Insights on Canadian Society
Use of e-money transfer methods: Lessons from the Study on International Money Transfers from Canada

by Zacharie Tsala Dimbuene and Martin Turcotte

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Introduction

The money that immigrants, permanent residents and temporary foreign workers send to family or friends abroad—known as international remittances—has steadily increased internationally since 2000. According to recent estimates from the World Bank, international remittances to low- and middle-income countries increased by 10% between 2017 and 2018, reaching a record $529 billion in 2018.^Note International remittances are an important source of external funding in developing countries^Note and are sometimes viewed as a poverty mitigation strategy at the household level. For example, it has been shown that remittance-receiving families often use the money to improve their health, nutrition, educational opportunities, housing and sanitation.^Note

Sending money abroad comes with a cost that is deemed to be too high by several international organizations and advocacy groups.^Note In Canada, according to the 2017 Study on International Money Transfers (SIMT), fees paid by remitters amounted to 6% of remittances on average.^Note This is similar to other international studies’ findings indicating that remitters pay transaction fees that are an average of 7% of the amount sent.^Note

The costs associated with sending international remittances have become a strategic focus of international organizations and national governments. The Sustainable Development Goals adopted by United Nations members in September 2015 include a specific goal targeting remittance fees: “By 2030, reduce to less than 3% the transaction costs of remittances and eliminate corridors with costs higher than 5%.”^Note

In an effort to align with international initiatives, in 2015 the Government of Canada announced a series of provisions to reduce the cost of remittances, especially those sent to developing countries.^Note More recently, the federal government reiterated that it intended to work closely with provincial and territorial governments to improve regulation of the remittance industry so that Canadian residents who send money abroad can do so less expensively than they do now.^Note Although remittance fees are decreasing in almost all regions of the world, some challenges remain.^Note

Electronic money transfer (EMT) methods—also called e-money transfer methodsordigital remittances— may offer, if they become more widely used, a solution to these challenges. In Canada, remitters most often use traditional in-person money transfer methods, which include all in-person transfers through banks, money transfer service providers such as Western Union and MoneyGram, or other types of stores or establishments, including currency exchange stores.^Note However, as previous research has shown, these traditional methods can be more expensive for remitters than EMT methods.^Note These EMT methods include a variety of options, including using a bank or credit union’s website or mobile app, a money transfer provider’s website or mobile app, or another type of service provider’s website or mobile app.^Note In addition to lowering sending costs and increasing accessibility^Note , an increase in EMT methods use could impact the volume of remittances sent abroad.^Note

In the current context of the COVID-19 pandemic, EMT methods may be even more appealing than usual for immigrants. First, using an EMT to send money may appear to have fewer health risks than going in person to a bank or money transfer store. These considerations may have implications for many immigrants. For example, recent data have shown that immigrants are more concerned than their Canadian-born counterparts about the health impacts of the COVID-19 pandemic.^Note The use of EMT methods may also have become an option for a number of Canadian immigrants who usually hand-deliver funds when they visit relatives and friends abroad but who are unable to do so at this time because of travel restrictions.

Using recent data from the SIMT, this paper examines the use of EMTs by Canadian residents born in countries eligible for official development assistance (ODA), the target population for that survey (see Data sources, methods and definitions for more details). ODA-eligible countries consist of all low-and middle-income countries based on gross national income (GNI) per capita as published by the World Bank. All of the Least Developed Countries, as defined by the United Nations, are included in the ODA-eligible country list.

This article first documents the costs of sending remittances from Canada via EMT and non-EMT methods. Initial descriptive findings from the SIMT showed that EMT methods were less costly on average than non-EMT methods for Canadian remitters.^Note This paper nuances these results by taking into account the value and destination of remittances, as well as the sociodemographic characteristics of remitters within a multivariate framework.

In the second section of this paper, the likelihood of using an EMT method is estimated across the same set of sociodemographic characteristics, as well as respondent’s assessments of the most important factor they consider when remitting (as a proxy of perceived benefits and risks). Information on these perceived benefits and risks of EMT and non-EMT methods can help identify some of the barriers impeding the adoption of EMT methods.

Electronic money transfers are cheaper than non-electronic money transfers

In the SIMT, respondents were asked which money transfer method they used the last time they sent money abroad in 2017. These methods were classified as either non-electronic (i.e., non-EMT methods), such as in-person banking or going to a money transfer store, or as EMT methods, such as using a bank website or a money transfer store mobile app (see Data sources, methods and definitions for more details). The amount sent by remitters, including the amount last sent in 2017 and the sending fee paid, was also collected. This allows for the average sending fee to be calculated as a percentage of the remittance sent and to draw comparisons between EMT and non-EMT methods.

Overall, sending fees were lower for EMTs than for non-EMT methods, at 4.1% and 5.8%, respectively (Table 1).



While average sending fees varied across destination regions, fees for EMTs were significantly lower than those for non-EMT methods for nearly all regions. For example, the fees for sending remittances to Eastern Asia averaged 1.3% for funds sent via EMT methods, compared with 2.2% for funds sent via non-EMT methods. For remittances sent to the Americas, the average fees were 5.7% and 8.8% for funds sent via EMT and non-EMT methods, respectively.

The amount remitted negatively affects sending fees

Spending fees varied by size of remittances (Table 1). For non-EMT methods, sending fees for remittances of $100 or less averaged 13%, while the fees for sending remittances over $1,000 averaged 1.3%. A similar pattern was observed for EMTs. Average remittances sent to different destination regions also varied, thus raising the possibility that regional differences in sending fees are due to regional differences in the size of remittances. For example, for their last remittance sent in 2017, remitters sent an average of $5,110 to Eastern Asia, $1,225 to West Central Asia and the Middle East, $665 to Eastern Europe and Southern Europe, $545 to Sub-Saharan Africa, and $455 to the Americas (Chart 1).

The proportion of remitters who last sent larger amounts of money also varied significantly by destination region. For example, more than half of remitters who sent money to Eastern Asia the last time they did so in 2017 sent at least $1,000 in a single money transfer (54%). The corresponding proportions were 21% to West Central Asia and the Middle East, 12% to Eastern Europe and Southern Europe, 9% to Sub-Saharan Africa, and 6% to the Americas. In these latter regions, it is possible that remitters sent money more often during the year but in smaller amounts each time.^Note

To get a better sense of differences in sending fees by method and by region, a multivariate model was used to estimate the cost of remitting funds to different destination regions via EMT and non-EMT methods. First, the sending fees as a percentage of the amount last sent in 2017 were regressed on (1) destination region, (2) type of method used, (3) their interaction and (4) the amount last sent, controlling for (5) sociodemographic characteristics (e.g., sex, age, education, marital status, employment status, personal income) and place of residence (Quebec, Ontario, the Prairies, British Columbia and the Atlantic provinces). Second, predicted sending fees were estimated, from the regression model, by holding constant the amount sent between $201 and $300, partly because studies from the World Bank computed the sending fees as an average to remit US$200. Remitters are assumed to have used either a non-EMT or EMT method for the totality of their remittances.

The results of the multivariate analysis confirmed that EMT sending fees were lower than non-EMT fees (Table 2). The predicted sending fees associated with non-EMT methods ranged from 4.1% for funds sent to Southeast Asia and Oceania to 7.8% for funds sent to Eastern and Southern Europe. In contrast, predicted sending fees associated with EMTs ranged from 3.5% for funds sent to Eastern Asia, and Southeast Asia and Oceania to 5.5% for funds sent to West Central Asia and the Middle East.

In general, sending fees varied less from one destination region to the other for EMTs than for non-EMT methods. Depending on the destination region, the sending fees associated with non-EMT methods were about 10% to 70% higher than those associated with EMT methods.^Note This finding suggests that a greater use of EMTs would both lower overall sending fees and reduce differences in the fees for sending remittances to different regions. While regional differences remain after controlling for other factors such as amount last sent, sociodemographic characteristics and place of residence, these differences were almost completely eliminated for EMT methods, except for West Central Asia and the Middle East.



Only 15% of remitters used an e-money transfer method the last time they sent money abroad

Having considered the fees associated with EMT and non-EMT methods of remitting, the characteristics of individuals who remit using each of these methods were next examined. Because the costs associated with EMTs are lower,^Note one might expect them to be the preferred method for sending money abroad, but this is not the case. In Canada, most transactions still originate in person.^Note In 2017, 15% of remitters used an EMT method during their last transaction (Table 3).

A number of barriers have been identified as potentially impeding the adoption of EMT remittance methods worldwide. These include (1) lack of awareness, (2) lack of access to formal financial services and (3) lack of access to digital technologies.^Note While digital remittances were relatively unknown until recently, money transfer stores have been around for many years. When asked if they had heard of or had used different remittance methods, only 5% of Canadian residents who had ever sent money abroad said they did not know about money transfer stores, while about 40% to 50% did not know about the existence of electronic methods.^Note In this context, it may be the case that many remitters are not aware of the cost advantages associated with EMT methods.

Awareness of EMT methods is a prerequisite for their use. However, financial infrastructure in destination countries is another potential reason cited by some remitters for why they do not use these methods. Many people, especially those in the least developed countries, lack access to financial services (i.e., they are “unbanked”). Access to digital technologies in destination countries may be another challenge. The next section will examine the factors and possible barriers associated with the likelihood of using EMT methods to send money abroad to family and friends.

Remitters who sent money to non-official development assistance countries and Sub-Saharan Africa are more likely to use electronic methods

The proportion of remitters who used EMTs varied in terms of the regions to which they sent money. EMT methods were used most by remitters who sent funds to non-ODA countries (26%) (Chart 2). Recipients in these higher-income countries were most likely to have bank accounts, internet access and smart phones, which make it easier for them to receive and accept EMT remittances. A relatively large share of remitters who sent money to Sub-Saharan Africa also used EMT methods (20%).

In contrast, the lowest percentage of people who used an EMT method were among those who sent money to West Central Asia and the Middle East. In Eastern Asia, which ranked first in terms of the average amount last remitted in 2017, 10% of people used an EMT, and this was not statistically different from the Americas (reference category).

Logistic regression models were developed to account for other factors (e.g., the sociodemographic characteristics of remitters) that may influence their likelihood of using an EMT.^Note Predicted probabilities are reported in Table 3 and should be interpreted as the probability of a remitter using an EMT method, holding all other factors constant.^Note The probability of using an EMT ranged from 4.5% for funds remitted to West Central Asia and the Middle East to 22% for funds remitted to non-ODA countries, a finding that is consistent with the results described above in the descriptive statistics.



Youth and highly educated people are more likely to use electronic money transfer methods

Age and education emerge as strong predictors of EMT use (Table 3). For example, the estimated probability of using an EMT was 25% for remitters aged 18 to 29, compared with 17% for those aged 30 to 39 and just 7% for those aged 60 to 69. Higher rates of technology use among younger Canadians—including those who remit—may be reflected in these differences. In 2018, the share of all Canadians aged 15 to 24 who used the Internet was 88% compared with 71% of Canadians aged 65 and older. Among Internet users, 63% of those aged 15 to 24 spent 10 hours or more online per week, compared with 31% of their counterparts aged 65 and older.^Note Internet use aside, in-person transactions may appear to some—including older remitters—as safer than digital remittances. In Canada, seniors generally still greatly prefer in-person banking.^Note

A correlation between remittance method and educational attainment was observed. Specifically, the probability of using an EMT method was 9% among remitters with less than a high school education and 20% among those with a university degree (bachelor’s degree or higher). 

Although the bivariate results indicate that remitters who sent smaller amounts of money were the least likely to have used EMTs, this difference became insignificant once other factors were accounted for in the multivariate model.

Remitters who report that convenience for the person receiving the money is their prime consideration when sending money abroad are significantly less likely to use electronic money transfers

Individual perceptions and usefulness of a method may also be associated with the choice of the money transfer method used. In the SIMT, respondents were asked what factor they considered to be most important when sending money abroad.^Note Responses included convenience for sender, convenience for recipient, cost of the method, reliability of the method and timeliness of the method.^Note From a theoretical and practical viewpoint, these motives fall under the broad category of perceived benefits and perceived risks, which have been identified as drivers for consumer decision making.^Note

Although the cost of sending remittances may be the central factor in the decision-making processes of remitters, the contextual conditions in the destination country may be even more influential. When transferring money, senders are likely to consider the capacity of recipients to receive the money in a manner that is safe, affordable and convenient. Such factors may outweigh the costs incurred by the sender themselves when sending money using a particular method. This may be especially true during emergencies, such as natural disasters, when people are in urgent need of financial support.

Results indicate that remitters who consider their own convenience (i.e., convenience for the sender) as the most important factor when sending money abroad were the most likely to have used an EMT method (23%). In contrast, 10% of those who reported convenience for the recipient as the most important factor used an EMT method.

For those who identified cost as the most important factor when remitting, the adjusted probability of using an EMT method was 19%.

Lastly, the probability of using an EMT method was lower than average for remitters who said that timeliness was the most important factor when remitting (12%), and for those who reported that reliability of the method mattered most (13%).

Conclusion

In this digital age and, because sending fees have become a strategic focus at the international level, it is important to further our understanding of how destination region and individual preferences can affect international remittance choices.

In 2017, the sending fees associated with EMT (as the percentage of the amount remitted) were lower in all destination regions compared with those associated with traditional—or non-electronic—money transfer methods.

Although EMT methods are cheaper than traditional methods, their use among Canadian remitters born in ODA-eligible countries is still limited. Traditional methods continue to dominate remittance markets. For example, 85% of remitters used a traditional money transfer method in their last money transfer in 2017. This may be the result of the development level of the financial infrastructure in destination regions. For example, sending money to countries not eligible for ODA (i.e., developed countries) is significantly associated with a greater likelihood of using an EMT. Wide access to the Internet and smartphones, as well as universal banking, in developed countries allow recipients to easily access remittances through their bank accounts. Therefore, senders may favour EMT methods.

When analyzing the association between the most important factor respondents consider when remitting and the likelihood of using an EMT method, this study found that people who consider convenience for the sender as the most important factor when remitting were more likely to use an EMT the last time they remitted in 2017. In contrast, those who considered convenience for the person receiving the money to be the most important factor were the least likely to use an EMT. Lastly, youth and remitters with a university degree were also more likely to use an EMT.

Zacharie Tsala Dimbuene is Senior Research Data Centre Analyst, Microdata Access and CDER at Statistics Canada and Martin Turcotte is Editor in Chief of Insights on Canadian Society, which is part of Statistics Canada’s Centre for Social Data Insights and Innovation

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