What is a remittance?

What happens when workers abroad send money home? We explain the process, the timelines, fees and more.

Every year millions of people leave their homes to work abroad. From construction sites in the Gulf states to hospitals in Europe, private homes in South-East Asia to farms in North America, migrant workers are supporting themselves as well as sending funds back home.

These cross-border payments, known as international remittances, collectively amount to hundreds of billions of dollars every year. So much so, remittance inflows to low and middle-income countries dwarf foreign aid.

Remittances are a lifeline for hundreds of millions of families, who use the money sent home by relatives to cover their daily expenses. Remittances bolster foreign exchange reserves and support economic stability. However, just because they’re important, it doesn’t mean that remittances are simple, cheap or work well.

We explain what remittances are, the difference between remittances and payments, who sends and receives them, how the system works, and more about timelines, costs, regulations and security.

In this article, we cover:

1. What is a remittance?
2. What is the difference between a remittance and a payment?
3. What are the biggest sending and receiving countries for remittances?
4. How do customers send remittances?
5. How do recipients receive remittances?
6. How do remittances work?
7. How long do remittances take?
8. How much do remittances cost?
9. What are the most important regulations for remittances?
10. How secure are remittances?

1. What is a remittance?

A remittance is the transfer of funds from one person or group to another. That’s the simplest definition, although ‘remittance’ can mean different things to different people, depending on context.

For the purposes of this article, we think of remittances as worker or migrant remittances. This is when ex-pat workers send money back home to their families or to pay things like school fees, mortgages or standing charges abroad. An estimated $857 billion was sent in remittances worldwide in 2023, according to the Migration Data Portal.

2. What is the difference between a remittance and payment?

Remittances tend to be personal cross-border transfers. They are executed by banks, fintechs and money transfer operators (MTOs), among others.

Payments are broader than remittance transfers. They can be domestic or cross-border and include methods, such as bank transfers, payment cards, mobile wallets and more. Payments are executed by banks and fintechs, but also payment service providers, generally for the purchase of goods and services by individuals or businesses.

3. What are the biggest sending and receiving countries for remittances?

The top five sending countries for remittances are the United States, Saudi Arabia, Switzerland, Germany and China. They account for around 40% of the global remittances sent, according to the Migration Data Portal.

Meanwhile, the top five recipient countries for remittances in 2024 were India, with an estimated inflow of $129 billion, followed by Mexico ($68 billion), China ($48 billion), the Philippines ($40 billion) and Pakistan ($33 billion), according to World Bank figures.

Remittances are a massive, critical and often underestimated inflow to the global economy. Remittance flows to low and middle-income countries dwarf foreign aid. They are a lifeline for hundreds of millions of families, who use the money sent home by relatives to cover food, housing, healthcare and education.

In smaller economies, remittance inflows represent large shares of gross domestic product (GDP), highlighting their importance for funding the current account and fiscal shortfalls. Topping the list is Tajikistan (45% of GDP), followed by Tonga (38%), Nicaragua (27%), Lebanon (27%), and Samoa (26%), according to 2024 World Bank figures.

4. How do customers send remittances?

Remittances are usually transferred electronically via a bank, fintech or money transfer operator, such as Western Union or MoneyGram, which charges a fee for the service. A typical remittance happens in three steps:

Step 1: The sender pays the remittance to the sending organization using cash, check, money order, credit or debit card, or a debit instruction. This step can be completed online, via a mobile app or in person at an agent location.

Step 2: The sending organization instructs its agent in the recipient’s country to deliver the remittance.

Step 3: The paying organization pays out to the beneficiary.

5. How do recipients receive remittances?

Recipients can collect remittances from the receiving money service operator or bank in a variety of ways. This includes cash pickup from a physical location. Or having funds transferred directly into a bank account, on to an eligible payment card or mobile wallet.

6. How do remittances work?

Behind the scenes, remittances involve compliance checks, currency conversion and some type of network.

To prevent money laundering and terrorist financing, organizations offering remittances must verify customer identities, monitor transactions, report suspicious activity and keep proper records at a minimum.

Currency conversion occurs when the sender’s currency is converted into the local currency of the recipient. Some operators add a mark-up or ‘margin’ to the mid-market exchange rate. Sometimes also known as the ‘interbank’ rate, the mid-market rate is the midpoint between the buy price and the sell price of a currency. Adding a mark-up to the exchange rate could make the transfer more expensive, even if there’s no or only a low upfront transfer fee.

Remittances are processed through some type of electronic network. The larger money transfer services, such as Western Union or MoneyGram, have built their own proprietary networks.

Other options for bank account-based transfers are correspondent banking or SWIFT. This explains why while funds may show on account instantly, the actual movement of money between banks and agents behind the scenes may take 1-5 days to settle the transaction.

7. How long do remittances take?

Remittances take anything from a few minutes to days to arrive. It depends on the sender and recipient countries, the payment methods used as well as the service provider or network.

Even remittances that don’t involve a bank account at the customer level may rely on banks for the actual transfer of funds. And banks typically have daily cut-off times and are generally unavailable outside banking hours, e.g. in the evenings, on weekends and bank holidays.

8. How much do remittances cost?

Remittance fees vary widely based on the service provider, the sender and recipient countries, the amount and the payment methods used. Fees range from a few dollars to a percentage of the transfer amount.

Costs can include both a transaction fee and a currency exchange mark-up, which can significantly reduce the amount beneficiaries receive.

Writing in 2024, the World Bank characterized remittance costs as “persistently high”. It costs 6.2% on average to send $200. That’s more than two times the Sustainable Development Goal target of 3%.

Moreover, this global average cost hides significant variation. Banks continue to be the costliest channel for sending remittances (with an average cost of 14.5%), followed by post offices (7.7%), money transfer operators (5.0%), and mobile operators (4.9%), based on figures for Q1 2025.

The World Bank and other civil and humanitarian organizations are concerned about the high costs of remittances. That’s because migrant worker remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years. And the gap is increasing.

9. What are the most important regulations for remittances?

The most important regulations for those offering remittances are designed to prevent money laundering, terrorist financing, fraud and other financial crime.

Organizations must carry out checks on their business and customers. This includes verifying the identities of customers, checking against official lists to ensure customers are not sanctioned, and verifying the origin of funds, especially for high-value transactions.

Customers experience these checks when they are asked to provide identification. Or details of their job or the source of the funds they wish to transfer. And in the maximum transfer limits

Organizations transmitting funds must also have adequate internal controls and monitoring systems to identify unusual activity. They must also report suspicious activity, keep proper records of customer identity checks, transactions, risk assessments, policies, training records etc.

10. How secure are remittances?

Banks, fintechs and money transfer operators (MTOs) deploy various measures to protect the security of customer data and of the transaction. This includes encryption and user authentication, usually two-factor authentication (2FA) involving a combination of PIN, passkeys and biometrics, to access online and mobile accounts.

Due to the nature of their business, money transmitters must also protect their systems against attackers. This is partly about protecting IT systems from cyber-attacks but also protecting processes and customers from social engineering attacks. For example, advance fee, lottery, sweepstake, social media frauds.