The Philippines is a country that’s dependent on money remittances coming from abroad. Both the Philippine economy and individual families are reaping the fruits of labor of overseas Filipino workers (OFWs).
According to Rappler, in the Philippines, December 2017 closed with cash remittances of overseas Filipinos growing by 4.3 percent to $28.06 billion, while personal remittances grew by 5.3 percent to $31.29 billion. At the time, the government was targeting a 4 percent remittance growth, which means the country even surpassed its goal.
This translates to a ripple effect: as remittances made by OFWs increase, Filipinos back home have more money to spend on goods and services, and to invest on local businesses that boost the country’s economy.
Because remittances account for 9.6 percent of the country’s GDP, the recent remittance growth also empowers more Filipino families to have a decent quality of life. Like in other developing countries, remittances help provide for daily needs in any household, and without it, a family may barely survive.
Why Traditional Remittance May Not Be Effective
Given the importance of cash remittances to the economy and to families receiving them, you may expect that policies in the remittance industry are working as they should be. In a perfect world, remittances will be readily available for the intended recipients and will be cost-effective for the OFWs sending them.
Unfortunately, the current system of remittance processing doesn’t come without loopholes. Traditional remittance is still trying to overcome a number of challenges like the ones described below.
1. High transaction fees
At present, banks and traditional money transfer operators are two of the main channels used by Filipinos for sending and receiving money abroad. Both can be expensive though, as they charge service fees that amount to significant sums of money.
Although big banks have branches abroad, allowing migrant workers to make a deposit to send money back home, the recipient in the destination country has to maintain an account with the same bank. This will allow the easy exchange of money between the two at fixed rates. Without the required bank account, however, banks may charge up to $30 to deliver the money to your beneficiary. Unfortunately, as many as 52.8 million Filipinos don’t have bank accounts, according to a 2018 survey from the Bangko Sentral ng Pilipinas (BSP).
Sending money through remittance centers, or traditional money transfer operators, can be equally expensive. Upon sending money to your family, the remittance company will be deducting $18 to $20 from the total amount of money you sent as transaction fee.
Although this enables the recipient to pick up the money within minutes after you wire transfer the money, it doesn’t change the fact that your family can’t get the money in full. Often, this is the more popular option because it’s faster than inter-bank transfers, where transactions need to verified before money can be released the following day.
2. The repercussions of de-risking/de-banking
De-risking or de-banking pertains to when banks sever their relationship with firms that may pose high levels of risk to banking operations. Already, some money transfer operators are unable to access banking services due to this kind of policy.
In this kind of situation, remittance centers are prevented from opening or maintaining bank accounts since these accounts may be used as a front to carry out illegal activities, such as money laundering or terrorist attacks. As a result, Filipinos will have fewer options on how they can receive their remittance. They can’t get hold of their money—especially when they need it within a certain amount of time.
3. Lack of coping mechanisms in time of political instability
When cases of political unrest happen, governments may control the nation’s central bank, stock exchange, and other financial institutions to make sure that they have enough supply of money to keep the economy running as normal as possible.
It’s also likely that political instability may cause ties between governments to be cut until they come up with the best resolution for both sides. In such cases, the turnaround time for sending and receiving money may become longer, not to mention that depreciation in currencies can cause significant cuts on the amount of remittance Filipino families will receive.
Finding the Balance Between Traditional and Digital Remittance Channels
Remittances from OFWs are the biggest source of money for the families they have left behind in the Philippines. That’s why they need a remittance channel that will allow them to send their hard-earned money without encountering issues. They won’t have peace of mind until they know that money is in the hands of their loved ones at home.
Digital solutions like Ark Remit may be a better alternative over traditional remittance options for OFWs because it’s faster and cheaper, and more reliable and secure. It’s also decentralized, meaning there’s no one single institution that regulates the digital currency available on the platform.
With the Ark Remit service fulfilling the most important requirements in money remittances, every OFW’s family will finally be able to enjoy every cent of their remittance at the time that they need it most.