Abstract
AbstractThe costs of sending remittances to Pacific small island developing states (SIDS) are among the highest in the world. Tackling this issue is crucial not only for economic and social development, but also for improving financial inclusion. This article analyses fintech adoption in remittance services, namely the adoption of alternative payment methods in transferring money by using the internet or mobile phones, in the Pacific. It introduces an original framework to assess the current landscape of fintech in the remittance sector and draws tailored policy recommendations. The framework is conceptualised through a ladder with five rungs: availability, accessibility, awareness, literacy and trust. Based on the ladder analysis, the authors observe the lack of basic digital infrastructure and digital platforms in many Pacific SIDS. Where the technological landscape is better developed, fintech services have established strong footholds, but there is a need for greater awareness to broaden its appeal and customer base. The benefits of fintech platforms are high, especially in the context of lower remittance costs which constitute an unduly large share of GDP in Pacific SIDS. The basic infrastructure needed to develop fintech services are equally important for the overall sustainable development of Pacific SIDS. The article observes fintech services in the Pacific are a means for financial inclusion of the unbanked, that can accelerate the economic and social development of the SIDS, and countries in the Pacific region are at different stages in their readiness for fintech adoption.
Highlights
Covering less than one per cent of the globe surface and roughly one per cent of global population, small island developing States (SIDS)1 are characterized by small domestic markets that pose barriers to the development of a dynamic private sector and a competitive economy
Pacific SIDS showed the highest flows of official development assistance (ODA), of around 21 per cent of GNI, as compared to the least developed countries (LDCs) average of about 13 per cent (World Bank, 2018b)
Since the ratio between the fees charged by traditional remittance service providers (RSPs) over fintech RSPs is positive for the whole sample period, we find that fintech companies systematically charge lower remittance fees than the traditional ones
Summary
Covering less than one per cent of the globe surface and roughly one per cent of global population, small island developing States (SIDS) are characterized by small domestic markets that pose barriers to the development of a dynamic private sector and a competitive economy. Lowering transaction costs has the great potential of contributing to economic growth and human development of the region This is recognised by the 2030 Agenda for Sustainable Development in Target 10.c: “By 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent”. Motivated by innovative financing solutions, this paper attempts to answer two fundamental questions Given such high costs of sending remittances, can financial technologies (fintech) be an instrument to drive down costs? The paper applies and modifies a ladder framework largely used in political and economic literature This framework is used to analyse and shed light on how to effectively promote the adoption of fintech in remittance services in the Pacific.
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