Modernizing International Money Transfers To Reduce Costs

Sending money across borders is a common need for many people worldwide. With globalization and increased migration, more people are living and working abroad who need to send money back home to support their families. 

However, traditional international money transfer services can be slow and expensive with high fees and poor exchange rates. Fortunately, new technologies and regulations are modernizing cross-border payments to make transfers faster, more transparent, and lower cost.

The High Costs of Traditional Money Transfers

Traditionally, sending money internationally has been a costly process. Leading money transfer companies like Western Union and MoneyGram charge high fees, often 5-10% of the transfer amount. 

There are fees to send the money, receive it, and convert it to the recipient's currency. These fees quickly add up, especially for lower-income migrants sending smaller amounts home each month.  

The fees involved with traditional transfers:

Sending fee - charged by the originating transfer company

Receiving fee - charged by the disbursing agent 

Foreign exchange fee - for converting currencies 

Additional fees - for things like phone-based transfers or express delivery

These fees mean a significant amount of the money sent doesn't reach the recipient. For example, on a $200 transfer, over $15 may be lost to just transfer and exchange fees.

The Role of Slow, Opaque Processes 

High costs are enabled by slow and opaque processes that lack adequate regulation and oversight. Most traditional money transfer companies utilize legacy technology and manual processes, with high branch costs and agent commissions. 

The transfer process is often slow, taking days or even weeks for funds to reach the recipient. This requires physically moving cash to disbursing agents in different countries. There is little transparency or tracking for senders on the status of their transfer.

Opaque foreign exchange processes also enable high margins on currency conversion. Senders often don't know the real exchange rate offered or the fees charged. Disbursing agents may also apply additional 'cash pick-up' fees without disclosing them.

Regulators have failed to require transparent practices or set maximum fees for international transfers from major providers. This has allowed high costs to persist.

New Technologies Are Enabling Change

Fortunately, new technologies are emerging to solve these challenges and reform the international money transfer experience. Digital-first remittance providers utilize Internet and mobile channels instead of physical branches and agents. This enables online transfers directly to the recipient's bank account or mobile wallet. Key innovations include:

Streamlined direct account transfers

New providers can transfer funds directly into a recipient's digital account, avoiding physical cash payments. This reduces transfer steps, speeds funds delivery, and prevents extra agent fees.

Seamless global payment infrastructure

Connecting to global payment railways like SWIFT enables direct bank account transfers worldwide. Providers build seamless sending and receiving networks across key corridors.

Mobile wallets

In some emerging markets, direct mobile money transfers provide recipients instant access to funds via their mobile phones. This taps into expansive mobile payments ecosystems globally.

Blockchain-based payments

Emerging blockchain infrastructure like Ripple allows providers to directly bridge currencies and accounts. This reduces reliance on traditional correspondent banks and nostro-vostro accounts.

Advanced compliance tools

Robust compliance international money transfer software enables improved security, 'know your customer' checks, and anti-money laundering monitoring even for digital transfers. This ensures transfers are legal and secure.

Full transaction transparency

New providers disclose upfront all fees and exchange rates. Some offer guaranteed rates locking in transfers at the promised amounts. Senders can track transaction progress and delivery via web or mobile apps.

This new digital infrastructure allows international transfers to be completed in minutes or hours rather than days at significantly reduced cost.

The Impact of Supportive Regulations

Supportive regulations and policy changes are also driving improvements in international money transfers. Governments and regulators play an important role in increasing transparency and access. Regulatory reforms include:
Mandating upfront disclosure of all fees and exchange rates - This prevents hidden charges from surprising senders.

Limiting maximum fees charged - Setting fee caps ensures the affordability of transfers. The EU capped charges at 3% in 2015.

Opening access to payment system infrastructure - This allows new entrants to directly access domestic payment tools required for transfers.

Easing "de-risking" by traditional banks - De-risking blocks new digital remittance providers from the global financial system. More flexible compliance requirements help new models emerge.

Promoting interoperability and open APIs- Shared payment platforms make it easier for providers to build seamless sending-receiving networks across markets.

With supportive policy environments, new payment providers can grow quickly and deliver affordable options even to underserved migrant communities. This drives healthy competition and consumer choice.

Evaluating New Remittance Providers

When looking for new cross-border remittance solutions,  key factors migrants should evaluate include:

Fees and exchange rates: What are the total fees charged on both ends? What currency exchange rate is offered? Is it guaranteed or variable?

Transfer speed: How quickly do funds arrive? In minutes, hours, or days?

Sending options: Can funds be sent easily online or via mobile?

Receiving options: Are funds received in a bank account, mobile wallet, or cash agent?
Transparency: Are all fees, rates, and delivery times disclosed upfront clearly?

Customer service: Is customer support available if any issues arise?

Security and Compliance: Does the provider offer robust security protections and meet compliance requirements?

Looking across these criteria helps migrants identify the best options that reduce fees and delivery times, while still providing superior user experiences.

Bringing Financial Inclusion to Migrant Communities

Modern transfer platforms bring financial inclusion benefits as well. By utilizing mobile and digital channels, they expand convenient access for migrants previously underserved by traditional providers.

Key advantages include:

Online and mobile access - Enables transfers from smartphones rather than requiring physical stores.

Digital customer onboarding - Allow remote signup and ID verification, avoiding branch visits. 

Multi-language services - Serve migrants in their native languages and user experiences.

Smaller initial and recurring transfers - Make transfers affordable at smaller amounts that better meet migrant needs.

Expanded send and receive locations - Tap wider receiving agent networks in remote areas.

Policymakers should also consider additional reforms that include:

Lower initial transfer thresholds - This helps previously unbanked migrants enter the formal financial system.

Digital IDs - Are useful for remote verification when migrants lack traditional IDs.

Regulatory sandboxes - Allow new tech-enabled models to test products.

Conclusion

Overall, an enabling regulatory environment paired with technology innovation ensures international money transfers finally leap forward into the 21st century. Modern platforms promise cheaper, faster, and more inclusive transfer options benefitting millions of migrant workers and families worldwide.