Remittance Business Imperatives and Platform Architecture

Remittance Business Imperatives and Platform Architecture

With the rapid globalisation, Remittances have grown tremendously in the last three decades. According to industry reports remittances have almost overtaken Foreign Direct Investment (FDI) as the largest source of foreign capital inflow in low and middle-income countries.

Cross border migration has almost doubled in the last three decades.Compared to 153 million people living outside their country of birth in 1990, there were 270 million people doing so in 2018. The increase in remittances have been more mind boggling. It has increased more than 10 fold from US$ 64 billion to US$ 689 billion in the same period.

Remittances have had a very positive impact on the middle to low income countries. Their share of overall remittances have grown from 49% in 1990 to 77% in 2018. There is a staggering increase of US$ 536 billion.   

The good news for the IT industry is that, the digital remittance space is expected to clock a CAGR of 11.75% between 2019-2024.

Looking at macro and industry level, there are three factors contributing to the growth of remittances sector:

1. Customer demands
2. Enhancements in technologies
3. Robust compliance framework

Customer demands- The demand for digital remittance has grown with digital remittance finding acceptance in mid to lower income countries. With the smartphones and internet penetration growing exponentially in mid to lower income countries, adoption of digital transfers has been much swifter. However, When reviewed against the developments of the past few years that have catalysed the fintech ecosystem, through some extrapolation, one can estimate the trends for 2020. According to a PwC report on the 'Role of disruptive technologies in India's fintech sector', the next wave of growth would be led by the bundling of fintech solutions to feed consumer demand.

Enhancements in technologies- In a low-margin business, powerful technology is required for reconciling transfers, managing working capital risk, and observing customer trends.

Below is the architecture of Remittance Platform that manages end-to-end cross border money transfer lifecycle by providing an innovative solution to banked and unbanked end-customers of financial institutions and mobile network operators (MNOs) and Money Transfer Organizations (MTOs) through web, mobile or brick & mortar establishment  with a single point of contact to remit money and integration with the financial institutions in the receiving and settlement corridors.

Features

• Create and manage agents and branches
• Establish virtual wallets for complete accounting (Agents have to physically add cash to their wallet, branches can add virtual cash to their wallet)
• Capture complete customer details including identification for policy enforcement 
• Integrate with UN reported negative list for compliance enforcement
• Enable Agents to create and manage their customers with Back-office managing the compliance enforcement
• Back-office compliance functionality for approving customers and beneficiaries
• Efficient Agent Commission wallet which calculates the % of commission based on the volume of transactions done
• Money is always transferred from one wallet to another and hence complete tracking with both ledger and actual balance
• Complete trail of activity of transaction visible to Agent for reporting
• Includes a Maker/Checker functionality for complete due diligence
• Option to prefund customer's wallet and complete self management of wallet by agent
• Option to provide commission to Agent's based on transfers and other metrics
• Option to include rules for compliance such as negative lists, UN reported terrorist checks, suspicious transactions
• Options to include limits for each customer based on his/her identification

Robust Compliance- A robust compliance framework is imperative to ensure the safety net around digital money transfers and payments. There have been certain government interventions such as demonetisation in India that created a very conducive environment for the growth of digital transfers,.

Sources: https://www.finextra.com/blogposting/18408/outlook-2020-digital-trends-that-will-shape-the-remittance-industry