International money transfers are getting simpler, faster and cheaper. This change is owed to rapidly rising demand and a sharp increase in the number of service providers. Fintech has also contributed to improving the speed and ease of such transfers. Let’s take a look at some of the reasons why people need to move money across borders.
One of the important contributing factors to the rise in demand for international money transfers is remittances. More than 50 million people worldwide live and work in foreign countries. The World Bank calculates that they will send in excess of $600 billion in remittances in 2018. For the vast majority of remittance senders these sums are meant for supporting their families back home.
- Higher education
While a college degree from a reputed foreign university can be a credit to one’s CV, tuition fees can be very burdensome. Many students work part time to pay for college and others take out student loans. However, loans can create financial constraints during early career. Part time work invariably takes time away from academics and other important college activities. Many families therefore use international money transfers to pay college fees for children studying abroad.
- Living expenses
The cost of living can sometimes be equal to or higher than college tuition fees. The other important reason for foreign students to use international money transfers is to pay for living costs.
- Mortgage/real estate payments
Individuals and families who plan to live abroad for a portion of the year or migrate permanently often find it prudent to invest in real estate with a view to own a home. Rarely do individuals have the means to make lump sum payments for the entire value of the estate or house. Consequently they choose to take out mortgages and loans, which they keep paying over time through international money transfers.
Individuals who find themselves fortunate owners of excess financial resources as well as futuristic outlooks often find it useful to invest in a different country from the place of origin of their income. For example Indian expats in the US and elsewhere predominantly choose to park their spare income into bank accounts and other investments in India. Upon retirement and repatriation that corpus becomes readily available to them. International money transfers are the necessary tools for such investment.
- Taxation and money growth
Investment abroad often has a dual purpose. Individuals often find it prudent to hold larger bank accounts in a geography where savings interest rates are higher and taxation rates are lower.
- Payment for goods and services
It is common for businesses and individuals to make overseas payments for goods purchased or services rendered through money transfers. One may shop abroad physically or online for goods that are unavailable in the buyer’s country. Industrial units frequently import machinery, tools and spares from abroad. Services rendered abroad may include translation, documentation, intellectual/academic/legal services, transcription, and so on. These may be easily paid for through international money transfers.
- Holiday/vacation spending
It is usual for a family wanting to holiday abroad to pre book their hotel stay or a complete package deal with meals, excursions and entertainment. They may book directly or through an agent. In either case eventually some channel of international money transfer is used to pay for these services.
Any additional spending while abroad, such as shopping sprees, are also funded directly or indirectly through international transfers.
- Business needs
In terms of volumes multinational corporations are the largest movers of money across borders. They make use of international transfers to fund subsidiaries, avoid taxes, pay suppliers, for payroll, or simply to carry out their day to day business functions. There are many benefits of having a presence in multiple geographies. These include access to rare resources, cheaper workforce, more qualified talent and a favorable tax regime. An effective international money transfer system is a prerequisite for businesses to capitalize on these benefits.