How six months of Covid has impacted global remittance flows

As the world comes to terms with living through a global pandemic, the lasting shocks have had a considerable effect on migrant workers and their remittance flows. 

Despite global remittances declining in 2020, there is room for optimism. Traditional methods of sending money back home have pivoted, from face-to-face offerings to digital platforms. 

In this post, we explore the state of global remittances six months into life with Covid, and how the switch to platforms such as Ding for alternative remittances has benefited both senders and receivers around the world. 

The state of global remittances in 2020

According to the International Monetary Fund, for many lower income countries, remittance flows are seen as the most important source of income from abroad, surpassing foreign investment and aid. Traditionally remittance was once only money transfer, but new technologies allow people to send other forms of 'value' home, such as phone credit.  

Given the importance of remittance flows to communities around the world, it was stark news that The World Bank projected global remittances would fall by about 20% in 2020. Compared to 2019, this translates to an estimated $109 billion less being sent to low and middle-income countries.

Often migrant workers send a portion of their pay back home, yet the onset of Covid-19 significantly reduced their capacity to work.

Generally, remittance flows are often seen as ‘counter-cyclical’, where people would usually send more back home during times of hardship in one's home country. However, the pandemic has been like no other crisis, where the impacts have created uncertainties both for those at home and for migrant workers in their residing country. 

Why have remittance flows decreased?

There have been a number of reasons why remittances have decreased over the last six months as a result of the pandemic:

Job losses for migrant workers

The ILO reported earlier this year that 1.6bn people, almost half of the world's entire workforce, have seen their capacity to earn impacted as a result of lockdown measures or restricted working hours.

Countries with large informal economies such as the UAE, Mexico, India and the Philippines have been hardest hit, meaning the need for remittances at home has only increased. However, job losses overseas have also reduced the capacity for these countries to receive income from abroad.

The economic impact of Covid-19 in India is expected to result in its GDP to shrink by 9.0% in 2020. (Source: ADB)

Border closures limiting the movement of workers

The cross-border flow of migrant workers play a critical role in sustaining economic development and international trade. Despite knowing this, governments around the world triggered mass border closures to curb the spread of Covid-19, which significantly impacted mobility and migration.

The map below outlines the recent Covid-19 travel regulations around the world, showing almost every country in some form of restriction.

As a result, cross-border workers have been unable to travel abroad for work to earn an income, meaning less money earned to send home.

For workers already overseas, some are facing visa implications, meaning they are unable to return home, and at the same time unable to pick up new work in their residing country.

People unable to visit physical stores

For some countries the lockdown restrictions imposed were severe, where people were only allowed to leave their house for essential reasons like grocery shopping or collecting medication.

This meant it was impossible for people to physically send money or phone credit from shops or remittance stores.

People in Lagos, Nigeria experienced some of the toughest stay-home lockdown measures across Africa.

Fluctuations in exchange rates made sending money less desirable

Market turbulence caused by Covid-19 also led to fluctuations in currency rates and disrupted capital flows. For some currencies, this meant that converting and sending money home meant the value received on the other side was a lot less than normal.

A lot of people felt it was better to hold onto their money and wait until exchanged rates improved before sending money home. Although this made sense financially, holding onto money saw the amount of global remittances shrink in the short term.

How Ding has bucked the trend 

Despite the decline in overall global remittances, sending value home in other forms, such as mobile top-up (‘mobile remittance’) has seen a surge in demand over the last six months. 

The infographic below highlights Dings growth in new user sign ups and top-ups sent across major regions in the last six months of 2020, compared to the same period in 2019.

Our decision to remove all fees for our users once Covid hit, has helped our users make the most of their remittance budgets, and the market reaction has justified this gesture.

Still, the question remains- why are more turning to top-up? 

People can send in smaller amounts

Money transfer often incurs large service fees and with Covid-19 generally meaning less money earned, it became increasingly difficult to send money home.

Sending mobile top-up allows the sender to still support their family and friends back home, albeit in smaller amounts. For most countries, the receiver always receives the full value from the top-up amount sent, without incurring any import taxes.

Demand for sending mobile top-up back home soared as a result of Covid-enforced lockdowns.

Lockdowns forced senders online

Lockdowns meant at times it became impossible for people to visit physical stores to send money home. 

We saw a surge in new accounts created over the last six months as customers realised they could send remittance online through mobile top-up, without needing to leave their home.

Send top-up safely and securely 

Like sending mail back home, sending money remittance too comes with the danger that it might not reach the intended recipient. For people sending money home, they need to trust that the value will be received on the other side.

At Ding we value the safety of our users, meaning every transaction of ours is monitored by our fraud team, and user account information is protected by Trustwave encryption. 

We understand the importance of remittances to communities around the world. Unlike some remittances which can take days to arrive, almost all of the top-ups we send are delivered to receivers and ready to use in less than three seconds.

Will the remittance tides turn?

Despite a tumultuous 2020, medium-term prospects remain prosperous for the global remittance sector. FitchRatings recently reported that remittances should improve in the beginning of 2021, although the recovery is likely to be gradual.

As people around the world seek security, stability and value in remittances, it's clear that while global remittances remain down, there’s plenty of reasons to remain positive about the role of Ding and international top-up for communities around the world.