A recurring critique thrown at crypto is that it is a technology in search of a problem. In the typical back and forth that then ensues over the value of crypto, the topic of remittances inevitably comes up. It’s a use case that many are familiar with and have personally felt the pain of. Sending money between countries is inefficient and expensive.
As I dug into this topic, I found that a major research gap exists in terms of tracking just how much remittance volume is flowing via crypto rails. Of course, I am not a research expert and have a day job, which prevented me from combing every possible report, but there are very few sources available that even take a pass at triangulating the crypto remittance volume.
Crypto, and stablecoins in particular, are a new technology at the beginning of the adoption curve, but I was still shocked at how difficult it was to find studies or reporting around remittance volumes in crypto. Don’t despair though, I was able to come up with a rough estimate after a little digging and employing some consultant math. 😁
Let’s start by setting the scene. The Global Migration Data Analysis Centre (GMDAC) estimates that USD 857 billion of remittances were sent in 2023. After a dip in 2020 during COVID, remittances have been steadily growing year after year and are expected to grow at a rate of 3% in 2024. India is the largest receiver of remittances with $89B received in 2023 with Mexico and China not too far behind.
Not surprisingly, $857B is a lot of money. Remittances are a big deal and in some countries make up a significant portion of GDP. India is obviously one of the world’s largest economies at $3.57T, so while the $89B of incoming remittances is absolutely significant and life-changing for many families, it only represents ~2% of India’s GDP. For much smaller economies though, remittance flows can account for over 20% of GDP. The chart below shows the countries where remittances account for the largest share of national GDP.
We’ve established that remittances are large and extremely significant for many economies, so let’s understand more about transfer fees and just how much money is being lost to intermediaries in this process. The GMDAC estimates that the average cost of sending USD 200 is 6.4% (~$13)! This cost varies by region and method used for transfer. Asia tends to have the lowest remittance costs at 5.8% while Sub-Saharan Africa sees an average cost of 7.9% 😱. The Sustainable Development Goals (SDGs) from the United Nations set a target of having the global average remittance fee be only 3% by 2030. Unfortunately, we’re a far way off from this.
When you start digging into the channels used to send remittances, you see a massive difference in fees depending on the method used to send funds. The chart below shows how much fees vary by remittance service provider (RSP). As you can see, that orange line for the banking channel sits well above the other providers with an average of over 12% for remittance transfers via banks. Fortunately, there are a variety of new digital channels emerging, but the traditional method of using a bank to send funds remains exorbitantly expensive.
If you want to dig deeper into average cost data by region, the World Bank puts out a comprehensive quarterly report on remittance costs all over the world and by channel used to send the money. In the next section, I want to dig more into the mechanics of why these fees are so high and also why it takes so long for money to travel from A to B.
As discussed above, there are several different channels used for sending remittances. I could write a whole other article on the different transfer methods, but at a high level, some version of the graphic below occurs (thanks to the Coinbase Institute for the graphics). Let’s take the example of a person in the United States who sends funds to Mexico. In the simplest example, a person takes some cash she’s earned in the US, goes to a money transfer agent in New York City, and then that money is sent on its way via the agent’s network. Depending on where the funds are going, that money might stay within the agent’s existing network or hop between several banks. The recipient eventually heads to their own local agent in Mexico and takes cash out.
The example is simple enough, but depending on all the various permutations of services available, that simple transfer will have likely incurred a significant fee and could arrive within an hour or within 5 days! This chart below does a great job mapping all the permutations of fees and transmission times by method.
