by: Leon Isaacs
As I sit here in France, a few hours from lock-down, I count myself fortunate that I am safely at home, feeling well, not in the target age group for the virus (well, not yet anyway) and in a caring community. However, it did get me thinking about others who may not be as fortunate as me and, of course, about the impact of the virus upon individuals, communities and countries. I also thought about its potential impact on remittances and because I can’t add to all the words that have been written about the health impact upon individuals I thought it might be useful to share my thoughts on the impact of Coronavirus on remittances and hopefully to begin a discussion.
Coronavirus is clearly going to be the biggest disruption, and potentially challenge, that any of us will have seen in our lifetimes. Personal health, economies, communities and how the world works are all likely to be impacted to some degree or another. In terms of the effect on remittances I think it is sensible to look at the impact from both short-term and long-term perspectives and being an optimistic person, I think that we can find areas where the crisis could eventually be a really positive driver of change.
Short Term Implications of Coronavirus on Remittances
Let’s start with some short term implications. It is logical that remittance volumes will decline whilst the crisis is on. This is mainly because the earnings opportunities for the migrants who send remittances are likely to be significantly curtailed as businesses and industries are closed/suspended. One only needs to think of the number of migrants who keep transport systems and service industries running to realise that if those businesses are not operating that people will have less money to send (or maybe none at all). This will clearly also have severe consequences for the people who receive the money and it is likely that they will suffer from receiving less money.
For the migrants themselves these will be terribly challenging times. One hopes that the communities that they live in will be supportive. Undoubtedly many of them will struggle to maintain any sort of earnings. Under normal circumstances this would normally mean they would opt to return to their country of origin with their savings and undertake commercial activities there. However, in the short term this just may not be possible due to travel restrictions and the circumstances in their country of origin (mainly due to airlines cancelling flights).
Another short term impact of the crisis will be on agents of remittance companies. Remembering that over 80% of remittances are currently handled in cash the agents form a vital backbone of the remittance industry. With many of the key send countries forcing non-essential businesses to close this means that many remittance agents will be shutting up shop for the foreseeable future. If the crisis goes on for a long time it is quite conceivable that some of these businesses will not reopen or if they do they won’t be handling remittances.
We might also see a rise in fraud cases. Already we have seen warnings from the UK’s Financial Conduct Authority and others warning against get-rich-quick crypto-currency driven scams purporting to offer investments in anti-Covid-19 vaccines.
The crisis could affect the ability of some remittance companies to maintain their high standards of service delivery. They will need to ensure that their own staff can continue to work, whether on their premises or from home. Continuity of service is critical. So is the ability to look after their customers now. Increasing fees in times of difficulty is not only unethical but it will also damage those firms in the long run (we have not seen evidence of this yet but it is timely to issue a warning). On the other hand, looking after customers now by thinking of their needs and tailoring services to their current requirements will definitely develop loyalty for the long term (home delivery is a good opportunity where cash is the only solution). Providing reassuring information around transaction availability and so on is even more important than ever and will pay dividends.
Long Term Implications of Coronavirus on Remittances
Which leads to some long term considerations. Coronavirus could potentially be the tipping point that is needed to shift the remittances world from cash-based to digital. In 2007 no-one had ever heard of m-PESA in Kenya, or anywhere else, and yet now it is the dominant payment method in the country. This occurred because significant violence within the country meant that people could not travel and yet they needed to send money home. M-PESA (a digital payment system), had just been launched and within months become the go-to solution for people to send money to their families throughout the country and especially in rural areas. People had no other choices and so they switched and adapted.
This may prove to be the case now where many people will not be able to physically visit a remittance office (either send or receive). There are however better alternatives that are already available – digital app based or online money transfer offerings. Nearly all money transfer operators (MTOs) have an online product and many receiving countries have mobile wallet services that can be credited via remittance transactions. These services are often more competitively priced than cash/agent option, however, in many send markets there has still been a preference for visiting local branches or agents with cash. With no other options people who want to send money will have to switch to digital and once they change it is unlikely that they will go back to their traditional cash based services, especially now that the social benefits of going to an agent are not available.
As an aside it is interesting that many shops in Europe have now either stopped accepting cash or are reluctant to do so because of the potential for notes and coins to result in human contact and the potential transmission of the virus. This will lead to increased use of card and contactless payments. This could be a further boost towards the decline of cash-based remittances.
As mentioned earlier, the situation can act as a stimulus for MTOs to get closer to their customers and develop true-long term relationships, which is something that the industry has generally not been good at in the past.
As the saying goes, every cloud has a silver lining, and make no mistake this is a very dark and big cloud. But the time now calls for calmness, clarity of thinking and consideration of the long term. If appropriate decisions are made now there is every chance that when we get to the other side of the crisis, which we will, the rate of change of the remittance industry will have accelerated which will quicken progress towards the global targets to reduce remittance prices and increase financial inclusion.
I, for one, will be staying positive (and hopefully healthy, even if isolated).