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© 2022 International Monetary Fund
WP/22/233
IMF Working Paper
SPR
Curb Your Enthusiasm: The Fintech Hype Meets Reality in the Remittances Market
Prepared by Tito Nicias Teixeira da Silva Filho*
Authorized for distribution by Johannes Wiegand
December 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT:
Fintech has become one of the most popular topics among policymakers and experts. It usually comes with the qualifier “disruptive”. Thus, the hype is easy to understand: fintech would upend the financial system due to its disruptive nature, as it would allow financial services to be completed faster, cheaper, and more efficiently. Indeed, many have predicted that the remittances market was on the verge of being disrupted as remittances are considered too costly while remittance service providers inefficient, opaque, and outdated. Therefore, there seems to be no better setting for assessing the allegedly disruptive effects of fintech. Against that background, this paper investigates how those predictions have fared so far. Contrary to expectations, it found that instead of disrupting incumbents fintechs have increasingly been entangled with them. Therefore, not only there is no evidence of disruption, but it is unlikely to occur in the foreseeable future. Even so, the paper argues that fintechs play an important role in the remittances market.
RECOMMENDED CITATION: da Silva Filho, Tito Nicias Teixeira (2022), “Curb Your Enthusiasm: The Fintech Hype Meets Reality in the Remittances Market”, IMF Working Paper.
| JEL Classification Numbers: | F24, F63, G18, G21, G23, G28, O33. |
| Keywords: | fintech; disruptive; bitcoin; blockchain; mobile money; remtech; remittances costs; financial inclusion; innovation. |
| Author’s E-Mail Address: | TdaSilvaFilho@imf.org |
| JEL Classification Numbers: | F24, F63, G18, G21, G23, G28, O33. |
| Keywords: | fintech; disruptive; bitcoin; blockchain; mobile money; remtech; remittances costs; financial inclusion; innovation. |
| Author’s E-Mail Address: | TdaSilvaFilho@imf.org |
Title Page
WORKING PAPERS
Curb Your Enthusiasm: The Fintech Hype Meets Reality in the Remittances Market
Prepared by Tito Nicias Teixeira da Silva Filho
Contents
I. Introduction
II. What is Fintech?
III. The Fintech Landscape
IV. Fintech and Remittance Costs: A First Look
V. Why Are There No Signs of Disruption?
VI. Remittances And Fintech: A Reality Check
VII. Conclusions
References
Appendix 1. A Short History of Remittance Fintechs
Appendix 2. An Example of Measurement Error in the RPW Database
Appendix 3. A Radiography of Remtech’s Diffusion
FIGURES
1. Evidence of Public Interest on Bitcoin, Blockchain and Fintech
2. Remittance Fintechs: Funding and Valuation (USD Billion)
3. Remtechs: Growth and Geographic Coverage
4. Mobile-Related Remittances: Geographic Coverage
5. A Bird’s Eye View on Remittance Costs
6. Remittance Costs and Fintechs
7. The Bank-MTO Cost Gap and Remtech Presence
8. Bitcoin Transaction Fee and Price Volatility
9. Crypto ATM Distribution by Continents and Countries
10. Mobile Money and Financial Inclusion
A2.1 Measurement Errors: Unusual Cost Variations in Selected Remittance Corridors
TABLES
1. Remittances Price Worldwide: RSP Share
2. Remittances Price Worldwide: Selected Characteristics
3. The Bank-MTO Remittance Cost Gap by Regions
4. Average Remittance Cost and Remtech Presence
5. FX Margins by RSP Type and Region
6. Percentage of FX Margins Equal to Zero or Negative (2011.Q1 – 2020Q4)
7. Adjusted FX Margins by RSP Type and Region
The author would like to thank Roland Kpodar, Johannes Wiegand, Martin Cihák, Tristan Hennig, Agnija Jekabsone, Nico Pierri, and participants of two internal IMF seminars for their comments and suggestions.