Faster, better, cheaper: leveraging fintech for remittance services

AT first glance, South-east Asia's financial services seem to be readily available to all because of fintech's growth. Many financial institutions in the region are already providing digital services for those who are "banked" or have access to traditional financial services.

Due to the region's high level of digital penetration and fintech's visible success, there is room to assume that fintech is delivering on its full potential, such as growing the region's economy and providing digital-first services to the region's vast population.

This assumption may be correct, but not necessarily applicable when discussing fintech and non-bank financial institutions (NBFI) such as money transfer operators (MTOs) and liquidity providers. But what role do these NBFIs play? What is their importance to the remittance industry and how are their customers set to benefit from the change?

NBFIs play a vital role in the growth of the remittance industry, yet their contribution may seem somewhat underappreciated; they provide access to financial services to the underserved community which includes an estimated 6.84 million migrant workers in South-east Asia.

For example, Singapore's economy benefited US$8.2 billion in 2018 from the 250,000 migrant workers who call it home. While migrant workers from the Philippines working in Singapore, Hong Kong and Malaysia contributed over US$1 billion of the US$33 billion remitted back into their home economy.

If done right, fintech has the potential to trigger a much larger change and empower NBFIs to continually deliver significant growth to the region's economy, and also bring their customers closer to the holy grail of "faster, better, cheaper" remittance - the question is how?

The problems customers face, and the changes that NBFIs can deliver

According to a survey, 74 per cent of migrant workers felt that there was no need to have a bank account due to a lack of financial literacy and strict regulations to opening one. Although they contribute immensely to the economy, perhaps this highlights the importance of NBFIs, as those with no bank accounts, or the "unbanked" are potentially neglected when it comes to true financial inclusion, missing out on the benefits associated with digital bank services.

In the Asia-Pacific, 83 per cent of migrant workers are sending money home through money transfer services. A prime example would be in Singapore, while a global fintech hub, it is common to see queues stretching for hours at established remittance shops along Lucky Plaza and Little India.

With that, there is a need to understand that NBFIs are well-positioned to bring these customers on the journey to financial inclusion. As it stands, due to the lack of technology, the problem with sending money through NBFIs is that it's not convenient and the experience is far removed from that of traditional banking services.

The inconveniences include extended queuing time, filling up several paper documents, navigating the fluctuating exchange rates and often a lack of clarity in tracking transactions.

NBFIs can use technology to address the inconveniences faced by their customers by providing a digital-first experience that leverages their expertise within the remittance space and paired with the advanced capabilities of today's fintech.

Fintech to bring NBFIs up to speed

Besides bringing their customers closer to a frictionless remittance experience, the ability of NBFIs to strategically leverage fintech can be the difference between business growth and stagnation. Most importantly, fintech will give the competitive edge to NBFIs, meaning increased agility and flexibility to grow and scale their business offerings. This is vital as the landscape is changing, with companies ranging from established MTOs such as Western Union, and new entrants such as Grab already tapping the tech capabilities of others to provide digital-first services to potentially large customer bases such as migrant workers. Showcasing that through partnerships and technology, they're able to deliver real-impact solutions to their customers. Also, fintech can potentially break silos, allowing for NBFIs to grow independently as well as collaborate with other players.

For NBFIs to bring improved experiences for their customers, and to also grow their capabilities, the drumbeat for change is clear - they need to be proactive in integrating and advancing technology into their business operations to trigger the switch.

Tech-Up for change: The right way with the right partners

To influence the change in the region's remittance industry for both themselves and customers, here's how they can go about it:

For many NBFIs, the biggest hurdle to adopting new technology includes the lack of a clear roadmap, strategy and guidance to leverage, amortise and profit from digital transformation.

Moreover, an added concern is that their business operations would suffer as technology integration could cause minor or major disruptions, or even lead to a complete overhaul.

For those ready to strategically re-invent their businesses, or for new entrants to the remittance industry who have zero technology, there are two viable options - to build or to buy. To develop their own technology would entail committing vast amounts of time into understanding the various components that would bring the most success to their operations - and as a result, this shift in focus may affect their business operations.

To integrate technology and roll-out to market quickly, successfully, and with minimal to no disruptions to their operations, opting to buy "ready-to-integrate" solutions would be more suitable.

Irrespective of whether the NBFI is a small or large non-bank money transfer operator, it is important to question whether the current business model needs tweaking given the changing landscape. If the answer is yes, engaging a technology partner with the right "tech know-how" - that is, knowledge, skills, and capabilities - will ensure that these NBFIs can scale their business offerings and operations efficiently and effectively. The goal here is to demonstrate that for NBFIs, if they're able to tech-up right, and with the right partners, they will be able to provide new digital offerings which are faster, better, cheaper.

An indication of what change will look like

If fintech lives up to its potential and is appropriately harnessed, what will change look like for NBFIs, their customers and the region's remittance industry?

For NBFIs, it will involve numerous components, including the switch from legacy practices to interacting with technology which will require education, the building of credibility and the showcasing of results for both NBFIs and their customers.

Perhaps the most profound impact of fintech will be the one triggered throughout the entire remittance ecosystem. Aside from contributing to the Asia-Pacific's growing remittance flow which is predicted to be US$299 billion by 2025, fintech's role in breaking silos is not to be underestimated.

The consolidated effort to integrate technology can further deliver a borderless and seamless ecosystem where through collaboration, NBFIs' capabilities are redefined, and true financial inclusion is delivered to the underserved community.

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