Remittance is money sent from one party to another. In general, any payment of a bill or bill can be called a remittance. However, the term is more commonly used nowadays to describe a sum of money sent by someone working abroad to their family back home. The term is derived from the word remit, which means to send back.
Remittances have grown rapidly in recent years and now represent the largest source of foreign earnings for many developing economies. Remittance flows to Latin America and the Caribbean rose about 6.5% to $103 billion in 2020, supported by a recovering economy and a moderately improving US labor market.
Jamaica is the second largest recipient of remittances in the Caribbean (after Haiti) at $3.3 billion in 2021, representing about 25% of Jamaica’s GDP. It is estimated that about 70% of which is spent on food and personal care items, namely food.
It is estimated that about 70% of remittances are spent on food and personal care items, ie.
The traditional immigrant remittance process
A typical remittance transaction is carried out in three steps:
- The migrant shipper pays the shipment to the shipping agent using cash, check, money order, credit card, debit card, or a debit instruction sent by e-mail, telephone, or over the Internet.
- The sending agency instructs its agent in the consignee’s country to deliver the shipment.
- The paying agent makes the payment to the beneficiary.
For settlement between agents, in most cases, there is no real-time transfer of funds; the balance owed by the remitting agent to the paying agent is settled periodically through a commercial bank. Informal remittances are sometimes paid through commodity trade. The costs of a remittance transaction include a fee charged by the remittance agent, usually paid by the sender.
Remittance 2.0
Banks have traditionally been the most common – and, in many cases, the only – way of sending money across borders. On the other hand, remittances constitute an important revenue stream for many banks, which typically charge at least 7% of the amount transferred, although this figure can rise to 20% in smaller migration corridors.
Since the global pandemic of 2020, there has been a massive expansion of fintech solutions and many fintech startups are keen to move into the remittance space, which is seen as having significant potential.
The market is increasingly characterized by intense competition for tariffs, with different applications trying to outdo each other in terms of price reduction. Some have even reduced remittance fees altogether.
Food remittances
During the pandemic, I was affected like everyone else, and being in tech, I started to see how the local e-commerce and fintech spaces were rapidly evolving. One of the things I noticed was how much remittances were increasing in 2020-2021 and I thought to myself; most remittances are not reaching the recipient’s bank accounts, so where is it going?
I learned that it is estimated that over 70% of remittances are spent on daily necessities such as food and personal care, which can be considered food. This figure in Jamaica was approximately $2.3 billion in 2021.
Problems:
- Transparent: The money that is sent home is mostly done without transparency on how it is used.
- uncertain: Recipients must travel to the agency to receive the money.
- Submission: Recipients then travel to grocery stores periodically to spend said money.
Solutions:
- Submission: Island-wide food delivery solution on the same day in all 14 parishes.
- Electronic grocery: An online grocery storefront that enables online shopping from anywhere.
- sOciaL: Social Commerce tools that enable recipients to more easily ask family, friends, and even followers for help with grocery shopping.
Contributed by Franz Weathers eCommerce Newsletter.
