Global remittances COO: ‘We believe shift to digital is a one-way street’

The COVID-19 pandemic devastated some industries, but remittances was not one of them.

Remittances flows remained resilient in 2020, showing a smaller decline than previously projected, the World Bank says. Remittances flows to low- and middle-income countries reached US$540bn in 2020, down 1.9%.

However, Latin America bucked the trend, as remittance inflows rose an estimated 6.5% to US$103bn in 2020, as the cost of remittance transfers reached an average 5.6% in the fourth quarter, with costs in many smaller remittance corridors higher, such as Japan-Brazil (11.5%).

On the 2020 results, the World Bank says: “The improvement in the employment situation in the United States, although not yet to pre-pandemic levels, supported the increase in remittance flows to countries such as Mexico, Guatemala, Dominican Republic, Colombia, El Salvador, Honduras and Jamaica, for whom the bulk of remittances originate from migrants working in the United States. 

“On the other hand, the weaker economic situation in Spain negatively affected remittance flows to Bolivia (-16%), Paraguay (-12.4%) and Peru (-11.7%) in 2020.”

The multilateral expects remittance flows to grow 4.9% this year.

To get the perspectives on the sector from an industry player, BNamericas spoke to Dora Ziambra, COO at Britain’s Azimo.

Founded in 2012, Azimo is used to send money to more than 200 countries and territories worldwide, including most nations in Latin America. The company has partnered with Uruguayan unicorn dLocal, a global payments player that acts as a last-mile digital link in the remittance chain.

BNamericas: Growth in remittance inflows during 2020 was strongest in Latin America and the Caribbean, up 6.5%, according to the World Bank. The World Bank report suggests that contributing factors for this resilience included "a shift in flows from cash to digital and, with fewer people travelling due to the coronavirus pandemic, more money sent via formal instead of in-person channels." Did this come as a surprise to you, was this trend reflected in your business metrics?

Ziambra: The shift to digital has definitely played an important role.  A lot of money transfer shops had to close during lockdowns, prompting many senders to try digital services for the first time. At Azimo, new customer numbers have been around 50% higher than before the COVID-19 crisis. Many of the new customers we’re seeing are over 60, usually a much harder group to attract to online services.

We’ve also seen a significant shift on the receiving side, where many customers now prefer receiving their remittance payments into a bank account instead of picking up cash in a bank branch/shop. This has been particularly marked in Colombia, where in March 2021, 61% of customers sent to a bank account, compared to 45% in March 2020. 

BNamericas: Do you think the pandemic has introduced permanent changes in the way people send money home?

Ziambra: We believe that the shift to digital is a one-way street and will be permanent. Once customers have tried faster, cheaper digital services, they generally don’t go back to sending offline.

BNamericas: Generally speaking, how much room for growth is there for remittances fintechs like Azimo?

Ziambra: We think that the digital remittance market is about 50% larger now that it was just before the pandemic – so that’s 50% more digital-ready senders for us to attract to our service.

The remittance market is still fragmented: the ‘big three’ (Western Union, MoneyGram, Ria) account for only about 20% of the market, and their volumes are generally flat year on year. A lot of the rest of the market is served by small brick and mortar players or informal channels, who often charge high prices – the global average cost of sending US$200 remained high, at 6.5% in 2020. This leaves a lot of room for fintech companies like Azimo to keep gaining market share with cheaper, more convenient services.

BNamericas: In terms of your alliances with dLocal in LatAm, can you tell us what the state of play is and what’s in the pipeline?

Ziambra: Our partnership with dLocal is still focused on increasing the ways for people to receive transfers in Colombia. That’s working very well and our volumes to Colombia are growing fast. We will also be improving our choice and speed of delivery services to other countries in Latin America before the end of 2021.

BNamericas: What’s your outlook for remittance flows to LatAm for 2021?

Ziambra: We believe that remittances flows to LatAm for 2021 will continue to grow, especially as large sending markets like the US, Canada and Europe are starting to recover and lockdowns are eased. Local currency weakness shows no sign of ending, and that’s always a significant driver of remittance volumes. Finally, and sadly, the current political turbulence in some parts of Latin America may prompt more people to move overseas, which would also increase remittance flows.