Remittances to Latin America are big business. According to research by The Dialogue, the value of remittances to 17 countries in the region grew by over 8% from 2016 to 2017, reaching over $75bn. This increase far exceeds the World Bank’s forecasted 1.2% economic growth for the entire region and, in terms of scale, remittance growth was nearly as large as export growth (9%) in 2017.
Most remittances flowing to Latin America come from the US, which is unsurprising as it houses two-thirds of all migrants from Latin America and the Caribbean. In fact, this amount is higher for migrants from Mexico, El Salvador, Guatemala and Honduras, where, according to estimates from the United Nations in 2017, more than 80% of migrants from each of these countries live in the US.
To this day, cash is the dominant medium for immigrants to send money to relatives in their home nations. Migrants in the U.S. often have limited documentation with which to open a bank account and a fear of deportation which increases the need for anonymity and makes cash the ideal tool, regardless of the associated charges from Money Transfer Operators (MTOs).
Until recently, MTOs have had the monopoly of the remittances market, with significant infrastructure in place including remittance routes (corridors) and physical cash-in and cash-out agent locations where bank branches simply don’t exist. However, with the availability of the internet and innovative bank-sponsored products such as prepaid cards, the importance of the MTOs physical distribution network no longer offers the advantages they once had. In this modern payments ecosystem, it is the providers who meet the evolving needs of the consumers that will end up with a significant piece of the lucrative remittances pie. Banks and other financial institutions (FIs) are well placed to meet these changing requirements; after all they are essentially offering the opportunity to shift from paper money to electronic payments and transfers.
Whilst it would seem logical to jump straight to online and mobile based money transfers from a convenience perspective, there is still the issue of the available infrastructures at both the sending and receiving ends. Globally, LatAm falls behind in the mobile money market, and as such, newer players with a mobile remittance offering have struggled with the lack of interoperability, outdated infrastructures and even regulatory roadblocks in countries across the region.
Enter prepaid cards. Prepaid cards have the ability to revolutionise the remittance market and have begun to make significant inroads. Not only does this product type offer financial access to the unbanked and encourage the adoption of banking behaviours, but this card type offers FIs the opportunity to enter the remittance market without significant risk or costs, as there is no need for investment into establishing physical infrastructure. From the consumer side, applicants can sign up for cards without the need for credit checks and extensive documentation, and receive a fully branded payment card and the ability to send and receive money instantly, securely and at a fraction of the current cost.
In a region where the number of people without a bank account is estimated to be as high as 400 million according to Latin Trade, the introduction of prepaid cards for remittances has helped bridge the gap between financial access and the unbanked. Using this product type can encourage banking behaviours as prepaid cards can be used for POS transactions, bill payments and even as a mechanism for saving and building credit scores, whilst extending the reach of FIs into a previously unavailable, yet profitable market segment.
According to the World Bank, remittances in El Salvador have helped unbanked families access new financial services by allowing those who were previously priced out of the financial market to build up behaviours in order to open savings accounts and even apply for loans. Prepaid cards are a natural extension to enable this progress. As prepaid card functionality becomes increasing advanced and relevant, and channels expand to include online top ups and mobile SMS alerts, reloadable prepaid solutions are primed to benefit remittance senders and receivers whilst increasing financial inclusion and building sustainable banking behaviours.