Why remittance is still broken (and how the industry is fixing it)

Fees and friction persist but new tech, rails and networks are re-shaping how money moves across borders.

An estimated $905 billion was sent in remittances in 2024, according to the World Bank. That’s roughly equivalent to the GDP of Taiwan. The true size of global remittances could be larger still, if informal remittance channels were included.

Remittances are not only a big number; they’re also a big deal. Being able to work abroad to send money home is critical for many of the world’s poorest families. Indeed, low- to middle-income countries comprise the top five destinations relying on remittances for at least a quarter of GDP: Tajikistan (38%), Samoa (28%), Nicaragua (26%), Honduras (26%) and Nepal (25%).

Remittances also exceed other types of financial flows, including foreign investment and aid. In 2024, remittance flows to low- to middle-income countries were larger than foreign investment and aid combined. Worryingly, this gap is growing as remittances have increased by nearly 60% in the last decade, while foreign investment has declined by 40%.

How cheaper transfers could unlock billions

Just because remittances are important, it doesn’t always follow that they work well. Simplifying for brevity, the main problems relate to costs and coverage.

The World Bank has characterized remittance costs as “persistently high”. It cost 6.3% on average to send $200 in Q3 2025. That’s more than two times the UN Sustainable Development Goal target of 3%. If this target were met, families dependent on remittances worldwide would save an additional $20 billion annually, according the UN and World Bank.

Moreover, this global average cost hides significant variation. Banks continue to be the costliest channel for sending remittances (with an average cost of 14.9%), followed by post offices (5.5%), money transfer operators (4.7%), and mobile operators (4.6%), based on World Bank figures for Q3 2025.

US remittance crackdown: a tax on the poor?

The US passed a tax bill in May 2025, which included a tax on remittances made by non-US citizens or nationals. This levy was part of a broader plan to tackle illegal migration. Yet there were fears that this would hurt poor families the hardest. Plus, drive migrant workers to use informal alternatives to send money home.

Effective 01 January 2026, the 1% Federal Remittance Tax applies to physical remittances, including cash, money orders and cashier’s checks, on top of the standard fees charged by money transfer operators. Transfers from a US-issued bank account, digital wallet, debit, credit or prepaid card do not incur the 1% tax.

One of the largest beneficiaries of remittances from the US is Mexico, with an estimated inflow of $65 billion in 2024, circa 4% of GDP. Meanwhile Nicaragua, El Salvador, Guatemala and Honduras all rely on remittances for at least 20% of GDP. It’s these families that will likely experience the biggest fallout.

Guatemalans and Hondurans send a much higher proportion of their income home. Meanwhile these national economies face the double threat of lower domestic income and consumer spending. This creates a negative multiplier effect of slower GDP growth, higher unemployment and potentially a consumer-led recession.

Banks count the risks and the rewards

Remittance also suffers from coverage gaps due to bank de-risking. This is when international correspondent banks cut ties with certain customers, corridors or countries, usually due to high compliance costs, regulatory or reputational risks.

That’s a problem because even remittances that don’t involve a bank account at the sender or recipient level may rely on banks for the actual transfer of funds. Banks are in the business of making money. But if it costs more to service money transfer operators or hard-to-reach countries than banks earn from doing so, they de-bank or de-risk them.

The number of active correspondent banks worldwide fell by more than one-fifth over the period 2011-2019. As a result, there’s growing concern among legislators, regulators, civil and humanitarian organizations about increased risk aversion by banks. That’s especially as remittances are a vital source of finance for millions of households.

High costs and bank de-risking may push senders to seek out less safe alternatives, such as unlicensed money transmitters, hawala or black-market money ‘mules’. These methods may also be harder for tax and law enforcement authorities to monitor, creating negative spillover effects.

Sovereignty, geopolitics and resilience

A robust system isn’t built on a single rail, rather on many. So, current conversations around re-shaping the financial future, particularly in Europe, are about having fallbacks and alternatives. They’re not so much about replacing giants like Visa, Mastercard or Swift.

Resilience comes from diversity. So, Europe is taking active steps to bolster its own payment infrastructure, for example scaling the digital wallet, Wero, and piloting the digital euro. This not only reduces the dependency on American networks and software providers but also offers consumers and businesses more choice.

In the context of sovereignty, geopolitics and resilience, the payments industry is also exploring remittance alternatives. This includes new rails, including Blockchain and stablecoins, and alternative proprietary networks.

A group of nine European banks have announced their intention to launch a euro-backed stablecoin, and ten major international banks are exploring the issuance of stablecoins pegged to G7 currencies. Meanwhile, Swift and a group of more than 30 financial institutions globally plan to introduce a Blockchain-based ledger to enable 24/7, real-time cross-border value exchange.