Inside Europe’s $110 Billion Migrant Remittance Market

Although Europeans make up only 10% of the global population, the region is home to 20% of the world’s migrant workers; around 50 million people; who between them send over $110 billion per annum back home to families and loved ones, according to research from the International Fund for Agricultural Development.

IFAD’s report, which is based on remittance data collected by the World Bank in 2014, sheds light on what is traditionally thought of as a murky market, due to the fact that many remittances are not sent via recorded channels, utilising techniques such as “Harwala”, a word-of mouth system, many migrant workers are “unbanked” i.e. they do not have access to a formal bank account, and the sheer number and variety of remittances sent, across many different channels, and remittance corridors.

Besides setting global targets for reducing the average global cost of sending remittance to below 5% of total transaction value, the World Bank has been able to collect significant amounts of data from banks and MTOs and together with IFAD’s analysis helps us understand key trends and identify problem areas as well as emerging markets and areas of opportunity.

Headline Figures

The headline figures may surprise a few people. 6 European countries are responsible for 75% of all remittances sent; with the largest being the Russian Federation ($20.6bn), followed by the UK ($17.1bn), Germany ($14bn), France ($10.5bn), Italy (10.4bn) and Spain ($9.6bn). Each of these markets involve a different diaspora, with Russia mainly catering for neighbouring central Asian countries, Britain for ex-colonies including Nigeria, Bangladesh, India and Pakistan, Germany to Eastern European countries and the Middle East, France to North and Sub-Saharan Africa, Italy to a diverse range of countries including China, Albania, Egypt, Morocco and the Philippines, and Spain predominantly to Latin America, but also China, Morocco, and Romania.

Although not a top six remittance sender, Holland supplies more than 75% of Suriname’s total remittance inflows, which illustrates the unique remittance patterns which emerge all over the continent. Switzerland, for example, has the highest per-capita remittance total in Europe; over half of its outflows go to countries within Europe; notably Hungary, Kosovo, and Serbia.

Europe vs Developing World

Typically, a migrant worker sends between $1,500-$3,200 back home each year from their adopted European country. About one third ($36.5bn) of the total remittances sent are to other European countries, with the Ukraine, Poland and Romania receiving the largest volumes, whilst the remainder ($72.9bn) is sent to a network of 50 developing countries outside of the continent; Nigeria, China, Morocco, India, and Uzbekistan being the top five receivers.

Remittances are also sent to politically unstable or crisis-affected countries including Afghanistan, Eritrea, Iraq, Mali, Sierra Leone, Somalia, Sri Lanka, Sudan, Syria and Yemen, as well as non-EU countries with agrarian economies, such as Albania, Kosovo and Macedonia, where they are a vital source of funds. IFAD estimates that around 150 million people globally benefit from remittances sent from within Europe.

Receiving remittances is most costly in countries with little financial infrastructure and mostly rural populations, due to the travel costs involved, which highlights the need for the industry as a whole to provide more flexibility, such as mobile-to-mobile or online remittances, using advanced security measures such as facial recognition or fingerprints.

Money Transfer Operators

In total, there are more than 200 remittance providing services active in the European market. Thanks to the high number of Europeans who use banking services, banks claim a large share of the market but are generally seen as an expensive method, whilst postal services are popular in Germany, France and Italy. Money Transfer Operators (MTOs) are also a popular way to send remittances, with the market currently dominated by 2 major players in Europe; MoneyGram and Western Union. Other MTO’s using disruptive technologies such as peer-to-peer matching or money transfer apps are grabbing market share too; the likes of Azimo, TransferWise, Skrill, and Small World.

Regulations, Refugees and Better Technology

Because Europe is home to many different countries, cultures, governments and administrative bodies, remittance monitoring can be a complex business, For example, although there is a Europe wide piece of legislation limiting annual remittances to €15,000 without it being necessary to provide justification for the transfer, Spanish authorities, for example, have imposed a limit of just €3,000 and Belgium €10,000.

What is clear is that remittance flows tend to move from richer, to poorer countries, with countries in particular distress relying the most on money sent back from an overseas diaspora. In many ways it is encouraging to see a kind of support structure developing, but Europe is also struggling to house a rising number of refugees from poverty stricken or war-torn countries. The number of refugees from conflict states who are now living in Europe is conservatively estimated to be above 4 million – asylum requests in the EU rose by over 40 per cent in 2014 compared to 2013, reaching 626,000, and were foreseen to reach 1 million in 2015.

The remittance industry in Europe is far from perfect, and hard to measure. Help is on the way, in the form of disruptive technologies such as the blockchain, or mobile banking, which may help drive down fees and make the entire remittance process more transparent – but it is likely it will take decades to usurp the dominance of more expensive services that many migrants continue to use despite the high prices and generally poor service.

Positive Social Effects

Interestingly, the positive social effects of receiving remittances are well documented, with families receiving remittances generally saving more, and even becoming more socially harmonious thanks to the regular payments that can make such a difference to a families fortunes.

Remittances are often described as “dollars sent with love”. They are an invaluable source of support both to families and to emerging state economies, but more research is needed to truly understand the true socio-economic impact, and how a better system could potentially be built.