Imagine Maria, a Mexican immigrant settled in Florida, USA. Maria regularly sends remittances to her children in Mexico, who are being raised by her parents. Maria is a cleaner earning $8.22 per hour; the minimum wage which many of her counterparts are not entitled to as they do not have the right to work in the USA. For every $100, Maria must work more than 12 hours. In order to send this $100 to her children in Mexico, she relies on money transfer companies including Western Union.
Here is the problem: these companies cut off up to $13 in fees every time she makes a transfer, and may also remit at unfavourable forex rates. That is nearly two hours of Maria’s back breaking working day. The payment can then take several days; tortuous days where both receiver and sender agonise over the uncertainty of whether that payment is to arrive.
Put another way, India remits $9 billion per year. At Western Union’s cheapest rate, that is $45 million taken in fees which could have been spent on healthcare, school fees or utility bills.
And consider the emergency that requires immediate funds. Let’s say Maria’s son contracts an illness, and the rainy day money that Maria’s parents have been squirrelling away do not cover the hospital fees. The family do not happen to have private healthcare, nor medical insurance. They rely on an immediate cash injection from Maria, but at best, this will arrive in 5 working days. What will happen?
A Mexican friend of mine told me of the heartache she endured during her first year of living in the USA. She sent thousands of dollars to her mother in Mexico and it was delayed by a week. She endured hours of calls to the well known American bank to trace the payment and recover it. She no longer uses these; the trust is gone.
Block chain technology and FinTech startups are working on the solution to the remittance problem. Block chain seeks to cut out the middle man, make payments instantaneous, secure and recorded in distributed ledgers. That would ensure that payments do not go astray, and the distributed nature of the ledger prevents fraudulent activity.
Of the FinTech startups, Singapore has several which are putting financial inclusion at the heart of its mission. Take fastacash, which is a global social payment platform which allows payments to be sent via messaging platforms and social platforms. If we consider that WeChat had 697 million users in 2015, the potential for this service to help the world’s 2 billion unbanked individuals is significant.
Then there is Numoni, which is targeting the unbanked and creating services including micro-remittances, as well as payments and loans. This enables individuals to pay for their children’s school fees, or their household bills in a safe and secure way. In a world of crony capitalism and corruption, this is a huge step forward for the little person.
These FinTech startups are making waves amongst the rich world also. When I lived in the USA, I relied on Revolut. This London-based startup enables app users to send money around the world, exchange currency and make payments using their mobile. The best bit – they do it at 0% commission and the same exchange rate as Google.
These companies recognise the exploitative nature of remittances, the proliferation of mobile technology and the need for financial inclusion. They are helping the unbanked leapfrog traditional financial institutions, and offering the rich world options.
To top it off, they are offering these affordable services with an unmatched customer service. When I was state-side I was so nervous about sending dollars back to the UK that I sent a barrage of questions to Revolut via their in-app customer service chat option. I received a speedy, specific response from a human being. I did not get an automated response directing me to an irrelevant FAQ page. This is what the modern customer wants, and only FinTech companies are willing to deliver.