7 ways the coronavirus pandemic changed remittances

Before the COVID-19 pandemic hit the global community, the World Bank forecast in October 2019 that remittances would grow to a record $739 billion this year, followed by $758 billion in 2021.

Fast-forward one year later, and remittance payment volume was projected to fall a collective $222 billion over 2020 and 2021, due to the impact of the coronavirus pandemic. According to the October 2020 World Bank estimates, remittances will drop to $666 billion this year, down about 10% from the previous $739 billion estimate. In 2021, remittances will continue their fall to about $619 billion, an almost 20% drop from the previous estimate of $768 billion.

As a result of the rapid loss of remittance volume, coupled with other economic hardships, the World Bank is reporting that global extreme poverty will rise for the first time in 20 years. Further, the World Bank is now estimating that COVID-19 will push 88 million to 115 million people into extreme poverty in 2020, and the total will rise to 150 million by the end of 2021. Extreme poverty is defined as people living on less than $1.90 per day and affects between 9.1% and 9.4% of the world’s population.

Despite the overall decline in remittances, the trend is not being felt evenly across the world. Some countries are actually experiencing an increase in remittance payments.

Three of the top eight inbound remittance markets — Mexico, Pakistan and Bangladesh — are all expected to see their payments rise this year in an overall declining market, based on data from The World Bank.

The rise in the three countries is being attributed to a number of factors. In the case of Mexico, the devaluation of the Mexican Peso relative to the U.S. dollar over the past year has created a remittance opportunity for immigrants, as the money sent home is able to buy more things for friends and families. Since 97% of Mexican immigrants live in the U.S., according to Pew Research Center, most of the money earned is in dollars.

As for Pakistan and Bangladesh, the World Bank says that much of the money being sent back was originally destined for a Muslim Haj pilgrimage to Saudi Arabia by workers living abroad. Since the Saudi government has issued fewer tourist visas and has restricted access to the holy city of Mecca and its shrines, these travel funds are now being sent back home instead of being spent on a spiritual retreat.

The initial shock of the global emergency and resulting national lockdowns sent remittances into a tailspin. For Latin American immigrant workers, the month of April saw remittance volumes decline as much as 32% compared to April 2019, according to the Pew Research Center.

Then something unexpected happened — remittance volumes surged. In June, remittances sent to the Dominican Republic were up by 25.7% compared to the same month in 2019. Similar trends were seen with remittances sent to Honduras, which was up 15.2%; Mexico, which was up 11.1%; and Guatemala and El Salvador, which were both up almost 10% compared to 2019 levels.

One factor aiding the jump in remittances has been the acceleration in the shift to digital over traditional walk-in store traffic, as many retail locations hosting MoneyGram or Western Union agents were closed.

“The pandemic has dislodged the payment habits of remittance customers,” said Matt Oppenheimer, co-founder and CEO of Remitly, in an earlier interview. “People forget that 70% of remittances originate in physical locations. Unless the customer trusts the [remittance] service you can’t even talk about faster speed or better price. Getting over that trust hurdle is huge and it takes time. However, as many agents have closed locations or reduced store capacities and handling cash is now perceived as being unsafe and inconvenient, it’s a different situation.”