In what is shaping up to become a digital remittance revolution, payments technology company Mastercard said it continues to build out more solutions that aim to accelerate the flow of funds to unbanked and underbanked populations across Latin America and the Caribbean (LAC).

The company in seeking to create more avenues for the financially excluded population in the region, Rasika Raina, executive vice-president of transfer solutions at Mastercard said remains committed to the adoption of an inclusive strategy.

“If it’s not inclusive, it doesn’t scale and if it doesn’t scale it doesn’t matter, which is also very true for remittances. Approximately one billion people are impacted directly or indirectly by the sending of remittances so it is an area which we must give a lot more focus,” she said during a media session held this week with journalists across the LAC region.

With cash remaining king in a large cross section of this market where approximately 64 per cent of unbanked and underbanked are now receiving remittances in physical payments, the vice-president believes there are huge opportunities for growth of digital transfers. A move which she said could also help to reduce the cost associated with processing cash payouts, now averaged at about seven per cent, which the United Nations wants reduced to three per cent in the next few years.

The global remittance market, now said to be a trillion-dollar industry, sees approximately two-thirds of total disbursements going to low-middle income countries to fund essential needs such as food, education and housing. In 2023, US$800 billion in remittances was sent by migrant workers back home. The LAC region which welcomed inbound transfers of over US$156 billion was second to the US$322 billion received in Asia Pacific, surveys found.

The Latin American market in accounting for the bulk of this amount, benefited from growth of some eight per cent inflows during 2023.

“There is an evolution that is happening in the industry today and what is driving that evolution can be linked to the channel that has accelerated its path. It is interesting to know that for the first time ever globally, digital remittances sort of surpassed cash remittances, reaching over 50 per cent in 2023. Latin America now tracking at about 40 per cent comes close and also remains on a path to cross-over the 50 per cent mark as there is a lot of money that is being moved in our region,” Stefany Bello, senior vice-president of market development, merchants and commerce for LAC at Mastercard, said.

The growth in digital remittances, which first took off in the outbreak of the COVID-19 pandemic due to limited physical interaction that forced most people to go on line, Bello said, has been accelerated by the rise of a younger demographic in the LAC which favours the convenience of digital processes.

With other 2,000 fintechs in LAC, the rapid rise of more of these, she said, will also help to proliferate the path to financial inclusion and greater ease of access for persons.

“The rise of digital wallets is one of those channels that has helped to accelerate payments in a lot of our markets,” Bello indicated, while noting that Mastercard, through a current partnership with fintech firm Paysend, has increased the opportunity for funds to be sent directly to the wallets of remittance receivers.

“Paysend is a fintech focused on cross-border payments and we launched a solution with them called Paysend Libre which allows senders in having just a phone number to be able to send money directly to wallets.”

Pointing to this as one of its growing number of digital solutions, Raina said that while Mastercard and other players in the payment eco-system have been working to see how best they can reduce the cost of remittances, the onus is also on governments to create the necessary partnerships and infrastructural support required to lay the groundwork.

“It cannot be just private enterprises that are left to bring about the change; it’s important for governments to come together with us to bring about change. The first layer is infrastructure as this has to be in place for companies like Mastercard to bring more of its innovative products into the market, and bank account access for everyone is a critical requirement for this. A second important thing that needs to happen which can also help in bringing down payment costs, is for government to bring more access points such as mobile telephones and internet to a lot more of their rural and [underserved] communities in order to allow more persons to connect digitally,” Raina stated.

“Governments therefore have to provide the basic infrastructure on top of which the ecosystem can flourish so that providers like ourselves can actually make cross-border payments as seamless and as fast as domestic payments,” she added.