Major Problems Online Remittance Platforms Face When Sending Remittances To Southeast Asia

Joachim Adeponle

May 22, 2024 • 5 min read

It is no news that millions of immigrants to developed countries across the world send money back home to support their families. To ensure that doing this is not just possible, but done in a secure, timely fashion without exorbitant charges and all the bureaucracy that most financial institutions do; many have turned to online remittance services.

These platforms have become a crucial tool for facilitating these international money transfers, offering speed, convenience, and often, competitive rates compared to traditional methods.

Luckily, Southeast Asia is not disconnected from this innovation and development. With a large migrant worker population worldwide from the region, online remittance platforms play an essential role in Southeast Asia.

Remittances, the money sent back by these workers, are a vital source of income for families and contribute significantly to the economic growth of countries in the region.

However, despite their growing importance, online remittance platforms face several major challenges in Southeast Asia ranging from high transaction costs that eat into the sender's funds to complex regulations that hinder smooth money transfers. This article will explore these problems and their impact on both senders and recipients of remittances in Southeast Asia.

Challenges Of Sending Remittances To Southeast Asia

Unfortunately, despite the convenience of online remittance platforms, sending money to Southeast Asia continues to be a pain. Let us dive into some of the biggest pains faced in this process:

High Transaction Costs

Unfortunately for most immigrants sending money to Southeast Asia, the global average cost of sending remittances remains stubbornly high, hovering around 6% in 2021. As bad as this is, this significantly eats into the hard-earned money of migrant workers, who are often sending funds to support families back home. In the case of Southeast Asia, these costs can be even higher due to several factors like intermediaries who are multiple players in the remittance system. These people include money transfer operators (MTOs), correspondent banks, and partner banks in the recipient country. Each of these intermediaries takes a cut for their services, inflating the overall cost.

Another factor is the banking channels. Traditional bank transfers typically have higher fees compared to online platforms. However, some online platforms may still rely on bank networks for payouts, leading to additional costs.

Regulatory Hurdles

Another challenge is that of senders and their recipients navigating the complex web of regulations across Southeast Asian countries. Unfortunately for all parties, each Southeast Asian country has its own set of rules governing foreign exchange transactions and money transfer services. This complexity can cause delays, frustrations, and even restrictions on the amount of money that can be sent.

These complexities can be seen in sender requirements as regulations may impose specific requirements on senders. Some of these requirements include providing extensive documentation or undergoing verification processes. They are mostly cumbersome and ultimately deter some from using formal remittance channels.

Another complexity is the restrictions on types of online remittance service providers by some governments; that can operate within their borders. This limits competition and potentially keeps fees higher than they could be.

Reaching Underserved Areas

Another point to note is the fact that the reach of online remittance platforms is often limited in rural or unbanked areas of Southeast Asia. This can leave many families without easy access to the funds sent by their loved ones.

Unfortunately, many online platforms rely on internet connectivity and this can be limited or scarce in remote areas. This excludes a significant portion of the population from using them.

The challenges of last-mile delivery also come to the fore as even if the funds reach the recipient country electronically, getting them into the hands of families in remote locations can be difficult. Traditional cash pick-up points may be far away, creating an additional burden.

Solutions To The Challenges Of Sending Remittances To Southeast Asia

To solve these herculean problems, stakeholders involved in the Southeast Asian remittance sector can consider the following:

On tackling the high remittance transactional costs

It is worth noting that the United Nation's Sustainable Development Goals (SDGs) have a target of reducing remittance costs to below 3%. This highlights the need for the industry to find ways to streamline processes and reduce fees, ensuring more money reaches the intended recipients.

These ways may include:

FinTech disruption which involves FinTech startups leveraging technology to streamline processes, reduce reliance on intermediaries, and offering more competitive fees. This could involve automation, blockchain technology, and peer-to-peer (P2P) models.
Promoting competition by encouraging more competition among online remittance platforms can drive down fees and improve service offerings. Regulatory frameworks that foster a level playing field are crucial for this.
Mobile money integration allows mobile money wallets into the remittance process to provide a cheaper and more accessible alternative to traditional banking channels, particularly in unbanked areas.
Government initiatives in the region of simplifying regulations, promoting financial inclusion, and potentially offering subsidies for low-value remittances.

2. On the challenge of regulatory hurdles

A tangled web of regulations across Southeast Asia creates a frustrating experience for remittance users. Countries with unique rules lead to delays, sender verification hassles, and limitations on service providers. This ultimately keeps fees high and drives some away from formal channels.

The solution lies in regional collaboration. Standardized frameworks for KYC and AML compliance can streamline processes. Harmonized sender requirements, like document types and verification procedures, would simplify the journey for everyone. Finally, opening doors to more remittance providers fosters competition, potentially lowering fees for senders. By working together, Southeast Asian nations can create a smoother and more affordable remittance landscape, benefiting both migrant workers and their families.

3. On the challenge of reaching underserved areas

The limited reach of online platforms in remote areas of Southeast Asia is a major barrier for remittance recipients. Solutions to bridge this gap include:

Promoting mobile money integration on remittance platforms. These digital wallets offer greater accessibility in remote areas with limited internet connectivity. Integrating mobile money with remittance platforms allows recipients to receive funds electronically, even without a traditional bank account.
Expanding agent networks with cash pick-up points. This is essential for last-mile delivery. Partnering with local businesses or establishing dedicated agent kiosks in rural areas can ensure recipients have convenient access to their funds.
Providing cash-over-delivery (COD) services for those without mobile money access or residing in extremely remote locations, exploring Cash-over-Delivery (COD) services could be an option. Partnering with local delivery companies allows recipients to receive cash upon delivery of a remittance notification.

Final Words

Despite their growing importance, online remittance platforms face significant challenges in Southeast Asia. High transaction costs due to intermediaries and complex regulations eat into the hard-earned money of migrant workers. Recipients in underserved areas can struggle with limited platform access and difficulties in receiving cash. These challenges ultimately place a burden on both senders and recipients, hindering the full potential of remittances to support families and fuel regional growth.

Overcoming these obstacles requires innovative solutions and industry collaboration. Technological advancements like mobile money and streamlined regulatory frameworks can pave the way for a more efficient and affordable remittance ecosystem. By working together, governments, financial institutions, and remittance service providers can ensure a smoother flow of funds, empowering Southeast Asians and fostering stronger regional economies.

Given these and more. It is imperative to note that SanaTransfer is your best bet for an online remittance platform to send money to your loved ones in Southeast Asia from Canada.

With low transactional fees, a user-friendly interface, and fast, safe and secure services; we have got you covered, giving you peace of mind.

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