How policy and partnerships can make remittances affordable

REMITTANCES – the movement of money across borders – advance societies and economies.

According to the World Bank, remittances to low and middle-income countries reached an estimated US$656 billion in 2023, outpacing foreign direct investment and official development assistance. By 2025, this number is expected to touch US$690 billion. Not only are they an important source of finance for low-income countries, but they often protect countries from political and economic shocks.

For many, remittances are the first link to financial inclusion, providing the means to cover daily needs, pay critical bills, and keep a roof over their heads. However, these transfers are costly and are most acutely felt by the people who need them most.

Addressing high costs

Over the years, there have been growing calls to create faster, safer and cheaper remittance transfers to foster greater financial inclusion. Yet, as of 2024, the average cost to send US$200 remains stubbornly high at over 6 per cent, twice the Sustainable Development Goal target of 3 per cent. For those using traditional banks, the cost is even greater, especially when sending money to remote regions with limited access to Internet connectivity.

While access to Internet links and financial literacy are key to financial inclusion, these are longer-term solutions. In the short term, there are urgent steps we can take to ease cost pressures, including encouraging competition and accelerating digitalisation.

Although essential for global security, today’s complex and widely varying regulations are barriers to entry, and a big reason why digital remittances account for just 3 per cent of worldwide remittances. Simplifying licensing requirements for digital operators and enabling interoperability – so users can switch easily between providers – are crucial first steps to increase competition and drive down costs.

Transparency is another challenge, with many consumers unaware of the hefty hidden fees associated with different payment methods. In fact, many providers advertise their transfers as “free” or having “low fees”, when in reality, the true cost is hidden within the exchange rate. For low-income families, this can mean the difference between covering monthly expenses and coming up short.

There is an urgent need to raise awareness of the fees associated with different payment providers. One key regulatory action could be mandating greater transparency in fee structures, requiring all remittance providers to clearly display the total costs upfront, including hidden fees such as exchange rate markups.

The long-term path to 3 per cent

Fintech companies are making headway in driving down fees by streamlining processes, increasing transparency and cutting out middlemen. But fintechs alone cannot solve this issue. It will take broader industry collaboration – among fintechs, traditional financial institutions, and governments – to make remittances more affordable globally.

The reality is that a third of the global population today remains unconnected. This digital divide is real, and without broader access to smartphones, Internet connectivity, and financial literacy, fintech innovations can only go so far. Even where connectivity exists, trust remains a major obstacle, with many people continuing to prefer face-to-face transactions over digital solutions.

If we want to maximise financial inclusion, there needs to be a concerted effort to balance regulatory requirements with efficient and inclusive remittance services. We need policies that reduce the cost of remittances, regulations that protect consumers without stifling innovation, and initiatives that expand digital access and financial literacy.

This type of collaboration is already yielding results in markets like Indonesia, where the government has taken proactive steps to close the financial literacy gap, with the goal of achieving 90 per cent financial inclusion by this year.

Such efforts demonstrate that when governments, financial institutions, and tech companies collaborate, the results can be transformative. We must continue working together to break down the barriers that prevent millions from accessing affordable, secure, and efficient financial services.

These moves also show that with the right partnerships and a focus on inclusion, we can break down the barriers that keep millions of people from accessing affordable, secure, and efficient financial services. Reducing the cost of remittances to 3 per cent is not just a target – it’s a critical step towards empowering individuals and communities around the world.

If we get this right, we can transform remittances from a financial necessity into a powerful tool for development, ensuring that no one is left behind.

The writer is global head of Instarem