Sending money home: understanding the economic and social impact of global money transfers

CHAPTER 01

Sending money home: what you need to know

For many people, the world has never seemed smaller and more accessible. No matter what continent you live in, there are now realistic opportunities to move to a different country to the one where you were born.

Studies show that there were around 281 million international migrants in the world in 2022

For those that take this leap of faith and relocate, they often leave behind family and friends.

It’s not always the case, but more often that not the loved ones who are left behind live in a less economically developed country, where financial security may not be as prevalent. This means that a lot of migrants around the world regularly send money back home – especially if they’ve moved with the intention of earning more money than what they would necessarily have done in their home nation. 

However, there’s a lot more to a global money transfer – also known as a remittance – than meets the eye. International money transfers have a huge influence on both the economy and society, but understanding these impacts can be slightly challenging. This article aims to guide you through the whole process, right from the evolution of global money transfers to the huge economic impact they have. Ready to learn more? Let’s get started.

A global money transfer is when you send money from a bank account in one country to another bank account in a different country. An incredible one billion people around the world are involved with remittances, which equates to around one in every seven people. Each year, 200 million migrant workers send money back home and roughly 800 million people benefit from receiving this money.

Therefore, it’s quite clear to see how important this service is to families all around the world – providing a lifeline to a lot of households. Despite the Covid-19 pandemic and political instability worldwide, the amount of remittances that are being made has continued to grow. According to the World Bank Group, remittance flows to low and middle income countries are expected to increase by a further 4.2% this year, reaching a massive total of $630 billion.

It seems that now more than ever people are seeing the value of global money transfers, with the need and desire to support family members consistently on the rise.

There are a whole host of reasons as to why someone may wish to send money back home. A lot of the time it’s to support family and friends with day-to-day living, although there are some other reasons to factor in. These include:

Paying for tuition fees

Whether it’s for someone’s own children or other young members of a family, helping out with expensive tuition fees is a common reason why someone sends money home.

Buying property or paying rent

For a lot of us, housing is the most expensive living cost we have to budget for and therefore an area a lot of people need assistance with financially.

Medical bills

Keeping your family and friends safe and healthy is arguably one of the most important things you can financially support.

Paying for overseas travel

Contributing to travel costs is quite often the only way a lot of migrants get to see their families.

Gifts

Whether it’s for a wedding or birthday present, people like to spoil their loved ones and make them feel special.

Once you’ve decided to send money back home, there are a few key things you need to consider in order to ensure you choose a reliable service that doesn’t rip you off. Here’s an insight into the sort of factors you need to think about:

How much you want to send

There’ll likely be a limit to the amount of money you can send. And this varies depending on the service you use, but most of the time it’s capped by how much you can send in a day or per transfer.

What currencies are involved

Some providers may not allow you to transfer money in your chosen currency, so it’s always worth making sure you do your research to find a service that offers competitive rates in the currency you wish to use. The bigger the money transfer provider, the more likely it is that they’ll have a better range of available currencies.

Transfer speed

There are several factors that can impact the speed of your transfer. This can include the service you choose, the currencies involved, where you’re sending the money from, the payment method and the day you’re sending the transfer on. 

Payment method

The payment delivery options available to you will depend on where you’re sending the money to. The more popular nations for money transfers are likely to offer more options. Depending on the service, you’ll often be able to make a bank transfer, pay by credit or debit card, with cash, or mobile wallet. In terms of the family member receiving the money, they can then choose from options like getting the money sent to their bank account, for cash pickup, home delivery or to a mobile wallet. It’s always worth looking at exactly what options are available when picking a provider, as yours or your receiver’s preferred method may not be covered. 

Repeat transfers

If you’re sending a one-off payment then you may not be too fussy about the service you use, especially if it’s only a small amount. However, if you’re making regular payments, then the chances are you’ll want to pick a service that is easy-to-use, quick, offers good rates and allows you to conveniently make repeat payments in a way that suits your needs. Make sure you do your research!

Bank transfer

This is still arguably the most popular option for a lot of people – either online or by visiting their local branch. The time a bank transfer takes depends on numerous factors, but this will typically be any time between one to five days. Bank transfers can be slightly more expensive and a lot of people aren’t aware that there are other services available now for money transfers, so it’s always worth considering all of your options.

Cash

The more traditional way of sending money abroad. Sending cash obviously comes with some security risks, which is why digital methods are now largely preferred. If you do wish to send money by cash, then you’re better off using a money transfer company that offers cash as a payment method – rather than in an envelope.

International money orders

This is a more secure way of sending money internationally, where you’ll prepay for a transfer and then post the order to your intended receiver. Once they have received the money order, they are then able to deposit the money into their bank account or have it cashed. However, its popularity has declined since the rapid growth in online money transfers.

Money transfer companies

There are now a whole host of money transfer companies out there, offering a mix of different services. This tends to be the easiest and cheapest option of sending money back home – with a variety of different transfer options available to customers. With so much choice on the market, finding the right company for you can often be a challenge. Make sure you do your research and only select a provider that is reputable.

CHAPTER 02

The evolution of international money transfers

We could go way back to the 15th century, when international money transfers reportedly date back to, but instead we’re going to focus from the 19th century onwards.

Introducing the New York and Mississippi Valley Printing Telegraph Company

In 1851 the New York and Mississippi Valley Printing Telegraph Company (later known as Western Union) was founded, marking a big change in the history of international money transfers. They developed a method of electronically transferring funds through recently installed telegraph wires across the USA. This meant that it was possible for someone to send money to another person over considerable distances. Although this method started out just in the USA, the wire transfer system soon gathered momentum all around the world.

Global industrialisation strikes

In the later part of the 19th century there was a global industrialisation boom that would change the world considerably. As part of this development, wire transfers began to rise in popularity. This was largely because companies were now dealing with contractors around the world – so the banking sector had to start playing catch-up. This huge rise in demand meant that the wire transfer system earlier introduced by Western Union became the standard. 

SWIFT is introduced

Although slightly different in the sense that the Society for Worldwide Interbank Financial Telecommunication (SWIFT) doesn’t send money, it still played a hugely important role in the evolution of global money transfers in 1973. When it was founded it signalled the first movement away from the wire transfer method, as SWIFT transmitted messages between banks around the world, rather than money – telling banks which transfers to make. The number of banks using the SWIFT system is now in the thousands and in 2021 they reported that they handled over 43 million requests per day. Now more companies have entered the industry to help people transfer money around the world safely and securely.

The rise of the internet

As with most things in life, the internet had a huge impact on global money transfers in the late 20th century. Established in 1988, PayPal was the first company to start using the internet to make quick, easy money transfers around the world. This would change the face of money transfers forever, as they could now be made online at a snip of the cost offered by banks and other wire transfer companies. 

Digital banking leads the way

Unsurprisingly, the banking sector was very quick to jump on this success and it became standard practice around the world for banks to offer money transfer options online. For the first time ever, bank customers were now able to directly transfer money anywhere around the world from their account – making it incredibly easy to send money transfers to friends and family, no matter their location.

As technology continued to develop, we were then introduced to smartphones and apps. This is when Fintech companies and specific international money transfer apps began to make an impact, offering the same service but with minimal transfer fees. 

International money transfers today

There are now countless ways of transferring money internationally, making it easier than ever to send remittances to loved ones both domestically and abroad. Many companies now offer digital services to transfer money using online and mobile technology, making the process of sending money faster, cheaper and more reliable. 

Another recent innovation within the sector is the popular cryptocurrency, Bitcoin. This uses a decentralised peer-to-peer method that allows transactions between Bitcoin users without an intermediary. Its massive success means there are now thousands of cryptocurrencies out there.

As you can see, the evolution of sending international money transfers is fascinating and it’s come a long way in the last few centuries. Given how quickly the industry has changed in such a short space of time, who knows how we’ll be sending money to loved ones in the future.

CHAPTER 03

How global money transfers impact the economy and society

Remittances are arguably one of the world’s most important international cash flows and have also proven to be resistant to recessions and other adverse events. Sending money back home is an important component of migration, with remittance flows steadily increasing over recent decades. 

On average, migrant workers send US$200–US$300 home every one to two months. This flow of money has a huge impact on both individuals and local communities, offering economic lifelines to migrant families. 

Not only does it have a massive economic impact, but it also plays a big role in shaping wider society – assisting the flow of skills, knowledge and values. Remittances can be used to provide food for loved ones, grant access to health services, pay for good education and many other contributions to society. However, it’s important to note that the impact sending money home has will largely depend on the individual receiving the remittance and the country they live in. This relationship can be complex and it’s important to note that there are possible negatives that can come from sending money home as well.

So, let’s take a look at some of the major economic and social impacts remittances have on less economically developed countries – and the families receiving the money transfer.

On average, migrant workers send $200 - $300 (US) home every one to two months.

Help alleviate poverty

In the majority of cases, remittances can help give the economies of developing countries a boost by supporting people in need. It allows someone living abroad to send financial support directly to the people they care about the most. This money can then be put towards essential daily living costs, such as food, utility bills, education, healthcare or clothes.

By being allowed to send money back home, families are able to receive an economic lifeline they can spend on the basic daily living costs they need to fund. Although money sent home represents around 15% of the money earned by people working in a different country, it’s often a significant part of the household’s income back home – as much as 60%. It can also protect families from localised issues and political instability in their own country.

Unfortunately, there’s still a high cost associated with remittances, so work needs to be done to reduce any associated fees in order to ensure that more of the money goes to where it’s needed most.

Facilitate the growth of new businesses

In some developing countries where job supply is limited, but the demand for employment is high, financial support in the form of remittances can help to encourage self-employment. In some cases, the money can be used to aid the growth of new start-up businesses and equip people with the financial support to match their entrepreneurial spirit. Remittances may be the only opportunity someone has to get started professionally, ensuring their business ideas are utilised rather than left abandoned. 25% of remittances are ‘saved or invested in asset building or activities that generate income and jobs’, according to IFAD.

A steady increase in GDP

A 2017 study examined the long-run relationship between remittances and real GDP in 80 developing countries and found that, on average, a 10% increase in remittance is associated with 0.66% increase in GDP. This was after taking into consideration the several negative spillover effects of other non-market transfers. It also found that the response of real GDP following a permanent increase in remittance varies from -0.53% in Bosnia and Herzegovina to 0.59% in the Dominican Republic. This just re-emphasises the earlier point made that the impact of remittances can vary massively depending on the country involved.

The study also found that there was a stronger positive link to the benefits of remittances on GDP when that money was being invested – with remittances likely to have a greater positive impact in upper-middle-income countries than in low and lower-middle-income countries.

More impactful than international development aid

The big difference here is that rather than having to pass through agencies and government bodies like development aid, remittances go straight into the pockets of the receiver. This means that more of that initial money finds families and friends. It’s also widely reported that remittances not only outgrow foreign aid in terms of size, but that it may also be less harmful to growth. Data from the UN found that remittances total over three times the amount of official development assistance and foreign direct investment combined. 

However, it’s worth remembering that remittances are private funds, so they should therefore not be seen as a direct substitute for what is classed as official development aid.

Help rural communities

In a lot of developing countries, those communities that are rurally based often suffer the most. More and more people around the world are choosing to move into cities, taking their labour, skills, knowledge – and money with them. Therefore, quite often it is families in rural communities that rely on remittances the most – providing a valuable alternative for households that rely purely on agriculture or have limited access to jobs. Over 50% of remittances are sent to households in rural areas, acting as a lifeline. 

More work is being done by governments around the world to make the process of receiving remittances easier for rural families – many of whom struggle to have access to the kind of facilities that allow them to receive money from abroad. However, this unfortunately opens up the door to potential exploitation, where companies start to run monopolies and control associated costs. Despite this, the impact that remittances have on rural communities is largely seen as positive and can help improve financial literacy.

CHAPTER 04

12 statistics about sending money home

1. India receives the most remittances

In 2020, India was expected to have received the most remittances, totalling $83.1 billion. After India, the following countries made the top five:

2. Migrants send back home 15% of what they earn

On average, people only send home 15%. This means that the other 85% gets spent in the country they now reside – or goes into savings.

3. The total amount of remittance flows grew 8% in 2021

Despite Covid-19, the total amount of remittance flows grew in 2021– up 8% from 2020. This went way beyond what was initially projected.

4. Five-fold growth in 20 years

Over the last two decades, remittance flows have grown in value five-fold. This proves that money sent abroad to families and friends isn’t massively impacted by adverse events, as the trend continues to grow each year.

5. Fees amount to 7% of the total amounts sent

Unfortunately, sending money back home is still pretty costly. Currency conversions and fees typically amount to 6% of the total amounts sent. Something is being done about this though, as the Sustainable Development Goal 10.C aims to ‘reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent by 2030’. This should help ensure that more of the money transfer is going to those who need it most. Services like blockchain and mobile money could be good new alternatives to keep costs down.

6. 50% of remittances go to households in rural areas

Approximately half of remittances around the world go to people living in rural areas. The total amount of flows to rural areas is likely to reach US$3 trillion over the next five years, helping nearly three quarters of the world’s poorest people who live rurally. 

7. 75% of remittances are used to put food on the table

Approximately 75% of remittances are used to buy food, cover medical expenses, help with school fees or assist with housing expenses. In times of need, these figures are obviously likely to fluctuate.

8. 25% of remittances are saved or invested in asset-building or activities 

The remaining 25% of remittances is then available to either save or invest in asset-building or activities that generate income and jobs.

9. $8.5 trillion will be transferred by migrants to their place of birth

If recent trends continue, then between 2015 and 2030 an estimated $8.5 trillion will be transferred by migrants back to their home countries.

10. Three times more important than international aid

Remittances contribute over three times the amount of official development assistance and foreign direct investment combined.

11. 70 countries rely on remittances for at least 4% of their GDP

This just goes to show how vital remittances are for a lot of economies around the world.

12. Make an invaluable contribution to Sustainable Development Goals

Migrant workers contribute to ending poverty (SDG 1) and hunger (SDG 2) – promoting good health (SDG3), quality education (SDG 4), clean water and sanitation (SDG 6), decent work and economic growth (SDG 8) – and reducing inequalities (SDG 10).

Source: IFAD

CHAPTER 05

Summary

So, there we have it. You’ve now reached the end of our ultimate guide to sending money home. Hopefully you feel empowered with all the information provided and know everything you need to know about international money transfers. From the factors to consider when sending money home to the evolution of money transfers, and understanding the economic and social impacts – we’ve just about covered all bases. 

People often think sending money back home is a complex process and are usually a little daunted when they first go to use a money transfer service. However, as we have demonstrated, with the right guidance this process is actually very simple – and has never been easier.

There are clearly some positive and negative impacts associated with sending money back home, both economically and socially, but for the vast majority of people this service acts as a lifeline and can change people’s lives for the better. We would therefore encourage you to continue your reading on the topic and follow future trends and patterns to see how sending money back home evolves for future generations. This is an area that’s changing all the time and companies are having to adapt to technological and societal developments, so monitoring how sending money internationally progresses should be fascinating.

Hopefully the next time you now go to send money home, you’ll know all about the process – and the impact it has. Whether you’re personally looking to send money home or just interested in the economic impacts, we wish you all the best in the future.

CHAPTER 05

Summary

IFAD

https://www.ifad.org/en/

World Economic Forum

https://www.weforum.org/

United Nations

https://news.un.org/en/

World Bank Blogs

https://blogs.worldbank.org/

International Monetary Fund

https://www.imf.org/en/Home

WorldRemit

https://www.worldremit.com/en