What is International Remittance? A Complete Guide to Sending Money Overseas

Foreign remittance refers to funds transferred by foreign workers to their families or other individuals in their home countries. These remittances are typically used for daily living expenses, such as purchasing food and clothing. In many countries, foreign remittances account for a significant portion of the Gross Domestic Product (GDP).

According to the World Bank’s latest data, the United States remained the primary source of foreign remittances in 2023, followed by Saudi Arabia. The top recipient countries were India ($125 billion), Mexico ($67 billion), the Philippines ($40 billion), and Egypt ($24 billion). Given the large scale of these funds, the G8 and the World Bank monitor remittance flows and are working to regulate remittance costs.

Understanding Foreign Remittance

Funds remitted by overseas workers to their home countries are typically used to pay for necessities like food and clothing. The funds for foreign remittances come from the personal savings of overseas workers who leave their home country to work in another, often a developed nation like the United States. Emerging economies or developing countries heavily rely on foreign remittances from these overseas workers.

Although the vast majority of foreign remittance funds are used to help people in less developed regions improve their standard of living, some people use them for fraudulent purposes. Due to the difficulty in tracing the origin of foreign remittances, some may maliciously use them to finance terrorism or for money laundering. Money laundering involving foreign remittances typically refers to using legitimate bank accounts to transfer illicit funds to conceal their illegal origin.

Total Amount of Foreign Remittances

According to a World Bank report, foreign remittances to low- and middle-income countries reached a record high of $548 billion in 2019. In 2020, during the global COVID-19 pandemic, this amount slightly decreased to $540 billion. The World Bank had initially predicted that remittances could fall by 20% or more due to the pandemic, but it turned out that migrants were even more compelled to send money to their families back home to help them through the crisis, keeping remittance flows strong in 2020.

Since 2020, foreign remittances to low- and middle-income countries have continued to grow. By 2023, the total amount reached $669 billion. According to the World Bank’s forecast, remittances are expected to continue growing in 2024, potentially reaching $690 billion.

For many countries with low wage levels and unstable economies, foreign remittances are a vital source of funds for sustaining local economic development.

Benefits of Foreign Remittances

Many economists and sociologists believe that due to the enormous volume and widespread global nature of foreign remittances, their impact extends beyond individuals and families to have a profound effect on society as a whole. For instance, because remittances involve financial institutions, both senders and receivers typically need to open bank accounts to facilitate the transfers, which indirectly promotes economic development.

In emergencies and special circumstances such as natural disasters and armed conflicts, when recipients lose their primary source of income, foreign remittances become a lifeline. Furthermore, if the home country of overseas workers faces economic hardship, the funds they send back can help alleviate local economic difficulties.

Common Software for Foreign Remittances

Many internet-based fintech startups have developed software that provides foreign remittance services, with well-known examples including Wise (formerly TransferWise) and Sendwave (formerly Wave). These internet-based remittance services are more user-friendly and have lower costs compared to traditional channels like MoneyGram and Western Union, making foreign remittances more convenient.

According to World Bank data, the average fee for sending foreign remittances through traditional banks can be as high as 11% of the transfer amount. In contrast, internet-based channels like Sendwave charge only a 1% fee per transfer. Consequently, more and more people are choosing to use internet platforms for their foreign remittance needs.