mastercard conducted in 15 countries, while consumers tend to report more cases of domestic payment fraud, 40% of respondents perceive cross-border payments as the main risk. "This perceived danger prevents many individuals from even attempting cross-border payments. Trust is paramount."
Alongside regulatory compliance, remittance digitalization is addressing the growing demand for solutions to transfer money across borders. This comes amid an unprecedented wave of human displacement and changes in work dynamics driven by remote work.
In this context, technological solutions address key aspects such as sending payment orders, managing international collections, and executing mass payments through automated tasks. Inswitch stands out in this field, as its Cross-Border Money Services enable efficient and scalable international transactions.
This service by Inswitch, presented as a "remittance in a box," is based on digitalizing and simplifying the remittance process, offering multiple payment options for both senders and recipients. With a focus on flexibility and convenience, Inswitch transforms processes that once took days into transactions completed in minutes. For example, it allows recipients to send a remittance request and the sender to approve it remotely, optimizing the user experience.
These tools also open opportunities to develop the business-to-business (B2B) remittance market, which remains untapped. Industry trends include simplifying the sending of mass payment orders using QR or barcode technology and managing the entire collection process through APIs. These tools enable companies to make mass payments to groups such as employees or suppliers directly to their preferred payment methods in local currencies.
Inswitch's Cross-Border Money Services offer key functionalities such as MSB licenses to operate in the U.S. and conduct transactions to other countries, global regulatory compliance, multi-currency support, and customizable API solutions, ensuring effective compliance, versatility, and tangible benefits for users. Moreover, it is a white-label service, enabling Latin American clients, such as banks, retailers, or fintechs, to originate transactions in the U.S. under their own branding, providing customization and brand identity consistency. Additionally, Inswitch's APIs ensure omnichannel capabilities, allowing end-users to access services through channels like WhatsApp, mobile apps, and more.
With this service, remittances are sent and received entirely digitally, with multiple payment options such as cash, banks, wallets, credit cards, and checks. Users can receive money through their preferred channels, such as cash networks, bank transfers, or cards. Furthermore, they can open a U.S. bank account, make payments, send remittances, and manage transactions from anywhere with a card linked to the account.
According to a report by Deel, remote hiring by international companies in Latin America grew by 35% in 2023, with Argentina, Colombia, and Brazil leading the markets analyzed. Factors driving remote hiring in the region include the growing adoption of digital technologies such as artificial intelligence, the globalization of the labor market, and the adaptability and versatility of Latin American professionals, the document states.
Advances in payment systems and remittance digitalization are key aspects explaining the good dynamics of hiring under this modality, further diversified by payment methods like cryptocurrencies and stablecoins pegged to the dollar.
Technologies such as APIs, advanced encryption, and process automation are fundamental to addressing challenges like lack of traceability, high costs, and transaction security.
Process automation and artificial intelligence, for example, optimize global operations management and tracking for users while shortening money reception times. Other applications include currency demand forecasting to ensure liquidity and minimize failed transactions.
Chatbots, digital applications, and other systems are also optimizing the customer experience by providing real-time transaction information and facilitating the collection of received funds, cutting unnecessary processes that affect user relationships with services.
Digitalization has elevated remittances to a global economic driver. Currently, regions like Latin America are highly dependent on them. It is estimated that the region will receive around $161 billion through remittances in 2024, a 5% increase compared to 2023, according to the IDB.
Remittances are especially important in low- and middle-income countries, serving as a vital source of foreign currency for recipient households. They also contribute to the economic development of countries, increasing from 1% of the region's GDP in 2012 to 2.6% by the end of 2022, according to JP Morgan.
Money flowing through remittances significantly impacts vulnerable populations, including women and informal workers. In the region, Mexico is considered the primary remittance recipient, projected to receive approximately $65 billion through this channel in 2024, a 2.9% increase from the previous year, according to an IDB report.
From migrants abroad sending money to their families to freelance workers in regions like Latin America receiving payments, remittances and the fintech platforms facilitating these operations are transforming finance.
In the opinion of the Co-Chair of the Global Partnership for Financial Inclusion (GPFI) of the G20, Magda Bianco, "Digitalization reduces transfer costs, speeds up transactions, and improves payment security and tracking."
"It also expands access to financial services such as savings, credit, and insurance, especially when accompanied by adequate consumer protection policies and financial education. These benefits promote financial inclusion and strengthen the financial resilience of families sending remittances," adds Bianco, who also heads the Consumer Protection and Anti-Money Laundering Service at the Bank of Italy.
One challenge is that cash still represents nearly 50% of formal global remittances and is one of the reasons for the high costs of these transfers, stemming from traditional physical agency networks.
The average cost of sending remittances to Latin America in 2023 was 5.8% of the total amount, the same level as in 2015. "Remittances sent from countries in the most expensive corridors cost an average of 25.2%, compared to 3.4% in the least expensive corridors," says a Mastercard report citing Remittance Prices Worldwide data.
The World Bank estimates that sending $200 to Latin America and the Caribbean in 2023 cost an average of 5.9% of the total amount ($11.8), virtually the same as the previous year. Sub-Saharan Africa costs were 7.9%, Europe and Central Asia (excluding Russia) 6.7%, the Middle East and North Africa 5.9%, and South Asia, East Asia, and the Pacific 5.8%.
Digitalizing remittance processes has the potential to reduce these costs while ensuring a smoother user experience. As mentioned earlier, it also helps combat money laundering and other types of transnational crimes.
In this regard, Inswitch's Cross-Border Money Services offer reduced remittance costs with competitive fees, making transactions more accessible and profitable for businesses and users.
According to a Mastercard report developed with Payments and Commerce Market Intelligence, "unregistered flows occurring through informal channels are at least 50% higher than registered flows."
Digitalizing remittances aims to increase oversight of these cash flows, enabling states to generate greater transparency and benefits through tax collection. "Authorities must design and implement regulatory frameworks that ensure adequate oversight of international transfers to maintain a high likelihood of detecting money laundering from illicit activities. However, such frameworks entail transaction costs for intermediaries, which are generally passed on to users," notes a BID study.
An essential aspect of this transformation is the ability of technological systems to ensure interoperability among different players and jurisdictions. Solutions like Fintech as a Service (FaaS) platforms enable companies and users to process payments efficiently, comply with international regulations, and handle multiple currencies.
In regions like Latin America, the presence of reliable banking partner networks and the ability to conduct real-time cross-border payments have facilitated greater financial inclusion, as observed by Inswitch.
A significant challenge regarding remittances is adopting favorable regulations in markets for these companies’ operations and innovations.
On this point, Mastercard considers that "regulation is perhaps one of the most serious problems, given the lack of legal, regulatory, and operational consistency across various global jurisdictions."
In this context, Inswitch addresses these challenges by offering global regulatory compliance, monitoring, and reporting to authorities. This ensures all transactions comply with strict local and international regulations, guaranteeing operational security and trust in every transaction.
Following the U.S. election results, one of the main sources of remittances sent to Latin America, the market is attentive to potential policies adopted by the new administration, such as mass deportation policies for migrants and taxes on these transfers, which could increase associated costs.
In this environment, Inswitch's MSB licenses allow companies to operate in all 50 U.S. states, securely originating payments through various methods. These licenses also facilitate sending money to any Latin American country, including key markets like Brazil, Mexico, and Central America, expanding transaction reach and ensuring user flexibility.
In any case, remittances continue to thrive with the momentum of global migrant flows and freelance workers who perform their activities from regions like Latin America, many receiving payments in hard currency to escape the depreciation phenomenon affecting local currencies, as seen with the Argentine peso or Venezuelan bolívar.
In an environment where remittances are vital for the economic stability of millions of households in Latin America, technological solutions play a key role in modernizing this sector.
Choosing Inswitch's Cross-Border Money Services for Fintechs, Retailers, E-commerce, Banks, and More means accessing a comprehensive and advanced solution that redefines how businesses and users manage remittances. With MSB licenses to operate in the U.S., global regulatory compliance, and a wide range of customizable payment methods, Inswitch ensures not only efficient and secure transactions but also enables its clients to stay ahead in a competitive, ever-evolving market. This service includes direct remittance processing through the most extensive payment network, along with U.S.-based financing options such as cards, ACH, wallets, and cash. Additionally, users gain access to customized accounts and cards within a complete financial solution, including digital wallet options.
Opting for Inswitch means choosing an optimized user experience, a significant reduction in transaction costs, and the flexibility needed to adapt to the specific requirements of each business. With advanced KYC capabilities, compliance, and monitoring, as well as white-label solutions, companies can offer a service fully tailored to their brand and operational needs. Moreover, Inswitch's centralized portal enables easy and efficient product control, ensuring agile management. Whether through mass payments, advanced fraud management tools, or API integrations simplifying complex processes, Inswitch is the strategic ally driving the digitalization of remittances, strengthening financial inclusion and global economic growth.
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