What Is a Foreign Remittance?
Foreign remittance is a transfer of money from a foreign worker to their family or other individuals in their home countries. In many countries, remittance constitutes a significant portion of a nation’s gross domestic product or GDP. The United States is the leading source of foreign remittances, followed by Russia and Saudi Arabia. The top recipients of foreign remittances are India, China, and the Philippines. The G8 and World Bank are attempting to monitor and regulate remittance costs due to the enormous flow of funds.
Understanding Foreign Remittances
According to many economists and social scientists, since remittances are so widespread, they have implications that extend beyond an individual’s finances. For example, since remitting involves financial institutions, people who send and receive remittance are likely to have bank accounts, which promotes economic development. Remittances can be lifesaving in emergencies, such as natural disasters and armed conflicts, when the recipients' other sources of income disappear. Remittance payments are difficult to track, and there is some concern that they can be used in terrorist financing or money laundering.
Foreign Remittance and New Applications
Several tech startups have developed applications to facilitate foreign remittances by making the process more user-friendly, as well as removing high costs associated with some traditional formats like MoneyGram and Western Union. Two such examples are TransferWise and Wave. Both apps charge relatively low fees and exist outside of traditional banks.
Based in London and operating as a licensed and regulated UK Financial Services institution, TransferWise began with the premise that sending money abroad is deceptively expensive, given significant hidden charges. To eliminate additional fees, TransferWise only uses real exchange rates and charges small fees for using its platform that is well explained ahead of time.
TransferWise was founded in March 2010 by Taavet Hinrikus and Kristo Kaarmann. The executive team had experience spanning startups, international operations, and financial services. TransferWise’s institutional investors to date include IA Ventures, Index Ventures, Seedcamp and Kima Ventures. Notable angels investors are Virgin Group, Sir Richard Branson, and PayPal founder Max Levchin.
Wave has a similar model to TransferWise but is specialized to handle transfers from the US, UK, and Canada to Ghana and East Africa. Wave is able to facilitate an international transfer in 30 seconds from a sender’s smartphone to recipients' mobile wallets. Wave boasts over 100,000 customers on its website. Both Wave and TransferWise are heavily focused on encrypting financial messages so that users' data is safe and not vulnerable to hackers.