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Is It Possible to Use Fintech for Remittances in the Pacific Islands?

Is It Possible to Use Fintech for Remittances in the Pacific Islands?

In October 2019 the report “Finteching Remittances in Paradise: a path to sustainable development” was published by the UN Economic and Social Commission for Asia and the Pacific (UNESCAP).

The Pacific Islands are especially vulnerable to natural disasters,  and are geographically very remote. According to the World Risk Index in 2018, Vanuatu ranked first worldwide as having the highest risk of disaster from extreme natural events, followed by Tonga. 

Remittances are key to the Pacific Islands, in fact they receive much larger remittance inflows as a proportion of their GDP than any other country-group. Tonga received the highest level of remittances as a proportion of GDP, reaching 37.1 per cent.  In total, in 2017, around US$688.5 million was sent to the Pacific Islands via remittance transactions. The largest recipient was Fiji, recording almost US$274 million or 40 per cent of the total. 

Cultural, family and community values are key in the Pacific Islands. Pacific Islands populations living and working overseas feel the social obligation to send part of their income to support their immediate and extended families (AUSTRAC, 2017). The money sent is mainly used to cover food, housing, medical bills and education, although it is also common to send to the community after natural disasters, or for important social or family events such as weddings or funerals. 

Yet, as we know from the data published on SendMoneyPacific, transaction costs of sending remittances to these countries are amongst the highest in the world. The average cost of remitting US$200 to the Pacific SIDS from 2011 to 2017 was 11.6 per cent of the transaction value. This figure is well above the global average of 8.2 per cent, as well as other parts of the world. If costs can be lowered, then this will help economic and social development, and improve financial inclusion, this report observes.

The reasons that costs are so high for the Pacific Islands are (i) small size of transfers, (ii) banks de-risking some money transfer operators, and (iii) their geographical isolation.

Can these barriers to low costs be broken?

Lowering the cost would likely mean that more money is sent to the Pacific Islands as senders pass on the benefit to their recipients, and also less would be sent via informal and unregistered channels, which would mean that policy makers have a better indication of the amount of money entering the country in the form of remittances. 

Can costs be lowered through use of financial technological (fintech) solutions? Will this work for the Pacific Islands? What needs to be done to make use of this technology?

This paper runs through a ladder with five rungs and analyses them: availability of fintech solutions, accessibility to them, awareness of them, literacy – ie the ability to understand the financial product being offered, and the feeling of trust towards these technological options.

The conclusion from the analysis in the report is that among the fintech-based remittance services, mobile money is the most prevalent and more readily accessible to Pacific Islands populations. Countries in the region are different in their stage of readiness for fintech adoption. While Fiji, Samoa and Tonga have shown almost all of the necessary conditions for adopting fintech-based remittances, other countries still lack behind, requiring extra efforts to encourage the digital transformation of remittance services. In the Pacific Islands, cash is still king. 


You can read this report here.

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