Remittance is a vital component of the global economy, enabling individuals and businesses to transfer money quickly and securely. But traditional remittance systems are often slow, expensive, and complicated. Open banking is changing that, enabling instant, low-cost account-to-account payments across borders.
In this guide, we’ll explain what remittance means in banking, the different types of remittances, and how open banking is reshaping the way money moves.
What is remittance in banking?
In banking, a remittance refers to any payment sent from one party to another – for example, settling a bill or invoice in a business-to-business (B2B) setting. Today, the term most often refers to cross-border payments, especially when migrant workers send money back home to support their families.
Why are remittances so important?
Remittances are a lifeline for many households and economies. In 2023, money sent to low- and middle-income countries grew by nearly 3.8%, reaching $669 billion, with the US as the largest sender and India as the largest recipient.
For millions of families, this money pays for essentials like food, education, and healthcare. And it’s not just a global story: the EU’s domestic remittance market is also significant, nearing €27 billion.
But there’s a challenge: traditional remittance systems are often slow, costly, and fragmented, relying on outdated infrastructure. This creates demand for faster, cheaper, and more reliable alternatives.
A spotlight on the EU remittance market
According to Eurostat, personal transfers and employee compensation hit new highs in 2022. Switzerland remains the largest source of cross-border employee compensation, while Croatia, Latvia, and Romania rely most on incoming remittances.
However, growth may slow in the near term. The World Bank projects a 5% decline in Euro Area remittances, driven by weak economic growth and the impact of the Russia-Ukraine war.
Types of remittances in banking
The term “remittance” can have slightly different meanings depending on the context. For instance, you might hear about:
- Inward remittances: Money coming into a country – e.g. a worker sending money back home.
- Outward remittances: Money leaving a country – e.g. a business paying an overseas supplier.
Beyond the direction of the payment, there are also different methods for sending remittances:
- Traditional methods: Cash or cheque payments sent via post or money transfer agents.
- Electronic transfers: These include SEPA, BACS, ACH, and SWIFT bank transfers.
- Online and card-based methods: Payment methods such as prepaid cards, digital wallets, and online money transfer services.
Remittances often involve currency exchange, even within the EU, which can introduce extra complexity, costs, and potential delays. A single wrong account number or data mismatch can result in failed transactions, creating frustration for both sender and recipient.
How open banking is changing remittances
Open banking is transforming the way remittances work, particularly across the EU. By enabling secure data-sharing between banks and third-party providers, open banking has made sending and receiving money faster, safer, and more convenient.
For example:
- Fewer errors and delays: Open banking integrations let users share and validate their bank details instantly, reducing failed transactions.
- Seamless cross-border payments: Using the SEPA network, senders can transfer money across the EU as easily as if it were a domestic payment.
- Lower costs: Many remittances can now be sent directly through a bank’s own app for free, with access to competitive FX rates when currency conversion is needed.
Overall, open banking reduces the reliance on third-party money transfer services, putting users back in control of their payments and improving cash flow efficiency.
Examples of remittances using open banking
Almost any type of person-to-person or business-to-person transfer can benefit from open banking, including:
- Splitting a restaurant bill with friends
- Flatmates sharing household expenses
- Customers paying for goods online using Pay by Bank
- Migrant workers sending money back home quickly and securely
A great real-world example is Brite’s partnership with Auctionet, a digital auction platform operating across the EU. By using open banking-powered payments, buyers can settle balances instantly, which helps auctions close faster and enhances the user experience for both buyers and sellers.
How instant A2A payments benefit remittances
The EU is already a global leader in open banking, but there’s still room to improve remittance speed and efficiency.
Today, many international money transfers take up to five business days to complete. Even SEPA payments – which are among the fastest cross-border systems – typically settle within a single business day. Instant account-to-account (A2A) payments are set to change that.
As the name suggests, instant A2A payments are immediate, allowing money to move directly between bank accounts without passing through slow, costly intermediaries. The benefits include:
- True real-time settlement – funds arrive in seconds rather than days.
- Lower costs – no hidden fees or markups from multiple middlemen.
- Fewer errors and failed payments – thanks to open banking’s secure data-sharing and instant validation.
- Greater reach – businesses can support customers in new markets while keeping costs predictable.
At Brite, we go one step further by using our proprietary instant payment network, bridging gaps where open banking infrastructure is not yet fully optimised. By combining Strong Customer Authentication (SCA) and Instant Payment flows into a single step, we eliminate unnecessary friction and make the payment experience lightning-fast. Ideal for both individuals sending remittances and businesses receiving them.
Faster, smarter remittances with Brite
Now is the time to get ahead in the European remittance market and Brite is best positioned to enable faster and secure instant A2A payments.
Get in touch today to learn how only open banking-powered Instant Payouts provided by Brite offer a simple and quick way to provide remittance payments at scale and meet today’s consumer expectations.
