Research

Remittance and Open Banking Explained

Open banking infrastructure is transforming the efficiency, security, and ease of remittance in the banking sector.
Open banking infrastructure is transforming the efficiency, security, and ease of remittance in the banking sector.
June 14, 2024
5 min read

What does remittance mean in banking?

Today, "remittance" generally refers to international transfers where migrant workers send money to their families in their home countries. At its core, the term means transferring money from one individual or entity to another. It can also apply to payments for bills or invoices, especially in B2B (business-to-business) transactions.

What makes it so important?

Remittance is important because it plays  a pivotal role in supporting small and developing economies. Every single penny transferred holds immense importance for families in need to afford essential household items, ensure their children's education, and manage medical expenses.

The money flows to low and middle-income countries, for example, in 2023 the United States was the largest sender, while India was the largest recipient. In the same year, remittances increased by approximately 3.8%, reaching $669 billion 

But, what about the European Union? Well, EU personal transfers hit record outflows, reaching a record level of €43.5 billion in 2022. Due to its significance, there is a notable demand for transformation within this sector. This is because the reputation of remittance in banking is characterized by being slow, unreliability and high costs.

Spotlighting the EU remittance market

The latest data from Eurostat shows that total inflows and outflows of personal transfers and employee compensation reached new highs in 2022. 

Much like the previous year, Switzerland was the main source of cross-border employee compensation, while Croatia, Latvia and Romania were the most dependent on personal transfers and employee remittances. Going forward, The World Bank estimates that remittances will decline by 5% in the Euro Area (as well as other large remitter markets) due to weak economic growth and the Russia-Ukraine war.

What types of remittances are there in banking?

There are different types of remittances available. The traditional type is sending cash or sending cheques, while the electronic type can be prepaid cards or online bank transfers such as SWIFT, ACH, SEPA, BACS, etc.

However we can categorise remittance in other 2 types, inward (when the money is entering to a country) and outward (when the money is leaving to a country).

That is why remittances in banking can be complicated, frequently involving currency exchanges, even within the EU. This complexity can lead to delays, additional or hidden costs, and numerous points of failure, particularly if bank account details are incorrect.

What changes is open banking bringing to the remittance industry?

Open banking is revolutionising the remittance industry by streamlining the process of sending and receiving money, especially within the UK and EU. It has made transactions more secure, faster, and more convenient. Open banking infrastructure is fundamentally changing the way remittances function in banking. 

For instance, people can use open banking integrations to share and validate their bank details more easily. In turn, there are fewer mistakes and delays while sending money. Then, using the SEPA network, remitters can make fast and easy bank transfers to remitees across the EU as if they were national payments within the same border. 

The seamless integration of the European financial system has led to a reduced reliance on third-party money transfer services, as individuals can now conduct remittances directly through their own banking apps at no cost. Additionally, consumers benefit from more affordable foreign exchange rates when they require currency conversions within the European Economic Area (EEA). 

What is an example of a remittance in open banking?

In open banking, you will find numerous examples where people transfer money to each other, covering most if not all typical scenarios.

For instance, remittances can range from sharing dinner expenses with friends to flatmates dividing household bills. Additionally, customers utilise the option "Pay by Bank" to purchase items online, while migrant workers send money to their families abroad, all this in one click. 

The key aspect of remittances in open banking isn't the reason why people are sending money, but rather the method, how they send it. In short, open banking simplifies, accelerates, and enhances the security of remittance transactions in banking.

A2A payments enhance the remittance experience 

Sending money internationally through major providers may require up to five business days, whereas SEPA transfers, limited to the EEA area, typically take just one business day. However, the landscape is changing with instant A2A payments driven by open banking enabling transactions in a matter of seconds.

Instant A2A payments, facilitated by open banking, support business expansion into new markets by simplifying customer transactions and maintaining low expenses.


This new infrastructure enables direct and efficient money transfers between bank accounts, bypassing traditional systems. This leads to quicker settlements and reduced costs.

Volume, a prominent solution provider, operates its own exclusive instant payment network, enabling users to overcome delays in open banking infrastructure across various regions. We integrate one-click verification and instant payment flows into a unified process, eliminating obstacles and significantly expediting payments for money remittance companies.

Conclusion

Take the lead in the European remittance market with Volume, the ideal choice for facilitating fast and secure instant A2A payments.

Contact us now to discover how Volume's Instant Payouts, powered by open banking, provide a straightforward and rapid solution for processing remittance payments on a large scale, meeting the expectations of today's consumers.

Book you free demo today

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

© 2024 Volume