Remittance in Banking (and Open Banking) Explained
Open banking infrastructure is reimagining the speed, security and convenience of remittance in banking. To see how, we’re exploring the basics of exactly what remittance is in banking, including how it works, who’s involved and what business leaders need to know. Read on to learn more and position your business for the next generation of instant account-to-account money flows.
What is remittance in banking?
In simple terms, “remittance” describes money sent from one party to another. Any transaction for a bill or invoice (in B2B contexts, for example) can be called a remittance. However, nowadays, the term mostly refers to cross-border transactions where migrant workers send money back home to their families.
Why is it so important?
Remittances are crucial for small and developing economies. For instance, money flows to low and middle-income countries grew by ~3.8% in 2023 to $669 billion, with the US and India sending and receiving the most money, respectively. Every penny of which is vital for families looking to buy household staples, send children to school and cover medical fees.
Of course, remittances in banking occur the world over, and the EU has its own thriving domestic market nearing €27 billion according to the latest data. Unfortunately, remittance in banking is infamous for being slow, costly and unreliable due to a fragmented web of legacy systems and technologies. In turn, there’s considerable appetite for change.
Spotlighting the EU remittance market
The latest data from Eurostat shows that total inflows and outflows of personal transfers and employee compensation reached new highs in 2022.
Much like the previous year, Switzerland was the main source of cross-border employee compensation, while Croatia, Latvia and Romania were the most dependent on personal transfers and employee remittances. Going forward, The World Bank estimates that remittances will decline by 5% in the Euro Area (as well as other large remitter markets) due to weak economic growth and the Russia-Ukraine war.
What are the different types of remittances in banking?
The meaning of “remittance” in banking differs slightly depending on the context. For example, some people may be interested in inward or outward remittances (i.e., whether money is entering or leaving a country). Alternatively, there are different types of remittances available. These can range from traditional methods, like sending cash or cheques via post, to electronic and online methods, such as bank transfers (SEPA, BACS, ACH, SWIFT, etc.) or prepaid cards.
Remittances in banking often involve a currency exchange too, even in the EU. As a result, remittance in banking can be complex, fraught with delays, added (or hidden!) costs, as well as multiple points of failure if bank account details are wrong.
How is open banking changing remittances?
Open banking infrastructure is fundamentally changing how remittance in banking works. Within the EU at least, open banking has streamlined how people send and receive money, making it more secure, fast and convenient.
For instance, people can use open banking integrations to share and validate their bank details more easily. In turn, there are fewer mistakes and delays while sending money. Then, using the SEPA network, remitters can make fast and easy bank transfers to remitees across the EU as if they were national payments within the same border.
As a result, there’s less demand for third-party money transfer services, since remittances can all be done via remitters’ own banking app(s) for free. Best of all, the deep integration of the European financial system means consumers can access cheaper FX rates if and when they do need to change currencies within the EEA.
What are some examples of remittance in open banking?
Examples of remittances in open banking include many (if not all) of the usual use cases that people otherwise send and receive money to one another.
These can include covering your half of dinner outing, flatmates splitting the cost of their bills, customers using “Pay by Bank” to buy goods from an online merchant or a migrant worker sending money back home. The important part of remittances in open banking isn’t why people send money, it’s how. Open banking makes remittance in banking easier, faster and more secure.
One of the more novel examples of remittances in open banking includes Brite’s recent work with Auctionet. Auctionet is a digital auction platform based in Sweden but with operations across the EU. Our ongoing partnership means buyers can close bids faster by completing (or remitting) balances instantly.
How can instant A2A payments benefit people who make remittances?
The EU is a world leader in open banking, but that doesn’t mean remittances across the continent can’t improve further. Compared to other remittance corridors (counties that remit heavily to another), the EU ranks among the fastest.
For example, international money transfers from leading providers can take up to five business days. Meanwhile, SEPA transfers (which is still an international payments network, albeit constrained to the EEA area) take a single business day. However, instant A2A payments powered by open banking stand to revolutionise remittances. As the name suggests, instant A2A payments are just that: instant.
Using open banking infrastructure, you can bypass traditional systems and transfer money directly and efficiently between bank accounts, resulting in faster settlements and lower costs. So, instant A2A payments powered by open banking can help businesses grow their operations in new markets by streamlining customer transactions while keeping costs down.
As a leading solution provider, Brite has our own proprietary instant payment network, meaning we can bridge the gap when open banking infrastructure is lagging across different regions. We even combine Strong Customer Authentication (SCA) and Instant Payment money flows into a single step – removing friction and making the payment process lightning-quick!
Conclusion
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 way and quick way to provide remittance payments at scale and meet today’s consumer expectations.
