International, domestic remittance channels see slump as migrant workers return home

COVID-19 has had a massive impact on migrant workers and a large chunk of them has returned to native places. With this exodus of people, the movement of money has also been badly affected. While domestic remittance is said to have fallen 70-80 percent, given the global implications of the pandemic, even international remittance has been affected, say industry insiders.

Since India is the largest recipient of remittances globally at $83 billion in 2019, this is bound to impact money flow into the country. However, in the middle of the crisis, some interesting trends have also surfaced, like faster adoption of digital and some bit of reverse remittances within the country, industry representatives noted.

“Remittance volumes are down by almost 80 percent during the months of April and May, and looking at the migration trends it does not look like coming back to pre-COVID volumes anytime soon,” said Sunil Kulkarni, chief business mentor at Oxigen India Services, a Gurugram-based digital payments player.

Remittance money used to travel from industrialised states such as Maharashtra, Gujarat and Delhi and high-wage states like Kerala, and move into rural areas of eastern states like Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal. Now with these corridors drying up, the rural economy is in the brink of a massive slump.

“There has been a significant fall in the average ticket size of these transactions; most of the transactions are cash out of Rs 500 which citizens received through the DBT scheme from the government,” said Seema Prem, chief executive officer, FIA Technologies, a rural-focused business correspondent. She predicted that it could take up to nine months for the remittance volumes to be restored to pre-COVID days.

This has also affected the revenues of these agents and corporate business correspondents which offer these services on behalf of banks. Prem said that in most cases revenues are linked to the number of transactions and the amount paid. Since both have fallen, the earnings of these agents or ‘bank mitras’ have crashed.

There is an urgent need for the state governments to restart construction activities in state capitals or large cities, so that a bulk of these workers can get jobs locally and do not have to travel far for opportunities.

International remittance also saw a slump in April and business revenues fell during the first quarter, said Sohini Rajola, regional vice president for India and South Asia at Western Union Money Transfer. But she added that there has been some pick-up during May, mainly buoyed by Ramadan during which a lot of money flows back from the Gulf to families in South Asia.

The World Bank has said that global remittance volumes could fall by 20 percent during 2020 because of the economic crisis induced by COVID-19. Talking about South Asia, the report said that remittances will fall 22 percent to $109 billion.

“The deceleration in remittances to the South Asian region in 2020 is driven by the global economic slowdown due to the coronavirus outbreak as well as oil price declines,” said the World Bank note.

Rajola pointed out that no one could exactly predict the impact of the pandemic on remittances, but with more economies opening up, there seems to be some green shoots.

“With countries in the Middle East opening up, we can hope to see some resumption of volumes; in Europe we have seen some volumes between Germany and Switzerland showing a jump,” she said.

Ripple, which leverages blockchain technology to transfer money across the globe within minutes, said that COVID-19 will cause the overall remittance market to shrink but the share of digital fund transfers is expected to go up.

With queuing up at bank branches or money transfer centres not being safe anymore, many workers would instead opt for mobile apps or web apps for fund transfers. Ripple hopes to benefit from that trend.

“The drop will be temporary but the shift will be permanent,” said said Navin Gupta, managing director, India, Middle East and North Africa at Ripple.

In India, Ripple works with five banks including Yes Bank, Federal Bank, Axis Bank and others for instant fund transfers between member banks across the globe. Their biggest market is the Mexico and the United States corridor and they are trying to grab a larger share of the incoming remittance pie into India.

Rajola said players like Western Union are looking at opportunities coming out of COVID-19, and speeding up of digitisation is one such opportunity. The company is pushing hard on digital KYC for quick onboarding, something already live in India, home delivery of remittance money in geographies where it is permitted and pushing its mobile app and web interface for initiating transactions.