In addition to their key role in remittance services, fintechs can help migrants stay connected to their country of origin, providing a platform to make investments in their home country

In finance circles there’s a saying that every fintech founder dreams of a banking licence, and every bank CEO dreams of a working app. But these dreams are already possible today through partnerships between fintechs and traditional financial institutions. Combining the strengths of both is key to driving progress in the remittance market. Therefore bashing fintechs, as the IMF has done, is simply an outdated approach. Fintechs bring their expertise in technology and digitisation, while established players in the industry bring their regulatory knowledge and experience. Together they can create a more efficient, reliable, accessible and innovative market for remittance services at a lower cost and with more transparent prices. Fintech companies are not simply ‘cyborg banks’ doing the same thing as banks digitally. Instead, they are bringing a range of innovative technologies and services to the remittance market, such as digital KYC (Know Your Customer) and AML (Anti-Money Laundering) screening, compliance, and onboarding of clients. The remittance market is also not always a purely digital one, especially at the receiving end, and there is often a need for a high level of offline or non-digital interaction. Fintechs that are closing the digital gap by providing digital payment solutions to family members are key players in this process. Removing the migrant tax In addition to their key role in remittance services, fintechs can also help migrants stay connected to their country of origin. For instance, they can provide a platform for migrants to pay bills, buy insurance and make investments in their home country. This helps them feel more connected to their home country, but can also help provide additional financial support to their families. Moreover, by providing remittance services through fintechs, the families of migrants can gain access to financial services and become financially included. This can have a positive impact on the economy of their country of origin, ultimately benefiting the migrant population as a whole. The remittance market is plagued by high costs, with migrants paying on average seven percent in fees, not including other costs, such as transport to branches or lost time waiting. This effectively amounts to a tax on the most vulnerable, and reduces the amount of money that flows into their home countries. In a downwards cycle like the one we are currently experiencing, the impact of these high fees is even more significant. For example, Africa received $100 billion in remittances from its diaspora last year, while development finance institutions dedicated only $35 billion in loans and grants to the continent in that same year. This ‘migrant tax’ amounts to $7 billion which did not benefit African countries last year. It shows the critical importance of remittances for both the families and the countries receiving them. If the IMF truly cares about the welfare of migrant populations, it should assist regulators in reducing strict controls on cross-border transactions under $500. These controls, which are often imposed by wealthier countries, disproportionately affect migrant families and act as a tax on their hard-earned money. It is possible to balance the need for financial controls with the need to provide access to financial services and at Balad we are happy to contribute our share towards this change by banking on partnerships.

Adham Azzam is CEO of Balad