Making sure loved ones are financially taken care of can be a significant source of stress. It’s hard enough when they live in the same ZIP code or even the same state, but what about when those family members live across the world? It isn’t as easy dropping off an envelope of cash or handing them a check – you have to carefully think about how you’ll get the money to the intended recipient.
Most people sending money over great distances do so through remittances, available through a variety of different companies, to ensure the money makes it to the intended destination. These payments have even been affectionately referred to as “dollars wrapped with love” by economist Dilip Ratha and are a way for immigrants to funnel money back home to the families who have yet to, or will not, migrate away from their home country.
We surveyed 707 people who’ve sent money abroad about who they’re sending funds to, what the money is being used for, and what methods they’re using to do so – including the newest form of funds, cryptocurrency. Read on to explore the various ways money can change hands and cross borders.
Moving Money to Mexico
Remittances are big business. The World Bank estimated that nearly $150 billion was sent out of the United States to individuals in other countries in 2017. An estimated $30 billion was sent from the United States to Mexico via remittances that year alone, almost double the amount sent to China, which received the second highest amount. When you consider that the United States government provides $320 million annually to Mexico in aid, it helps to put in perspective the scale of the money that is heading back to provide direct aid to the citizens of Mexico through this process of securely sending funds.
When it comes to the rest of the top five countries that receive the highest dollar totals in remittances, all – China, India, the Philippines, and Vietnam – reside in the Asia-Pacific region of the world. No European country cracked the top 10 (Germany slotted in at No. 12 overall).
On the Receiving End
Sending money beyond one nation’s borders and into another may sound like the email scam where a Nigerian prince is looking to quadruple your money, but it is a very common practice for individuals to take care of loved ones. Over 75 percent of survey respondents reported sending money to family members in another country.
One fundamental need seems to be the biggest reason for sending money back home: food. Over 40 percent of our respondents sent remittances with the intended purpose of making sure there are full bellies and proper nourishment for recipients abroad. However, while there is more research required, initial studies have shown that while these remittances may increase the access to food, it may be less healthy or nontraditional food items. Thus, getting the money home solves just one of the problems for addressing dietary needs in many of these countries.
High Cost of Sending Money Home
With the remittance industry being as large as it is, it would make sense that someone has found a way to take some money off the top. Banks, money transfer companies, post offices, and mobile operators typically charge fees for helping individuals send money abroad. While some of the cheapest fees are through mobile operators, averaging 3.20 percent according to the World Bank, administrative fees can go as high as 10.41 percent on average when processed through a bank. Depending on the final destination of the funds (Africa, for instance), there could be an additional 15 percent captured through processing fees.
Over the course of several transactions, these fees can add up quickly. Our survey respondents reported sending money abroad an average of about five times a year and paying an average fee of $114.90 per transaction. That quickly adds up to nearly $600 a year in fees. While a few dollars here or there may not seem like much, these represent millions of dollars that get redirected to corporate profits.
Digital Distribution Makes for More Cents
Money is sent across borders through a variety of different services. Over half of the people surveyed have used online services, such as PayPal, and traditional money transfer companies, like Western Union, to help deliver their funds to recipients in a different country. Different from traditional forms of payment transfer, PayPal via Xoom (the company’s digital money transfer product) allows individuals in 53 countries to receive money almost instantly at an average cost of less than 4 percent per transaction.
Conventional outlets, like Western Union and MoneyGram, may be used because of name recognition but have represented a massive loss of money to the intended recipient thanks to “super-taxes” on funds heading to countries within Africa. These can result in surcharges of 13 to 20 percent beyond what a transfer to a non-African nation may cost. Perhaps this is why over 10 percent of people are dissatisfied with using these services versus the less than 2 percent who are unhappy with online services.
Where this industry is ripe for disruption is in the introduction of blockchain-based currencies, or cryptocurrencies, which could offer a cheaper and faster way to transfer funds. If some of the largest companies in the world, like Microsoft and Starbucks, are comfortable accepting cryptocurrencies as a form of payment, this should instill confidence in using these new forms of payment for sending remittances.
Bringing Remittances Into the 21st Century
Given its deregulated status, cryptocurrency offers plenty of advantages where domestic and international money transfers are concerned. By avoiding the high transaction fees and conversion rates typically associated with transferring funds abroad, you can take a few extra steps (including converting the government-issued currency into cryptocurrency and then back again), potentially seeing significant savings.
When asked about their experiences with international transfers, men were more likely to have tried using cryptocurrency compared to women. Still, of both men and women who had utilized the transfer method for themselves, more than 85 percent were satisfied with cryptocurrency as a sending method.
While men (especially younger, more affluent men) are often more likely to adopt new technologies faster, studies show it’s an interest in both science and technology that’s more likely to inspire people to embrace new products or ideas at a faster rate. More than a lack of interest, women may be less inclined to adopt cryptocurrency for their everyday needs as a result of their disadvantages with STEM subjects, even from an early age.
Comfort Around Blockchain Payments
Digital currency like bitcoin has become a household name over the last several years, but that doesn’t mean everyone who hears about cryptocurrency fully understands the ins and outs of how it works or how it could change their thoughts about saving and investing. After all, it’s not difficult to see why currency that’s intangible and only accessible through computers or electronic wallets is hard to fully comprehend.
When we asked non-users about cryptocurrency in general, roughly 1 in 3 men and more than half of women were either not at all or only slightly familiar with it. They were even less comfortable with the notion of blockchain, a pivotal part of understanding the technology behind digital currency.
In its most basic terms, a blockchain can be thought of as a decentralized database, or a digital real-time ledger that can record financial transactions, contacts, and physical assets. Available as either a public or private network, blockchains establish a peer-to-peer connection that allows cryptocurrency users to exchange funds.
Holdups and Hang-Ups on Using Cryptocurrency
While the jury is still out on bitcoin and how cryptocurrency, in general, will fare moving forward, many remain adamant that this is the future. Cryptocurrencies continue to grow, but big banks and mainstream investors are sometimes hesitant to get involved. Rather than its history or rapid growth trajectory, it looks like the lack of regulation may be making longer-standing institutions uneasy.
We asked current crypto users and non-users about their reservations with using digital currency. More than 40 percent of non-users said their biggest concern was their own lack of knowledge on how cryptocurrencies work, showing that maybe a little education might be all they need to get in the game. From blockchains to digital wallets, it’s fair to admit investing in cryptocurrencies like bitcoin and Litecoin can be slightly more complex than investing in stocks or bonds.
The second-most common reservation among non-users was that they were afraid paying someone in cryptocurrency would preclude them from being able to use that money for tangible goods or services. In reality, this is less of an issue. Whether it’s funding your next vacation or ordering a pizza, more online retailers than you might expect are cryptocurrency friendly, making it easy to turn this digital funding into real-life purchases. Not seeing the goods or retailers you need? As cryptocurrency becomes more widely accepted, more businesses will begin to accept it as a form of payment. With cryptocurrency being a relatively new invention, there are still challenges to work through, such as the volatility and tax implications associated with them.
Current users, unsurprisingly, didn’t have as many qualms about crypto, with more than 36 percent reporting that they had no reservations with using it. Users’ No. 1 hesitancy? They already liked their current method for sending money abroad.
Moving Money, Moving Forward
People sending money home after they’ve migrated from other countries to the United States is a practice that will likely continue far into the future. The only question now is how that money will continue to make it to its numerous world destinations. As individuals look to make sure that as much of every dollar they send can make it back – as close to a one-to-one match as possible – digital payment options, like those presented by cryptocurrencies, can pique the interest of customers.
These platforms are well-paced and structured to capitalize on the aging practices of long-standing money transfer companies that may not react quickly enough to the changing payment landscape. Users will find the most secure platforms that offer the lowest fees to make sure their money reaches its destination – and if older payment methods can’t guarantee that, blockchain payments and cryptocurrencies might be the primary vessel of remittances into the future.
If you’re considering changing up your methods for sending money to loved ones abroad, Clovr has an easy-to-use digital wallet that let’s those who are new to the world of digital currencies send and accept crypto. You can learn more at Clovr.com.
Using Amazon’s Mechanical Turk, we surveyed 707 people. Respondents had to report sending money to someone abroad to qualify. Respondents were 57.8 percent male and 42.2 percent female. The average age was 34.5 with a standard deviation of 10.6. When asked for place of birth, 36.4 percent of respondents reported being born outside the United States. For race/ethnicity, the survey respondents identified as 68.3 percent Caucasian, 10.2 percent black or African-American, 8.9 percent Asian, and 8.4 percent Hispanic or Latino. The final 4.2 percent of respondents identified as either American Indian or Alaska Native, multiracial or biracial, or native Hawaiian and other Pacific Islander.
Respondents were asked what country they sent money to most often. The top five countries the respondents reported were Mexico, Canada, the United Kingdom, India, and Germany.
Parts of this project use data from the World Bank, including estimations from its Bilateral Remittance Matrix 2017 and averages from its Remittance Prices Worldwide June 2018 report.
When reporting who they send money to, its intended use, what method they use to send money, and their reservations about using cryptocurrency, respondents were able to select all options that applied to them. As a result, percentages in some of the visualizations may not add to 100 percent.
When reporting who they send money to, respondents were able to select from an expanded list of family members, friends, and acquaintances. This list was later consolidated to the following broad categories:
- Family Member
Respondents were asked to rate their satisfaction with the current methods they use to send money to other countries. They were able to choose from the following scale:
- Extremely satisfied
- Moderately satisfied
- Neither satisfied nor dissatisfied
- Moderately dissatisfied
- Extremely dissatisfied
These were then consolidated into three groups: satisfied, neither satisfied nor dissatisfied, and dissatisfied. The neither-satisfied-nor-dissatisfied group was excluded from our visualization of the data.
Averages presented in this project were calculated to exclude outliers rather than skew the data. This was done by multiplying the standard deviation of the data by two and adding the result to the original average. Figures above that calculated amount where then excluded from the final average calculation.
Some of the data being presented in this project rely on self-reporting, which comes with potential issues. These include selective memory, telescoping, attribution, and exaggeration, among others.
The data in this project were not statistically tested. Therefore, the assertions presented are solely based on means.
Fair Use Statement
Do you or someone you know have friends or family members who should consider cryptocurrency when sending money abroad? Feel free to share this project for any noncommercial use. Just ensure a link back to this page so people can see our findings in their entirety, and our contributors earn credit for their work.