Why cross-border P2P transfers aren't instant—yet

MoneyGram app
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Global migrant workers sent nearly $800 billion home last year, according to the World Economic Forum, but it still takes days for recipients in many markets to receive funds, even after years of digital cross-border payments development.

That could begin to change this year, with the rise of central bank digital currency tests and new cryptocurrency-powered concepts including PayPal's new stablecoin, which could potentially achieve scale for international consumer remittances due to PayPal's broad existing user base. 

But don't expect faster-payments initiatives by individual countries — including the U.S. launch of FedNow last month — to directly affect the relatively slow pace of global consumer remittance transfers, due to lack of interoperability between different countries' financial systems and many recipients ongoing reliance on cash, experts say.

"Cross-border payments will be impacted only to some extent by FedNow," said Nilesh Vaidya, global industry head for retail banking and wealth management at Capgemini. He noted that most international remittances still move through correspondent banks, adding, "The consumer-to-bank or bank-to-consumer legs of cross-border payments on the U.S. side will improve, but FedNow won't significantly affect the non-domestic legs of cross-border payments."

MoneyGram has seen significant gains in consumer adoption of digital technology for sending remittances across borders, and in many cases recipients are also using domestic wallets to directly spend funds. But overall progress in speeding up cross-border transactions tends to be incremental, due to built-in safeguards around most traditional bank transfers that are involved in nearly every remittance.

"We're still a long way from everything being real-time across the world," said Alex Holmes, chairman and CEO of MoneyGram, which recently went private following its June 1 acquisition by Chicago-based private-equity firm Madison Dearborn Partners.

MoneyGram's mission for the next year will be continued expansion of its connections to digital wallets in key remittance corridors, which helps to close gaps in cross-border transfers, Holmes said. The Dallas-based company reached a milestone during the first quarter of this year when more than 50% of its cross-border remittances traveled on digital rails for the first time. 

In addition, more than 43% of U.S. consumers who sent money abroad in the last year increased their use of digital money transfers, according to a 1,000-person survey MoneyGram recently released.

But complexity persists, because many remittance users routinely rely on a mix of different methods to send funds home based on availability, and cost–and cash continues to be enduringly popular for many recipients, according to Holmes.

"Our core customer is a first-generation migrant, and for people who are living near the poverty line, their opportunity to explore different types of financial services is limited, and many of them still feel excluded," Holmes said.

MoneyGram has formed partnerships with the most popular digital wallets in the largest remittance corridors, which is helping to drive incremental adoption of digital wallets that gradually can wean users away from operating in cash, he said.

The Middle East region, which is drawing millions of migrant workers from around the world, has become one of the most active zones for digital adoption of remittance apps by senders, according to Holmes.

In the last two years, MoneyGram has built partnerships with several Middle East-based digital wallet operators. One is the Saudi Arabian digital wallet urpay, operated by Saudi-based neoleap. The partnership enables urpay to connect to MoneyGram's retail network operations in 200 countries via API. Last year, MoneyGram also announced a partnership with Mobily Pay, another popular Saudi digital wallet. 

"A lot of contract workers in the Middle East are sending money home to places like India, Pakistan, Bangladesh, Egypt and the Philippines, and most are paid in bank accounts based in the region where they work. The workers then link their bank accounts to front-end wallets provided by telcos or banks, and MoneyGram is one of the options they use to instantly send funds home," Holmes said. 

MoneyGram has worked to upgrade its API connections to banks so users' remittances are sent and settled instantly in a growing number of regions, even where banks don't actually support real-time payments.

For example, when recipients' banks are closed on weekends, preventing formal settlement of remittances, MoneyGram often advances cash on its behalf to certain banks to speed the transactions' settlement, according to Holmes. "We've created a network that enables things to move in real time when banks don't actually work in real time," he said. 

Competition is fierce in consumer cross-border remittances, which are also a hotbed of experimentation and innovation. MoneyGram rival Western Union, which powers $95 billion in remittances annually, recently teamed with the Digital Dollar Project for a white paper simulating how two interoperable CBDCs could provide seamless international money transfers of digital dollars to Philippine pesos. The paper concluded that CBDCs have the potential to enable faster and cheaper remittances across borders, with immediate settlement between parties. 

The CEOs of Visa and Mastercard each recently told investors that they see huge potential for revenue expansion from international cross-border remittances traveling on their respective instant-payments rails, Visa Direct and Mastercard Send. Both card networks cautioned investors that building their consumer cross-border remittance volume will take some time.

MoneyGram also sees strong demand for its services in the coming years, despite rising competition, according to Holmes.

Nearly half, or 49% of respondents in MoneyGram's survey of remittance users, said the financial needs of their families and friends receiving funds have increased within the last year, while 44% said recipients' needs remained the same and 7% said recipients' financial needs decreased.

About 85% of remittance senders surveyed said they favor using an app or the website of a bank or a money-transfer service to send funds abroad over in-person methods. About 40% of respondents said they also initiate remittances in person at a bank branch or money-transfer service location. 

"What we've seen is that despite the pandemic and all kinds of challenging conditions, remittance traffic remains steady; it's very resilient, even in economic slowdowns," Holmes said. 

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