The need to transfer funds across borders has risen considerably over the last few decades. Scores of businesses pay suppliers and employees from other countries and several receive payments from international customers. Migrants require the services of the remittance industry on an ongoing basis, and their numbers continue to swell. Fortunately, advancements in technology have ensured that making international fund transfers is no longer expensive, time consuming, or bothersome.
The global remittance industry has come long way since the ninth century, when Chinese traders used ‘flying money’ in the form of paper vouchers as proofs of payment, which served as a means to safeguard themselves from thieves. It was only when the industrial age had set in that international money transfers took a completely new form. Wire transfers entered the picture in the late 19th century, and its popularity resulted in the birth of several private non-banking companies that offered this service. Some of the pioneers of this field, such as Western Union, remain in existence even today.
While wire transfers were common in the late 19th and early 20th centuries, the use of mail remained the primary mode of communication even until the early 1990s. By this time, international money orders started finding an increasing number of takers, and they soon became one of the most commonly used way to transfer funds internationally. In the mid-1990s, money orders accounted for around 40% of remittances sent to Mexico. Low costs worked in the favor of international money orders, although the time taken for funds to reach recipients depended on multiple factors.
The biggest changes have taken place around the turn of the last century. The use of electronic transfers has increased manifold, and this medium now accounts for over 90% of all cross-border remittances. A recipient can receive cash from a physical location moments after a sender initiates a transfer. Alternatively, funds can move between bank accounts held in different countries with relatively ease, without actually dealing with a bank.
The future looks better still, where a society is embracing going cashless. With the advent of virtual crypto-currency platforms such as Bitcoin, Ethereum, and Litecoin, moving funds from one country to another may get easier than ever before.
Banks – International Telegraphic Transfers and Wire Transfers
The terms wire transfers and telegraphic transfers are often used interchangeably. However, a telegraphic transfer, historically, relies on a cable message being sent from one bank to another in order to facilitate a fund transfer. A telegraphic transfer, or a telex transfer, usually involves a fee charged by the sending bank, and in some instances, by the receiving bank as well.
A wire transfer involves the transfer of funds electronically, and you may carry out a wire transfer through your bank. Financial institutions might depend on different transfer systems and offer multiple options when it comes to aspects such as costing and turnaround times. For example, centralized bank wire transfers in the U.S. typically rely on real time gross settlement (RTGS) systems that offer real-time and irrevocable settlements.
Banks have lost out on their share of the global remittance pie over the last couple of decades mainly because of cost-effectiveness, although the time they typically take to process transfers has also played a role. The competition they face from their non-banking counterparts, without doubt, is stiff.
Specialist Money Transfer Companies
Western Union launched its wire transfer service in 1872, by making use of its then existing telegraph network. Now, the company has storefronts in several countries, giving people easy means to send and receive money in different ways. Some of the other popular players with physical locations or agents include WorldRemit, MoneyGram, Azimo, and Ria. While the wire transfer services offered by such companies are largely similar to what you’ll find through banks, they tend to offer quicker turnaround times by charging extra fees.
The online space, owing to fewer overhead costs and rapidly evolving technology, has sprung a number of FinTech companies such as TransferWise and CurrencyFair. TransferWise, a UK-based FinTech unicorn, for instance, has successfully driven down industry costs by offering game changing services such as low-fee multi-currency accounts.
Low Tech Remittance Across Exotic Currencies Using Second Generation Mobile Phones
Residents of several countries in Asia, Africa, and South America continue using second generation mobile phones. This presents a unique opportunity not just for businesses that deal in remittance of funds, but also for mobile phone network providers. Digicel, owned by the Irish billionaire Denis O’Brien, currently operates in 31 markets across Central America, the Caribbean, and Oceania. With around 14 million customers, it is already making inroads in the mobile banking and micro insurance sectors. O’Brien has, in the past, made clear that he hopes to leverage his mobile brand to facilitate cash transfers.
The Future – Crypto Currency Remittance
There has been a rise in the use of crypto currency as a medium for global remittance, and the upward trend is set to continue. Catherine Wood, CEO of ARK Investment Management in the US, opines that “The liquidity isn’t there, but as we gain liquidity in bitcoin, the costs will drop dramatically and be minimized. As a digital ledger, blockchain is fully transparent. There is an audit trail. We are eliminating a lot of middlemen here. FinTech will be more of an answer to the problem of fraud than a cause of it.”
However, not everybody is equally optimistic. Taavet Hinrikus, CEO of UK-based TransferWise, feels “There is a fundamental problem. It is lacking a purpose and is pure speculation. I cannot really see a problem that bitcoin is solving.” His view of the overall blockchain technology is more positive, about which he says, “I see things coming to life which are built around blockchain but not digital currencies.”
For now, it looks like depth of market may impact the ability of exchanges to convert in and out of local exchanges in different global regions. As a result, crypto currencies may not be appropriate for some of the more exotic currencies yet.
The developing FinTech sector will, without doubt, define the future course of the remittance industry. With consumers becoming increasingly aware of the options they have, the industry will need to keep evolving so it can provide services that match the needs of its customers. The way money is transferred across borders has witnessed a sea of change in the last two decades, and by the looks of things with new multi-currency accounts, better things are yet to come.
The Covid After-Effects and the Looming Skills Shortage
The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.
The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.
In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.
In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.
The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.
From our partner RIAC
Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery
Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.
Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.
I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.
In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.
Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.
However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people. The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.
Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.
As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.
For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.
Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.
Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.
This op-ed first appeared in The Nation, via World Bank
An Airplane Dilemma: Convenience Versus Environment
Mr. President: There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior. For example, the decline in the use of automobiles has been to the benefit of the environment. A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.
Yet there is hope. We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort. Such is also the belief of aircraft operators. Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.
In short, the need for passenger planes has diminished while cargo operators face increased demand. Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation. All of which has led to a new business with new jobs — converting passenger aircraft for cargo use. It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.
After the seats and interior fittings have been removed, the cabin floor has to be strengthened. The side windows are plugged and smoothed out. A cargo door is cut out and the existing emergency doors are deactivated and sealed. Also a new crew entry door has to be cut-out and installed.
A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space. A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.
The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics. At the end of it all, we have a cargo jet. If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.
Airline losses have been extraordinary. Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues. This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.
For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes. The latter also requires obtaining regulatory approvals.
A promising development for the future is sustainable aviation fuel (SAP). Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.
It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing. The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth. All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.
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