Why payments can’t ignore the ASEAN remittance market

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Why payments can’t ignore the ASEAN remittance market

Remittance is a part of migration culture, which is a part of ASEAN culture. In a bid to find a better economic opportunity, Southeast Asians have migrated to other countries and this contributed to the flow of ASEAN remittances back to their home countries.

Narrowing the number to only the Southeast Asia region, Worldbank’s latest data showcased that despite COVID-19, remittance flows remained resilient in 2020, reaching US$ 540 billion in 2020, just 1.6% below the 2019 total of US$548 billion.

This resilience is testament to the magnitude of the ASEAN remittance market and the potential of the industry’s blockchain future. 

The reliability of ASEAN remittance

The pandemic may slow down remittance flows in ASEAN, but remittance is still the second largest source of foreign exchange after foreign investment, according to the Measuring Inflow of Remittances in Six ASEAN Countries Using Macroeconomic Variables research paper. The study by Nahar & Arshad in 2017 also reveals that remittances have a character that tends to be stable so the government is able to rely on it when a monetary crisis hits.

The remittance market is influenced by the difference in income gap between the sending and recipient countries. If there is a decrease of income in recipient countries followed by increase of income in the sending country, more remittances are sent.

ASEAN remittances also take the level of inflation and the dependency ratio of the recipient countries into consideration. Increasing inflation affects the remittances with it being higher in volume as the needs of the families back home also increase.

Challenges to ASEAN remittance

Despite its stability as an economic source, the amount of money being sent home still relies on governmental and regulatory support.

Currently, according to an article by Finextra, the average 7.1% transaction costs of migrant remittances are considered high because several players are involved in the international payments process. They include the source bank, the central bank, correspondent banks and the destination bank, all charging a service fee and adding to the total processing time.

This means that banking channels are not the best option for cross-border payments, especially for the underserved majority in rural ASEAN who still don’t have a bank account. But with vast digitalisation, these people instead own a mobile phone. And they are not afraid to use it.

The big, digital emigration

More migrants are moving towards digital money transfers. According to a Facts and Factors report published on GlobeNewswire, global digital remittances is expected to climb at a CAGR of 13.8% from USD14.5 billion to USD35.8 billion by 2026. 

The report notes that payment automation and digitalisation will further drive business expansion, especially as digitally savvy consumers are increasingly opting for digital remittances because of the shorter transfer time.

The projection also highlights a riveting point: the Asia Pacific digital remittance market is expected to be the fastest-growing market, thanks to mobile payment solutions becoming a norm. With the pandemic in the background, the adoption of new technologies has been faster than ever. If anything, COVID-19 pandemic has contributed to the urgency of digital transformation of the ASEAN remittance market.

Again, governmental support would make a difference here by ensuring that transaction fees could be made more affordable, along with transparent regulations for more efficient and safer transfers. The latest ASEAN Policy Brief published in April 2021 noted that “ASEAN aims for seamless cross-border payments in the region through the harmonisation and modernisation of payments infrastructure, supported by initiatives in related areas such as digital data governance, cybersecurity, online dispute resolution, and consumer protection for e-commerce”.

With digitalisation efforts reportedly underway in order to have the policies and frameworks of the ASEAN remittance market coexist and standardised, the ASEAN Framework on Digital Data Governance (ASEAN DDG) has been developed to guide the cross-border data flow (CBDF) mechanism for ASEAN. It ensures businesses in ASEAN are equipped with means to ensure that data is technically and legally protected, when being transferred to another party across the border.

A blockchain-driven ASEAN remittance

The smartphone has made cross-border payment easier, and that certainly is the case for the ASEAN remittance market. But that is an old story. Blockchain has further transformed cross-border payments by making transactions even more transparent, faster and secure because it is based on distributed ledger technology (DLT).

In the same article, Finextra explained that blockchain transactions are “distributed, with records verified by a network of computers versus by one party or bank, and visible to all parties versus held in a central database”.

Because of the DLT system, the records of transactions become immutable and cannot be altered, reversed, or tampered with, making it secure. With blockchain, the usual lengthy verification process such as checking available funds from registered sender and receiver and ensuring the legitimacy of the fund request can be done in less than a minute, with updates in real time.

According to Juniper Research, blockchain payments are predicted to exceed USD4.4 trillion by 20241. Next in line, according to Finextra’s piece, are the remittance tokens that enable the sender to buy remittance tokens, thus removing cash from the transaction in different amounts and currencies.

Back in April, we announced that Ripple has agreed to acquire a 40% stake in Tranglo. The aim is to build a new and efficient network on a network like a DLT-enabled system, enabling superior and more efficient ways to secure transactions. As mentioned above, such a system can free up valuable resources for businesses, streamlining the end-to-end payment process.

The integration of Tranglo Connect and Ripplenet brings a revolutionary instant payment and settlement system, the on demand liquidity (ODL). Our article here has highlighted how businesses will benefit from this: without the need to lock in funds, working capital is increased and companies have more leeway to expand or grow other areas of their business. That is a game changer.

With ASEAN remittance embracing a stronger network infrastructure for mobile payment platforms, better accessibility, and a variety of services and products like the blockchain-powered ones, the market is primed for more innovations for the future. 

A Tranglo cross-border partnership can secure your valuable cash flow by removing unnecessary obstacles to global payments. Contact us today to get a professional consultation at no charge. 

1https://www.juniperresearch.com/press/blockchain-based-cross-border-b2b-transactions

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