What the heck is

What the heck are… remittances?

By Oliver Smith 8 March 2017
Summary

Explaining the buzzwords of the moment: what are remittances and why are they worth $600bn?

Our weekly series What The Heck Is… exists to shed light on the strange unexplained acronyms and unfamiliar buzzwords that creep into our everyday lives.

From phubbing to helicopter money, we’re on a mission to explain the difficult to explain.

Now, in honour of Future Finance month, we’re exploring the financial phrases that might baffle your brain.

What the heck are remittances?

The first thing you should know is that remittances are big business, worth an estimated $600bn annually, and that’s only the remittances we know about.

“The number of migrants of people who are living and working abroad from the country in which they were born is now at its highest peak ever, and it continues to grow every year,” Alix Murphy, director of partnerships at WorldRemit, told The Memo.

“The primary reason people live abroad is to work and send money back to their home countries, predominantly in the developing world.”

Remittances refers to any money that is being sent by a foreign worker back to another person in their own country.

Why are remittances so massive, and how do they work?

Because for the 250m foreign workers around the world, many of whom send back money every month, remittances can be the lifeblood of their families.

“It’s money sent to support family members, to put kids through education, to pay medical bills, rent, sometimes to invest in things like property or to build a home with the intention of going back,” says Murphy.

“Very often it’s just toward the subsistence of family members”

Traditionally remittances work like this; the foreign worker takes a walk to a corner shop with a brand name like Western Union or MoneyGram on the outside.

They’ll hand over their cash, some paper forms, their ID and the details of the recipient.

A few days later one of their friends or family members will collect this cash from a Western Union or MoneyGram agent in the other country, usually paying for the privilege.

But technology has been tearing up the remittances rulebook over the last few years.

How is technology changing remittances?

Without the need for a network of agents apps and digital services like WorldRemit and Azimo have dramatically reduced both the time and cost of remittances over the past few years.

Back in 2008 the average remittances charge was 12% according to the World Bank, today it’s been slashed to just 7.4%.

Today there are more foreign workers around the world, sending more money for cheaper than every before.

Our weekly series What The Heck Is… exists to shed light on the strange unexplained acronyms and unfamiliar buzzwords that creep into our everyday lives.