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raju rathore is a professional blogger.
The global pandemic COVID-19 accelerated many trends that were already in motion. One particular trend that saw significant growth in 2020 was the further digitization of the business world. The finance industry in particular was heavily impacted by the move from physical to digital.
In the past, individuals and businesses were used to tracking and transacting using paper. Mailing checks and dropping off money orders was simply one of the costs of doing business. The “pen and paper” route came with significant drawbacks. Transacting internationally was painful (mailing a check from the US to countries like India and China is expensive and slow).
As technology has become more advanced many of the standard pen and paper processes have gone digital. Paper checks and money orders are slowly fading from existence and financial institutions are reacting accordingly.
Digital Remittance
One specific trend that was brought to light during the global pandemic was the need to be able to send and receive money internationally, also known as a digital remittance. As COVID-19 ravaged the globe, immigrants across the globe suddenly found themselves needing to send money back to their families.
The large financial institution Western Union saw their digital money transfer business grow 38% in 2020, to over $800M and 77% in the first quarter of 2021. This growth was due in large part to the enormous international payments network that Western Union has built over the course of many decades and its recent strategic tech investments and partnerships. On the surface, digitally transferring money between countries can seem simple.
The reality is that with many different currencies and regulatory requirements, growing a network of countries where customers can send and receive money is difficult. Western Union’s network of digitally accessible countries includes 75 different countries where customers can send money and 125 countries where customers can receive money.
Arguably the hardest part about managing the shift to digital is the fact that it doesn’t happen all at once. Every customer doesn’t magically wake up one day and decide, “I will transfer money digitally instead of physically.” The change happens slowly, and financial institutions must be able to offer a hybrid model that integrates the physical and digital worlds to find success.
In the Western Union example, many of the digital transactions are still paid out at a physical retail location. This means that customers can send money digitally, but pick it up physically (cash). This hybrid model is precisely what can make the digital remittance business difficult to handle for many banks, but it’s this convenience and choice that makes the service so unique and sought after.
The Future of Transactions
The digital side creates the challenges of understanding regulations and building solid, scalable technology. The physical side introduces a host of its own challenges, including offering wide-scale physical coverage. Being able to pick up money in person isn’t useful if the nearest location to you is hundreds of miles away. Western Union solved this problem slowly over time as they have spent decades building up their repository of retail stores and now have over 500K locations worldwide.
Don’t be fooled, the trend is definitely still moving digital. More and more customers are beginning to realize that they can completely bypass the physical space and operate solely in a digital manner. Western Union already sees that 1 in 5 transactions are occurring in a purely digital manner (meaning no involvement of a physical location).
That ratio will only grow over time. As customers become more adept with technology and the digital process becomes smoother, we can expect the ratio of digital to physical to continue to grow in favor of digital.
The implications of being able to easily transfer money internationally are massive. Finance is not the only industry becoming more digital and global. Healthcare, e-commerce, hospitality, technology, and many other industries are all following the same trendline.
Concepts like hiring international talent, opening international offices, and generally operating a business in a more global manner mean that an ever-growing percentage of business transactions will require transacting across country lines.
That’s where the finance industry comes in. Finance has always served as one of the backbones of business, and the organizations that have access to the best international payment networks will have a significant competitive advantage. Digital payments across borders represent a necessary step to gain a competitive advantage in hiring, the exploration of new markets, and much more.
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