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India is the largest recipient of remittances in the world. Last year, it accounted for $83.1 billion (Dh305 billion) of the $140 billion remitted to South Asia. With the World Bank estimating a 22 per cent decline in remittances to the region this year, to $109 billion due to Covid-19, India will be hit hard.

As the country deals with lower remittances, especially the state of Kerala, which is among the top recipients, money transfer companies and banks in the UAE, are also facing challenges.

“We operate in 11 countries and our business has been hit differently across regions,” says Adeeb Ahamed, Managing Director of Lulu Financial Holdings, which operates LuLu International Exchange. “Year-to-date we have seen an overall shrinkage in terms of revenues, but we are witnessing a steady recovery, aided mostly by our digital offering LuLu Money.”

The accelerated migration to digital platforms during the pandemic is changing the dynamics of the remittance sector, says Sonny Zulu, Managing Director and Head of Retail Banking at Standard Chartered UAE, but he expects the downward pressure on remittances to continue over the coming months.

“Notwithstanding the multiple possibilities of the shape of the economic recovery curve, the near-term outlook for the remittances sector will remain challenged. In the retail space, the impact in the Middle East is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during economic crises.”

On the other hand, he says, there may be a slight increase in remittances from those repatriating back to their homes following the job losses. “Advances in technology with digitising and user-friendly platforms are also contributing to offsetting the deceleration.”

No doubt money transfer companies that are agile and digital-friendly have slightly fared better.

“We have managed to stem the downfall by pushing forward our digital offering and innovating our service models to better serve existing and new customers,” explains Ahamed. “We have been investing heavily in our digital offering since 2017, and the presence of a robust foundation helped us scale up our digital capabilities to meet the sudden spike in demand for digital payments. We also expanded our Wage Protection Scheme to include more corporates and launched salary card as a payment option on the app, which has been a boon to millions of blue-collar workers in the UAE.”

LuLu Money allows instant remittances and payment tracking. “In the second quarter, we witnessed a larger rate of onboarding thanks to the adoption of the app by consumers across sectors, with digital transactions accounting for nearly 15 per cent of our total transactions. The adoption rate differs from country to country, and in places where there have been continued instances of lockdowns, LuLu Money has helped stem the losses by a significant amount.”

With banks also eyeing a slice of the remittances pie — having accounted for Dh34 billion out of the Dh165.2 billion outflow from the UAE last year — digital remittances have come into sharper focus.

Zulu says that along with the positives, digital remittances present challenges such as cyber risk, de-risking, as well as high fees and charges. “Some of the fees and charges, including corresponding banking charges, have been considered to be unaffordable for many low-value transactions.”

While many money transfer companies have emerged with relatively cheaper solutions, he says, they have limited digital solutions.

That’s why Ahamed is focusing on coming up with solutions that can serve a new generation of digital and tech-savvy consumers. “We will continue to expand our digital capabilities and re-prioritise our ongoing projects and goals. There is a huge segment of customers who are unbanked and yet to take advantage of the digital remittances sector.”

To meet demands of all consumers, Zulu calls for partnerships between industry players. “No single institution can build an ecosystem wide enough to meet the needs of consumers without partnerships,” he says. “It is imperative for all players to build and participate in partnerships that will result in a win for everyone.”

With the cost of transferring money to South Asia hovering at an average of 4.95 per cent of the total amount sent, higher than the United Nation’s Sustainable Development Goal of 3 per cent but lower than many other remittance corridors, what’s the way forward?

“The cost of remittances has to drop for more consumers to participate,” explains Zulu. “Should the cost drop when more consumers begin to participate or should the cost drop now for more consumers to begin to participate? The answer lies somewhere in the middle. There is no question that a large population remains outside the ecosystem and investments and cost challenges for financial institutions and money transfer companies will be addressed when more people participate.”