Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Emerging Market Remittances Are Going Digital
Transcript
- Lucas: Luna, here's a number that stopped me this morning. In 2025, remittances to low- and middle-income countries hit an estimated $685 billion. That's more than foreign direct investment for the first time. Luna: That's a flip. FDI has always been the headline metric for emerging market capital flows. Lucas: Exactly. And part of why that gap is closing is the shift from cash-based transfers through agents to digital rails. We're seeing mobile money platforms and fintech companies dramatically cut the cost of sending money home. Luna: So the average cost is still around 6 or 7 percent, right? The World Bank has been pushing for 3 percent for years. Lucas: Right. And digital corridors are the reason some corridors are already below 2 percent. Take M-Pesa in Kenya. It's been around for a while, but now it's integrated with global platforms. Send money from the UK to a mobile wallet in Nairobi, and the fee is under 2 percent. Luna: Compare that to Western Union, where you're still paying 5 to 7 percent for cash pickup. Lucas: And that's where the real shift is happening. The Philippines is another great example. GCash, which is part of the Globe Telecom group and backed by Ant Financial, has something like 80 million users now. Overseas workers can send money directly to a GCash wallet, and the fee is often zero for the sender if they use a partner app. Luna: I've seen ads for that in Hong Kong — 'send to GCash, no fees.' It's aggressive. Lucas: And it's working. GCash processed over $100 billion in transaction value last year. That's real volume. And then you have Wave in Senegal, which is doing something similar in West Africa — using mobile money to bypass the traditional banking system entirely. Luna: What about the big players? PayPal, Wise — they're trying to get in on this too. Lucas: Wise has been building out local corridors in Southeast Asia and Latin America. They now offer direct transfers to bank accounts and mobile wallets in over 40 emerging markets. PayPal's Xoom service is also expanding. But the competition is fierce because local players already have the distribution. Luna: And the regulation is different. Each country has its own rules around mobile money and e-money licenses. Lucas: That's the big friction point. But there's another trend accelerating this: blockchain-based remittances. Stablecoins like USDC are being used to send money across borders almost instantly, with fees below 0.5 percent. Luna: But that assumes the recipient can convert crypto to local currency easily. In many emerging markets, that's still a hurdle. Lucas: True. But some companies are solving that. For example, a startup called BitPesa in Africa allows businesses to pay suppliers in local currency using blockchain settlement on the back end. The user never touches crypto. Luna: So it's like the crypto is just the rail, not the product. Lucas: Exactly. And central banks are watching this closely. Several are piloting their own digital currencies — CBDCs — to create a state-backed digital payment system that could undercut both traditional remittance firms and crypto platforms. Luna: Nigeria's eNaira is already live, though adoption has been slow. China's digital yuan is being tested in cross-border corridors too. Lucas: Right. The People's Bank of China has been running pilot programs with Hong Kong and Thailand for digital yuan remittances. If that scales, it could reshape the entire landscape for the hundreds of millions of migrant workers sending money back to families. Luna: It's interesting you mention that — I've been reading about how these digital corridors are actually making remittances more resilient during crises. Lucas: That's a crucial point. When the pandemic hit, traditional remittance channels saw huge disruptions because agents closed. But mobile money transfers actually increased in many countries. In Kenya, M-Pesa transactions rose 30 percent during the first lockdown. Luna: So it's not just about cost — it's about reliability. Lucas: And that matters more than ever given the current macro environment. With the US dollar at 120.5 on the trade-weighted index, remittance-dependent countries are getting a lot less local currency for each dollar sent. Digital channels that reduce friction can help offset some of that pain. Luna: If walking through the economics of remittances with us has made something click, you know what keeps these conversations ad-free? It's listener support. If the show helps you think more clearly about these trends, maybe consider throwing a couple bucks at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that makes a big difference for us. We don't run ads, we don't have sponsors — it's just listener support that keeps the lights on. Luna: So back to the resilience angle — what does this mean for a country like Lebanon, where remittances are a lifeline? Lucas: Lebanon is a hard case because the banking system is in collapse. But digital remittances via mobile wallets have actually grown there because they bypass the banks entirely. Platforms like OMT and Whish are processing transfers that would otherwise have to go through a broken banking system. Luna: So digital remittances become a kind of parallel financial system. Lucas: Exactly. And that's both an opportunity and a risk. If these platforms are well-regulated, they can provide stability. If not, they can become channels for illicit flows. Regulators are trying to strike that balance. Luna: Where do you see this going in the next two or three years? Lucas: I think we'll see a continued shift from cash to digital, with the average cost dropping below 4 percent globally within two years. The World Bank's 3 percent target might actually be achievable for some corridors. But the real game-changer will be if major central banks launch interoperable CBDCs that allow instant, low-cost cross-border transfers. Luna: You sound cautiously optimistic. Lucas: I am. Because $685 billion is a lot of money, and every percentage point saved in fees puts about $7 billion back in the pockets of families who need it most. That's real economic impact. Luna: And it's not just about the money — it's about financial inclusion. Mobile money accounts have brought hundreds of millions of people into the formal economy for the first time. Lucas: Right. And that's the story that often gets overlooked in the headlines about trade wars and currency wars. Beneath all that, the infrastructure for moving money is quietly getting cheaper, faster, and more accessible. That's a trend worth watching. Luna: Agreed. And we'll keep tracking it.