Remittance: What It Is and How to Send One - Investopedia

A remittance is money that is sent from one party to another. Broadly speaking, any payment of an invoice or a bill can be called a remittance. TableofContents Expand TableofContents WhatIsaRemittance? UnderstandingRemittances HowtoSendaRemittance RemittanceFees FinancialImpact SpecialConsiderations RemittanceFAQs TheBottomLine PersonalFinance Banking WhatIsaRemittance? Aremittanceismoneythatissentfromonepartytoanother.Broadlyspeaking,anypaymentofaninvoiceorabillcanbecalledaremittance.However,thetermismostoftenusednowadaystodescribeasumofmoneysentbysomeoneworkingabroadtotheirfamilybackhome. Thetermisderivedfromthewordremit,whichmeanstosendback. KeyTakeaways Aremittanceismoneysenttoanotherparty,usuallyinanothercountry. Typically,thesenderisaforeignworkerandtherecipientisarelativeintherecipient'shomecountry. Remittancesrepresentoneofthelargestsourcesofincomeforpeopleinlow-incomeanddevelopingnations. Remittanceamountsoftenexceedtheamountofdirectinvestmentandinternationaldevelopmentassistancethatacountryreceives. Intelligenceagenciesviewremittancesasapotentialsourceoffundingforterrorism. 0:43 Remittance UnderstandingRemittances Remittancescanbemoneysentaspaymentforabill.However,mostremittancesinvolvesendingmoneytorelatives.Theyareoftensentbyforeignworkerstofamilymembersintheirhomecountries. ThemostcommonwayofmakingaremittanceisbyusinganelectronicpaymentsystemthroughabankoranelectronicmoneytransferservicesuchasWesternUnion.Peoplewhousetheseoptionsaregenerallychargedafee.Transferscantakeaslittleastenminutestoreachtherecipient. Remittancesplayanincreasinglylargeroleintheeconomiesofsmallanddevelopingcountries.Theyalsoplayanimportantroleindisasterrelief,oftenexceedingofficialdevelopmentassistance(ODA).Theyhelpraisethestandardoflivingforpeopleinlow-incomenationsandhelpcombatglobalpoverty. Infact,sincethelate1990s,remittanceshaveexceededdevelopmentaidandinsomecasesmakeupasignificantportionofacountry'sgrossdomesticproduct(GDP). AccordingtotheWorldBank'sMigrationandDevelopmentBrief,$508billioninremittancesweresenttolow-andmiddle-incomecountriesin2020.Thiswasfollowedby$605billionin2021.In2019,theyreachedathen,all-timehighof$548billionbutdeclinedthereafterduetotheCovidpandemic. Remittancestothesecountriesisexpectedtogrowto$630billionin2022.Theamountislargerthantheforeigndirectinvestmentandofficialaidfundssenttothesecountries(excludingChina). Remittancesarealsousedtohelpthoselivinginlessdevelopednationsopenbankaccounts,atrendthathelpspromoteeconomicdevelopment. HowtoSendaRemittance Remittancestypicallyaresentusinganelectronicpaymentsystemorservice. IndividualscanvisitabankorcreditunionorgoonlinetoinitiateawiretransferoranACHtransfer.Funds,inlargeamountsifnecessary,canbetransferredandavailablebythenextdaybutmaytakelonger.Wiretransferscannotbereversedsoit'simportanttobesureyou'resendingmoneytotheintendedrecipient.ACHtransferscanbereversed,ifneedbe. Ifwiringmoney,bepreparedtoprovidetherecipient'sbankname,bankaccountnumber,androutingnumber. IndividualsmayalsouseappssuchasPayPalandWorldRemittosendmoneyinternationally. Moneytransferservicescanalsoprovideassistancesendingremittancesabroad.Thiscanbedoneinpersonor,typically,online.OnlineservicesincludeWesternUnion,Wise(formerlyTransferWise)andXe. RemittancescanalsobesentbyU.S.PostalServicemoneyorder.Forinternationalmoneyorders: VisitanyU.S.PostalServicelocation.Youcansendupto$750permoneyorder.Bepreparedtoprovidetheamountoftheremittanceusingcash,adebitcard,oratraveler’scheck.Creditcardscannotbeused.Filloutthemoneyorder.Paythedollarvalueofthemoneyorderplustheissuingfee.Sendthemoneyorderbyfirst-classmailorpackage,orPriorityMailorExpressMail.Keepthereceiptsforyourmoneyorderandthemailing. RemittanceFees Feestosendmoneyinternationallyvaryaccordingtotheproviderandtheservice. Banksandcreditunionscanchargeupto$45foroutgoingdomestictransfersintheU.S.and$10to$20ormore(e.g.,$50to$65)ontopofthatforoutgoinginternationaltransfersinvolvingU.S.dollars.Recipientbankscanalsochargeafee.ACHtransfersareusuallyalowcostoptionforconsumers—muchlessthanwiretransfers—especiallywhentheremittancegoesdirectlyintoarecipient'saccount.Checkwithyourbankforspecificdetails.AninternationalmoneytransferserviceprovidersuchasWisechargesasmallflatfeeof$4.15plusavariablepercentage(currently0.47%)ofthetransferamountforcurrencyconversion.Variablefeescanalsoapplydependingontransfertype.PayPal'sfeesforinternationaltransfersfromaPayPalbalanceincludeafixedfeeofupto5.00%ofthetransactionamountwhensendingfromtheU.S.plusacurrencyconversionfeethatcanrangefrom3.75%to4%ofthetransaction.Iffundingthetransferwithacreditordebitcard,anadditionalfundingfeeof2.9%andfixedfeewillapply.TheU.S.PostalServicechargesanissuingfeeof$49.65plusaprocessingfeethatdependsonthecountrytowhichamoneyorderissent. 6.4% Theglobalaveragecostofsendinga$200remittanceinthefirstquarterof2021,accordingtotheWorldBank.Itcostsmoretosendremittancesthroughbanksthanthroughdigitalchannelsormoneytransferservices. FinancialImpactofRemittances The2020EconomicCrisisandCOVID The2020economiccrisisandCOVID-19hadasevereimpactonmigrantworkersandtheirfamiliesbackhome. TheWorldBankestimatedinlate2020thatremittancestofamilymemberswoulddropby14%in2020comparedtopre-epidemiclevels.Itforesawrisingunemploymentamongmigrants,aslowingofnewmigrations,andanincreaseinreturnsofmigrantstotheirhomecountries. Thereisaconcernaboutthehighcostofglobalremittances,especiallywiththeelevateddrivetowardsglobalfinancialinclusion.Topromotetransparency,somecountrieslimitremittancestobankwiretransfers,butbanksarethemostexpensivetransferchannel,andwiretransfersinparticularareamongthehighestcost,accordingtotheWorldBank. Inthefirstquarterof2021,averageremittancecostsfortransferstotheMiddleEastandNorthAfricafellto6.3%from7%ayearearlier.InSub-SaharanAfrica,costsaveraged8%,downfrom8.9%forthesameperiod.InLatinAmerica,costsaveraged5.5%,downfrom6%. ExamplesofRemittances Forlow-incomecountriesorthosewithstrugglingeconomies,remittancesrepresentoneofthelargestsourcesofincomeforthenativepopulation.In2015,forexample,Mexicansabroadsentmorethan$24billionbackhome,whichwasmoremoneythanthecountrygeneratedfromsellingoil. ThecollapseoftheVenezuelaneconomycausedanenormousmigrationtoothernations,andacorrespondingincreaseinremittancestofamilymembersleftbehind.In2017,morethan$1.5billioninremittancesweresenttofamilymembersremaininginthebeleagueredcountry. Thetopremittancerecipientcountriesin2021wereIndia($89billion),followedbyMexico($54billion),andChina($53billion). SpecialConsiderations RemittancesandCrime Thereareconcernsamongfinancialintelligenceunitsthatremittancesareoneofthewaysinwhichmoneycanbelaunderedorviolentactivitiesliketerrorismcanbesponsored. Themethodologycountriesusetorecordtheamountofmoneypeoplereceiveviaremittancesisrarelymadepublic.Whilethemajorityofvaluetransfersoccurviaweborwirewheretheycanbetrackedeasily,afairamountofmoneyistransferredinwaysthatarehardertofollow. TheImpactofFintechonFees Recentfintech(financialtechnology)wavesininternationalmoneytransfersareforcingfeesdown.RisingplayersincludePayoneer,Wise,andWorldRemit.Regulationandoversightcontinuetobestrengthenedtoensureamoresecuremovementoffunds. WhatIsaRemittance? Aremittanceismoneysentfromonepersonorentitytoanother.Itcanbemoneysentforpaymentofabill,forexample.However,today,it'smorecommonlyseenasmoneysentbyapersoninonecountrytorelativesorfriendsinanother. HowDoISendaRemittance? YoucansenditbyvisitingyourbankandrequestingawiretransferorACHtransfer.Or,youcansenditusingamoneytransferservicethatspecializesintransfers,domesticandinternational.YoucanuseanappsuchasPayPaltosendaremittancetoanothercountry.Theseelectronicservicesmovemoneyquickly,oftenwithinaday.Ifyouprefer,youcanalwayssendamoneyorderbyU.S.mailbuthowsoonitwillarriveatitsdestinationdependsonwhichserviceyouuse(e.g.,first-classinternationalmailorExpressmail). What'stheDifferenceBetweenaRemittanceandaPayment? Althougharemittancecanbeapaymentsentinresponsetoreceivingabill,it'satermthat'salsousedtodescribefundssentinternationally.Forinstance,whenmoneyissentbysomeoneintheU.S.tofamilyorfriendsinanothercountry,theyaresendingaremittance. TheBottomLine Remittancesaresentallacrosstheglobeinhugeamounts.Theyplayaveryimportantroleintheeconomiesofvariouslow-tomiddle-incomenations,aswellindisasterrelief.TheamountsthataretransferredyearlycanexceedtheGDPsofsomecountries. Remittancescanbeexpensivetosend.That'saconcernfororganizationssuchastheWorldBankbecausefundssenthomebymigrants"havegreatlycomplementedgovernmentcashtransferprogramstosupportfamiliessufferingeconomichardships." Reducingthecostsandencouragingtheflowofremittancestohouseholdsincountrieswheretheyprovideeconomicreliefshouldbeafocusofgovernmentpoliciesaroundtheworld. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. TheWorldBank."MigrationandDevelopmentBrief36." WorldBank."MigrationandDevelopmentBrief33." Wise."Internationalwiretransfers:whatbanksreallychargeintheUS." Wise."InternationalMoneyTransfers." MoneyTransfers.com."CanIUsePayPaltoTransferMoneyInternationally?" USPS."SendingMoneyInternationally." TheWorldBank."RemittanceFlowsRegisterRobust7.3PercentGrowthin2021." WorldBank."COVID-19:RemittanceFlowstoShrink14%by2021." NBCNews."MexicoGotMoreMoneyfromRemittancesThanfromOilRevenuesin2015." Bloomberg."VenezuelanRefugeesSendBillionsBackHome,HelpingtheLuckySurvive." MigrationDataPortal."Remittances." RelatedTerms ForeignRemittance Aforeignremittanceisatransferofmoneyfromaforeignworkertotheirfamiliesorotherindividualsintheirhomecountries.Newappsforsendingmoneyabroadhavemadeitlessexpensivethaneverbefore. more WhatIsaWireTransfer?HowitWorks,Safety,andFees Awiretransferisanelectronictransferoffundsacrossanetworkadministeredbyhundredsofbanksaroundtheworld. more UnderstandingPayments Paymentisthetransferofoneformofgoods,services,orfinancialassetsinexchangeforanotherformofgoods,services,orfinancialassets. more HowHawalaWorks Hawalaisawaytosendmoneyinformallywithoutthemovementofactualcurrency.Readhowhawalaworks,whereitisillegal,andhowgovernmentsregulateit. more MobileBanking Mobilebankingistheactofmakingfinancialtransactionsonamobiledevice(cellphone,tablet,etc.).Itcanbeusedforpersonalbankingandinternationaltransfers,suchasremittances. more WhatIsaMoneyOrder? Amoneyorderisacertificate,usuallyissuedbygovernmentsandbankinginstitutions,thatallowsthestatedpayeetoreceivecash-on-demand. more PartnerLinks RelatedArticles BehavioralEconomics IntroductiontoRemittances Banking WhatIsXoom? Banking 8Low-CostWaystoTransferMoney Savings MoneyGramvs.WesternUnion:What'stheDifference? Banking WhatAreACHTransfers? Banking WhataCashier’sCheckIsandWheretoGetOne