Research

Open Banking Solutions for Remittances

Discover how open banking is transforming remittances with faster, cheaper, and more secure transactions. Learn how you can benefit from it.
Discover how open banking is transforming remittances with faster, cheaper, and more secure transactions. Learn how you can benefit from it.
June 14, 2024
5 min read

Remittances play a crucial role in connecting families across the globe, providing essential funds for daily needs, healthcare, and business ventures. Traditionally, the remittance industry has faced significant challenges such as high fees, prolonged transaction times, and security risks. Open banking is changing the landscape, offering seamless, lower-cost, highly efficient and secure money transfers.

The world has observed first-hand how remittance companies leveraging open banking have achieved improved conversion rates and superior customer experiences, ensuring funds reach their intended recipients quickly and safely.

What are the remittance challenges?

Before open banking, sending money often required physical visits to bank branches or using online platforms that demanded manual entry of bank details. These methods were time-consuming and prone to errors, potentially leading to failed transactions. Even when successful, transactions could take days to complete, with high fees reducing the amount received. Naturally, users have been seeking a better solution for these problems:

High Fees: Traditional remittance services often charge substantial fees for transactions. These fees can significantly reduce the amount of money that recipients receive, particularly for smaller transfers where fees represent a higher percentage of the total amount sent, even more than 10%. The Global Average increased from 6.18% in Q3 2023 to 6.39% in Q4 2023. High fees have long been a barrier, especially for low-income individuals who rely on remittances to meet basic needs.

Long Settlement Times: Traditional international bank transfers can take several days to complete. The transfer can arrive within one to five working days. This delay can be critical in situations where recipients urgently need funds, such as for medical emergencies or to pay for immediate living expenses. The prolonged settlement times can cause significant stress and inconvenience for both senders and recipients.

Settlement date - Traditional money remittance vs Open banking

Security Risks: The manual entry of bank details and other personal information in traditional remittance processes increases the risk of errors and fraud. One incorrect digit can result in failed transactions or funds being sent to the wrong account. Additionally, the use of online platforms and physical branches can expose users to various security threats, including hacking and identity theft.

What role will open banking play in the evolution of remittances?

Open banking utilises secure APIs to connect banks, financial institutions, and users, all governed by regulatory frameworks such as PSD3. This direct connectivity brings numerous benefits to both remittance companies and their customers.

User Benefits:

  • Simplified Onboarding: Eliminates manual entry of details, reducing effort and error risk. Users simply authorise remittance providers to access their information securely with one-click verification. This streamlines the process, making it quicker and easier for users to send money.
  • Faster Transactions: Remittance payments are nearly instantaneous, thanks to direct transfers with fewer intermediaries. This speed is crucial for recipients who need immediate access to funds.
  • Lower Costs: Reduced intermediaries lead to lower transaction fees, benefiting customers financially. Lower costs mean that more of the sender's money reaches the recipient, providing greater support for families and communities.

Business Benefits:

  • Streamlined Payments: Frictionless transfers reduce the likelihood of cart abandonment, resulting in faster, smoother, and more secure transactions, this process can even be done in one single click. This leads to higher conversion rates and increased customer satisfaction.
  • Enhanced Trust and Security: Strict regulatory standards ensure high levels of security and data protection, building customer trust and loyalty. Secure APIs and authentication methods reduce the risk of fraud and errors, making the process safer for both senders and recipients.
  • Personalised Services: Access to financial data allows remittance providers to offer tailored services, increasing conversions and enhancing user experience. Personalisation can include customised notifications, targeted offers, and specialised financial products designed to meet the unique needs of remittance users.

Real-World Impact of Open Banking on Remittances

The adoption of open banking in the remittance industry is already making a significant impact. Companies that have integrated open banking solutions report higher efficiency, lower costs, and improved customer experiences.

Results for cross-border payment companies

Leading remittance service providers have implemented open banking solutions to enhance their service offerings. By integrating secure APIs, they were able to streamline the onboarding process, reduce transaction times, and lower fees. As a result, they saw more than 26% increase in customer retention and a 38% reduction in operational costs. Customers reported higher satisfaction due to the faster and more secure transactions.

Improved Financial Inclusion

Open banking is also playing a crucial role in improving financial inclusion. By lowering costs and simplifying the process, more people, especially in underserved regions, can access remittance services. This access is vital for families who rely on remittances as a primary source of income.

Supporting Economic Stability

Remittances are a significant source of income for many developing countries. By making remittance processes more efficient, open banking contributes to economic stability. The increased flow of funds helps support local economies, create jobs, and improve living standards.

Future of Remittances and Open Banking

While open banking adoption continues to grow, its potential for transforming the remittance industry is vast. Remittance companies can integrate open banking solutions, like Volume, into their financial strategies to create happier customers, higher conversion rates, and a more streamlined process. The future is promising for open banking and remittances, fostering innovation and creating a more inclusive financial ecosystem.

Expanding Reach

As more countries adopt open banking frameworks, the reach of remittance services will expand. Therefore, this expansion will provide more people with access to efficient and affordable remittance options. The global adoption of open banking standards will facilitate cross-border transactions, making it easier for migrants to send money home.

Technological Advancements

Advancements in technology, such as artificial intelligence and blockchain, will further enhance the capabilities of open banking. These technologies can provide additional layers of security, improve transaction speeds, and offer innovative financial products tailored to the needs of remittance users.

Policy and Regulation

The continued development of regulatory frameworks will be crucial for the success of open banking. Policies that promote transparency, security, and consumer protection will build trust and encourage more people to use open banking solutions. Collaboration between governments, financial institutions, and technology providers will be essential to create a robust and secure open banking ecosystem. Here you can find more about the open banking road map.

Open Banking regulations and initiatives around the world.

Conclusion

Open banking is revolutionising the remittance industry, the benefits for both users and businesses are substantial, including simplified onboarding, faster transactions, lower costs, streamlined payments, enhanced security, and personalised services.

As open banking continues to evolve, its potential to transform remittances and contribute to economic stability is immense. The future looks bright for open banking and remittances to collaborate for greater innovation and a more inclusive financial ecosystem.

Contact our open banking experts today to discover how your remittance business can benefit from enhanced experiences and better results. 

Volume Payments Limited is a private limited company with company number 12431529

Volume Payments Limited, is a distributor of Modulr FS Limited, a company registered in England and Wales with company number 09897919, which is authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Firm Reference Number: 900573) for the issuance of electronic money and payment services. Your account and related payment services are provided by Modulr FS Limited. Whilst Electronic Money products are not covered by the Financial Services Compensation Scheme (FSCS) your funds will be held in one or more segregated accounts and safeguarded in line with the Electronic Money Regulations 2011. for more information please see the Modulr safeguarding letter

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