Remittance Payments in Business

Remittance payments are an overlooked method of international money transfer for both individuals and businesses. Payments that fall within the concept of remittance transaction typically benefit from lower fees, which amount to 6.2% on average. $857 billion was the amount of remittance flow in 2023, and it’s expected to rise to $1.1 trillion by 2025.  

Remittance payments are also another business opportunity that banking app owners may consider using. The market is large due to the number of immigrants and, respectively, the amount of remittance payments conducted worldwide as provided. So, you can reap financial benefits if you consider adding this service line when launching a neobanking startup or modifying an existing digital product. 

For you to have an insight into this business opportunity, in this post, we’ll delve into what remittance money transfer and remittance advice are. Besides, you’ll explore nuances of how remittance works, and what types of remittance can banks, particularly neobanks, provide. Additionally, you’ll review top considerations before starting a money transfer business. 

What Is Remittance Payment? 

For starters, let’s delve into the remittance meaning:

A remittance payment is a transfer of money by an individual to their home country.

Remittance is an overarching term that covers all the different methods of paying money. However, the parties between which the transaction is conducted and the conditions in which these parties are is what makes a regular payment to be a payment remittance. 

Remittance payments are typically sent to support family members or for personal use. Remittance money transfer is a significant source of income for many households in developing countries. It’s worth noting that transaction costs for such a form of payment are often significantly lower than the fees imposed on regular transactions. Due to that, payment remittance is the predominant method for all parties that qualify for it. 

A remittance advice is a document or notification sent by a payer to a payee detailing a payment that has been made. 

Remittance advices serve as a confirmation and record of the transaction. It contains remittance information such as the amount paid, the date of payment, and the invoice or reference number. Remittance advice helps a person to whom the finances were transferred to claim the funds. It’s essential to understand that a neobank is expected to send remittance advice upon each transaction, so it should be part of the remittance functionality. 

Here’s a list of parties that typically send or receive remittance payments, benefiting from low fees:

• Migrant workers
• Expats
• International and foreign exchange students
• Tourists and travelers
• Non-Governmental Organizations (NGO)
• Freelancers and remote workers
• Retirees
• Internation investors
• Charitable organizations
• Military personnel
• Healthcare workers abroad

These groups of individuals are your target audience respectively.

How Does Remittance Payment Work?

Remittance is often confused with regular cross-border transactions due to the similarities in concepts. This is especially the case for individuals and businesses that haven’t used or delivered this service yet. Here’s how remittance flows are executed step-by-step:

1. Initiation of transfer by sender
2. Selection of transfer method
3. Providing recipient details
4. Funding transfer
5. Currency exchange
6. Transfer processing
7. Recipient notification
8. Funds collection
9. Confirmation and receipt

You can take a look at the flow of payment remittance by parties involved in the infographics below:

As a neobank, you fulfill the role of either an acquiring bank or an issuing bank. In the first scenario, your payment processor is engaged to pass the initiated transaction to a card network. In the second scenario, you just settle funds into the respective recipient’s account.

As mentioned above, fees for remittance services are lower compared to what’s charged by a financial institution for a regular transaction. 

As a neobank or a digital transfer solution owner, you can differential between a regular transaction and a remittance payment based on several criteria:

• The purpose of payment
• Source of funds
• Recipient type
• Regularity and amounts
• Transaction codes

By taking these matters into account you can verify whether a transaction claimed by a sender to be remittance actually falls within this category or not.

There are some important aspects to take into account and communicate with your customers properly so they are not surprised that the receiving sum is lower than the amount sent:

• Sending remittance fees. When sending a remittance, you may be charged a fee. This fee could be a flat rate, determined at the time of the transaction, regardless of the amount being transferred. Alternatively, a percentage fee might be applied, which increases in proportion to the size of global remittances.
• Exchange rate. If the currency in which money is sent and the currency in which money should be received are different, there must be an exchange. Exchange rates can vary between providers, even at the same time on the same day.
• Receiving remittance fees. Just as you may be charged a fee to send a remittance, the receiving institution may also charge a flat or percentage fee to receive it. However, receiving fees are uncommon if you use the same provider for both sending and receiving the money.

Are you interested to learn how payment gateway and payment processor work? Read the corresponding blog post by DashDevs. 

Types of Remittance Payments

Just like with regular online transfers, the types of remittance payments are many. While some of them are prevalent, others gradually lose their popularity worldwide. 

So, here are regular remittance payment types:

• Cash pickup
• Bank deposit
• Mobile international money transfers
• Home delivery
• Online transfer
• Prepaid cards

The less widespread ways to send a remitting payment include: 

• Postal money orders
• ATM card transfers
• Bill payment services
• Automated Clearing House (ACH)
• Cheque

Let me take a guess Are you looking to provide listed remittance payments in your neobanking app or as a part of neobanking functionality? Well, not all types of remittance transfers are equally suitable for such a business model. Here are the ones you can expect to successfully implement, ordered from most to least common:

#1 Online transfer

It’s a core service for neobanks, anyway. So, conducting digital money transfers as remittances should not present any particular difficulty.

#2 Bank deposit

Direct transfers to bank accounts are another standard feature that neobanks, especially ones with a network of partnering banking institutions, can implement. 

#3 Mobile money transfers

Mobile wallets are a predominant payment method. Besides, they can be easily integrated with digital banking platforms. So, adding such an opportunity as a way to send payments remittance is pretty common. 

You can discover how to create a digital wallet from another blog post by DashDevs. 

#4 ATM card transfers 

Neobanks may provide recipients with ATM cards linked to their remittance accounts, allowing them to withdraw cash from ATMs. This is a convenient option for recipients who need physical cash access. For neobanks, this feature is only enabled through a network of conventional banks with ATMs. 

#5 Prepaid cards

Neobanks commonly offer and administer prepaid cards for a variety of purposes. Prepaid cards allow receivers to access remitted monies in a flexible manner, which is important for those who do not have bank accounts.

Explore another blog post by DashDevs to discover about prepaid cards and card issuance in detail. 

#6 Bill payment services

Some neobanks let you to transfer remittances straight to recipients’ bills, such as utilities or education fees. This guarantees that the funds are used for their intended purpose while also providing convenience for both the sender and the recipient.

#7 Automated Clearing House (ACH)

ACH transfers are used to send large quantities or recurring remittance payments, such as family assistance or company transactions. This method is useful for transmitting large amounts of money and is widely utilized in the United States.

What’s the Difference Between Remittance and Money Transfer

Money transfer is both the process and service of moving funds from one individual or entity to another. 

This can be done through various channels such as bank transfers, online payment services, mobile money, and remittance services. Money transfer encompasses domestic and international transactions.

You can additionally discover about cross-border money transfers as well as Account-to-Account (A2A) transfers from other blog posts by DashDevs. 

Money transfer is a broader concept than remittance transactions, as frankly speaking, remittance is just a form of money transfer. Let’s take a look at the table detailing the differences between money transfer as a general service and remittance:

Top Things to Know Before Starting a Remittance or Money Transfer Business

A business specializing in sending remittance transfers or money transfers is basically either a traditional bank or a neobank. Here is what is necessary to consider before starting such a company:

• Regulatory compliance. You need to ensure that your business adheres to regulations and legal requirements in each operating country. It necessitates obtaining EMI or PI licenses and complying with anti-money laundering (AML) and know your customer (KYC) standards. 
• Technology infrastructure. Creating a money transfer solution requires investing in a robust and scalable technological framework. This includes developing or acquiring reliable software for processing transactions, detecting fraud, and managing customer relationships efficiently and securely.
• Market research. Many startups fail because their product or service is not a good fit for a chosen market. That’s why it’s necessary to research the needs and preferences of your target audience. Identify key customer demographics, popular remittance routes, and current industry trends to tailor your services effectively.
• Partnerships and networks. As mentioned above, some remittances and, generally, payment transfer ways are only available under terms of partnership agreements with other banks. Forge strategic partnerships with banks, payment processors, and agent networks to extend your service reach.
• Security mechanisms. Implement stringent security measures to protect customer information and prevent fraudulent activities. Use encryption, multi-factor authentication, and regular security audits. You also must comply with both regional and local data protection laws including such as GDPR and PCI DSS. It’s worth noting that penalties for non-compliance, for example, with GDPR, can reach up to €20 million, or 4% annual global turnover – whichever is higher.

Getting started with a money transfer business requires substantial fintech experience and expertise. The right call is to request fintech development services at a trusted development agency, such as DashDevs. With our expertise in fintech and security practices, we can integrate remittance or any other digital transfer functionalities into your product or develop a new one from scratch. 

Additionally, we can offer you our white label solution for the fast creation and launch of neobanks — Fintech Core. It allows you to enter the market with your custom neobank as fast as within 3 months and deliver remittance and other money transfer services worldwide. Some examples of similar software solutions on the market, with a focus on remittance payments, are SDK.finance, Velmie, and Dzing. 

Discover more about Fintech Core

Final Take

With lower fees and multiple transfer methods available, remittance payments are a widely used financial tool among expats, international students, migrant workers, and other individuals and businesses. This payment transfer service can be implemented in an existing neobanking app or be a cornerstone of a new startup. However, it’s essential to consider tech infrastructure, regulatory compliance, banking networks, and other aspects to succeed.

Development and implementation of remittance money transfer functionality requires substantial fintech experience and expertise. Should you need such a project to be delivered with flying colors — consider DashDevs as your trusted development partner. With more than 13 years of experience and over 500 projects completed, we are ready, willing, and able to address your needs.

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