Amid the great digital shift, subsets of financial services remain problematic due to decades-old, friction-filled and fragmented processes.
Ruben Salazar, global head of Visa DirectKaren Webster told Karen Webster in an interview that cross-border remittances are one of those payment services that have always been frustrating. These payments and the process that supports them have been limited primarily because they were built decades ago to meet the physical need of senders and recipients to send and collect money.
But that was before the digital transformation of payments and the global explosion of mobile technology that made digital wallets commonplace. The global remittance business is evolving from a strategy based solely on cash-centric networks to a network-of-networks strategy, making streamlined interactions on the global stage more efficient and less expensive – and driving the financial inclusion in the process.
Eliminate friction and frustration
Salazar said he had first-hand experience using these networks to send money to his family in El Salvador from the United States earlier in his career. These transactions were traditionally enabled on both sides by a fragmented list of physical agent networks – located in storefronts, hidden in supermarkets, post offices and even banks.
Paper processes, multiple documents and even phone calls were the norm. Salazar gave an overview of some of the stages. Wait until an agent with a special terminal is in place to enter the data, then take the money. Wait for a withdrawal code to be received, which then had to be given to the recipient so that they could withdraw the money.
The recipient on the other end then had to go to another supermarket, storefront, or bank with that code to collect the money – and often not the same day it was sent.
This process varied from country to country; each market had its own networks based on agent contracts and proximity to large concentrations of receptors. There was some overlap but nothing came close to uniformity. Prices were not well understood by senders or recipients.
“There is no single business model, there is no single network,” Salazar explained.
The scale of global P2P
To get a feel for the global scale of cross-border payments, remittances, which are only part of the story, provide a startling insight. Consider the fact that 800 million people around the world receive money from their families abroad to pay for their necessities. Remittances make up a significant portion of gross domestic product (GDP) in developing countries – 4% on average, according to the International Monetary Fund (IMF).
PYMNTS research, carried out in collaboration with Stellar, found that consumers want change – better, faster, and cheaper digital remittances.
Read more: Almost 25% of U.S. cross-border remittances use crypto
Seventy percent of U.S. consumers who send money to families across borders and pay fees to do so want more transparency, affordability, and speed. Visa has found that digital remittances are the preferred method, where 59% of fund users surveyed said they have sent or plan to send money using digital-only platforms.
There is some urgency here, as data shows 32% of remittances go to friends and family in need.
“It can be an emotional transaction,” Salazar said of the remittances.
Promote “digital inclusion”
Salazar said that Visa Direct’s platform is intended to create a single, real-time network using debit card credentials (billions) and direct access to the bank account to transfer money digitally and directly between senders and recipients. He highlighted the 2019 acquisition of the Earthport cross-border payments network, through which Visa can reach 2 billion bank accounts in addition to bank accounts accessible using debit cards that run through Visa’s debit rails.
At the time the Earthport deal was announced, as PYMNTS reported, Bill Sheley, then head of global push payments at Visa, said Earthport’s capacity would help move Visa “beyond card “and expand its scope to include an account-disbursement model (A2A).
See more : Why Visa put Earthport in its orbit
For Visa and those who send and receive money across borders, any wallet and entry is capable of transacting on its network.
“It doesn’t matter if you’re in a Visa ID or in a bank account, or whatever value there is in that wallet, we can ‘land’ the transaction,” Salazar said, adding that at a high level, any wallet digital exists as an endpoint on Visa’s acceptance network, capable of receiving digital payment, enabled by its network of networks capabilities.
“So we are a long way from the days when accessing banking services meant being issued with a tangible plastic card linked to a traditional checking or credit account,” he said.
New models and new possibilities
Banks can offer real-time remittances simply by allowing their account holders to leverage the payment credentials they already have with the bank. Salazar pointed to the news in recent weeks, for example, in which Canadian bank CIBC announced that it had expanded its global money transfer functionality with Visa Direct, with funds transferred directly, in real time, to Visa credit and debit cards in over 80 countries. Qatar Islamic Bank has launched the Visa Direct money transfer service to transfer money abroad in real time as well.
The seemingly eternal question is still in place: what about crypto? PYMNTS data shows that nearly a quarter of all U.S. consumers making cross-border peer-to-peer (P2P) payments have sent funds using cryptocurrency using mobile wallets.
Salazar said cryptos still present a “last mile” problem in terms of converting cryptos to fiat on either side of transactions. But these new technologies, all new capabilities and new players can also help accelerate the digital transition to real-time, cross-border digital remittances. Visa’s goal, he said, is to enable senders and recipients to send money to their loved ones in the most efficient and secure way possible.
“Every available ID can be used to provide cash,” said Salazar, without the need to create a whole new network “online or in a face-to-face environment”.