How Covid-19 transformed the UAE's remittance sector in 2020

The digitalisation of the UAE's remittance industry picked up in 2020 consequently of Covid-19-related movement restrictions, with many providers reporting exponential growth in money transfers through mobile apps.

“The major trend in the UAE remittance industry this season is the adoption of digital channels faster than what we've seen in the prior years,” says Rashed Al Ansari, leader of Al Ansari Exchange. “The pandemic has warped the speed of adoption for existing digital channels, shortening the uptake that would normally take years into months, especially in the next quarter of the year.”

The UAE is the second-biggest global market for outbound migrant remittances following the US prior to the Covid-19 outbreak, according to preliminary 2020 data in a report by Oxford Business Group and Al Fardan Exchange.

Outward personal remittances rose 7.8 per cent to Dh41.4 billion through the first quarter of 2020, up from Dh38.4bn in the same period this past year, in line with the Central Bank of the UAE. However, the quantity declined 10.3 % to Dh38.2bn in the next quarter as a result of Covid-19 movement restrictions.

Money transfers sent through exchange houses fell Dh4.6bn in the second quarter of 2020, while outward remittances through banks rose Dh300 million, in line with the central bank.

Despite the increased pivot to digital services, the overwhelming majority of money flows remitted from the UAE are still sent via exchange houses, which served 77 % of the marketplace in the first quarter, according to the Oxford Business Group study.

Market analysts say the full impact on remittances could be fully measured once the third and fourth quarter reports become available.

The World Bank expects global remittances to drop 7 per cent this year to $508bn. However, it also expects remittances to fall a further 7.5 % in 2021 to $470bn. By comparison, remittances decreased about 5 per cent in 2009 2009 following the global financial crisis.

There is a 40 % drop in UAE business volumes at Orient Exchange through the first six months of the pandemic, says Rajiv Raipancholia, leader of Orient Exchange and treasurer of the FOREX and Remittance Group.

“From July, we are seeing a reliable growth and because the last 8 weeks, the curve has been flat," Mr Raipancholia adds. "Home remittances to India and Philippines had the best drop in volumes.”

The most notable five destination countries for outward personal remittances through the second quarter were India (34.3 per cent), Pakistan (13 %), Egypt (6.4 per cent), the Philippines (6.1 %) and Bangladesh (4.8 %), according to the Central Bank of the UAE.

Remittances to various corridors have been affected by factors such as for example earnings cuts, retrenchments and the cancellation of flights.

“Due to the spread of Covid-19 and corresponding restrictions on outdoor movement, we noticed a drop in the blue-collar expat remittances made via walk-ins to branches. There have been also repatriations of both blue-collar and white-collar expats, which influenced the volumes,” a Lulu Financial Holdings spokesperson said.

But Bangladesh and Pakistan bucked the trend, with outward personal remittances to these corridors rising on an annual basis, the spokesperson added.

While the pandemic hit remittance flows in the first half, many white-collar employees shifted to remitting money via digital platforms, Mr Raipancholia says.

The global average cost of sending $200 was 6.75 % of the total amount in the 3rd quarter of 2020, up from 6.67 in the next quarter of the year, but down from 6.94 % in the first quarter of 2019, in line with the World Bank’s Remittance Prices Worldwide Database. By 2030, the US has focused on reduce remittance transaction costs to significantly less than 3 per cent.

Banks are the costliest channel for sending remittances, averaging 10.89 %, accompanied by post offices at 8.59 per cent, money transfer operators at 5.81 %, and mobile operators at 2.83 %. At only under 5 %, South Asia was minimal costly region to send $200 in the third quarter of 2020.

The UN cites technologies - including mobile technologies, blockchain and digitalisation that accelerated through the pandemic - as you tool that may help lower remittance costs and improve efficiencies. The organisation estimates the global digital remittance market to grow by 12.2 % to $36.2bn by 2027, up from $16.2bn in 2020.