The Future of Family Remittances is Digital

IOM and SDC studied the role of digital remittances in mitigating the socio-economic effects of the COVID-19 pandemic on migrants and communities in the Russian Federation and Central Asia.

The following is a summary of a report by IOM, published in full in November 2021, on the role of digital remittances in mitigating the socio-economic effects of the COVID-19 pandemic on migrants and communities in the Russian Federation and Central Asia.

Remittances from the Russian Federation and Kazakhstan to Central Asian countries play an important role in the economies of the region and provide a vital financial lifeline to families and communities throughout Central Asia. Many remittance recipients rely heavily on these funds being sent regularly, having accumulated only limited or no savings from previous transfers.

The COVID-19 pandemic created both an immediate crisis and longer-term social and economic challenges for migrants and remittance recipients alike. In the immediate term, social distancing and business lockdowns meant that traditional methods for transferring remittances (ie. in cash or using branches of banks or Money Transfer Operators became more limited and complicated. The COVID-19 pandemic has also made the limitations and issues with the current remittance service system more salient both for governments and for the customers of remittance service providers, thus creating opportunities for change and innovation that can improve transfer services and encourage greater financial inclusion of migrants and their families. In particular, promoting the use of digital remittances and additional financial products – including financial literacy and savings products – can ultimately improve remittance recipients’ capacities to achieve longer term savings and livelihood objectives as well as enhance resilience in the face of future economic shocks.

The research project aimed to examine the digital remittance system in the Russian Federation and Central Asian countries, as well as the legal infrastructure, and perception/behavioral barriers that may be limiting the uptake of digital financial services among migrants and remittance recipients. The research focused particularly on the behavioral aspects of the process that may limit the engagement of migrants and remittance recipients in digital remittances and adjacent financial services. Results of the research are intended to contribute to the evidence base for the design of programmes to enhance the use of digital remittances among migrants and their families, and ultimately to improve the financial inclusion of this target group using digital services. 

The research focused on remittances transferred from the Russian Federation to Central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan), and from Kazakhstan to other Central Asian countries (Kyrgyzstan, Tajikistan, and Uzbekistan).

In examining the existing legislation, infrastructure and products for digital remittance transfers, the research team relied on open access data and semi-structured interviews conducted with representatives from Central Banks, financial regulators, commercial banks and Money Transfer Operators (MTO) in the target countries. A total of 11 interviews were conducted with relevant stakeholders.

In order to understand behavior, perceptions, and decision-making processes of migrants and remittance recipients in regard to remittance transfers and use, as well as existing obstacles/barriers to the use of digital financial services, surveys were conducted with a total sample of 900, including 500 migrants in the Russian Federation, 400 migrants in Kazakhstan, 150 remittance recipients in Kyrgyzstan, 250 in Tajikistan, 300 in Uzbekistan, and 100 in Kazakhstan.

Finally, a small-scale pilot intervention was implemented with a portion of survey respondents in Kyrgyzstan and Tajikistan to determine whether certain types of messaging may encourage remittance recipients – who do not face infrastructure barriers – to try digital tools for remittance transfers. For the pilot, a total of 90 participated in Kyrgyzstan and 80 in Tajikistan (including both target and control groups).

Some of the key findings of the research included:

For infrastructure for digital remittances:

  • Current infrastructure in terms of both banking/financial services and internet penetration in the Russian Federation and Central Asian countries are accessible and affordable, providing for either fully digital or one-end digital remittance transfers;
  • The vast majority of migrants and remittance recipients (over 80%) have smartphones and are able to access internet through their phones, while use/ownership of bank cards varies considerably from country to country;
  • Access to bank cards is high among migrants in the Russian Federation (81%) and remittance recipients in Kazakhstan (99%), but there is considerably lower bank card ownership among migrants in Kazakhstan (45%) and remittance recipients in Kyrgyzstan (62%), Tajikistan (54%), and Uzbekistan (49%);
  • Remittance Service Providers (RSP) in the region differ in terms of the digital services offered, with only two MTOs in the Russian Federation (Unistream and Contact) offering fully digital (card-to-card) services;
  • The pandemic has increased competition in the digital remittance market in the Russian Federation with Sberbank launching an online app that has rapidly gained in popularity;
  • Notwithstanding the pandemic-imposed limitations to cash-based remittances, a mixed pattern of remittance transfers persists in the region, i.e. sending digitally – receiving in cash;
  • The cost of sending remittances digitally and non-digitally is equally low, thus largely removing any financial incentives consumers may have to switch to digital services;
  • Data on digital remittances is largely unavailable in most countries in the region making it more difficult to measure trends in uptake and potential interventions to improve digital uptake.

In terms of preferences and behavior among migrants and remittance recipients:

Migrants in the Russian Federation already use digital remittance services with high frequency (65% of respondents) while migrants in Kazakhstan demonstrate significantly lower use of digital remittance services, as well as very limited ownership of bank cards/accounts;
There is a correlation as well between ownership of smartphones and preference for digital transfers among migrants in the Russian Federation, but not in Kazakhstan;
While there is some use of digital services for receipt of remittances, the majority of remittance recipients in Kyrgyzstan (62%), Tajikistan (69%), and Uzbekistan (76%) only receive remittances in cash from bank or MTO branches. The pandemic does not appear to have significantly altered recipients’ preferences or behavior in terms of how they receive remittances;
Bank card ownership is an important factor in migrants’ and remittance recipients’ use of digital services (bank cards being the preferred way of registering digital transfers) with fewer than 10% of those without a bank card indicating that they use digital remittance services. Respondents without bank cards cited challenges in access (no bank branches in proximity) and problems with documentation as main reasons for not getting a bank card;
Use of digital remittance services by those with bank accounts/cards varies widely, with significant room for improvement in uptake particularly among remittance recipients. Migrants who own bank cards use digital remittances services to a high degree: 80% in the Russian Federation and 90% in Kazakhstan. However, for remittance recipients with bank cards, the figures are much lower: 61% in Kyrgyzstan, 57% in Tajikistan, 49% in Uzbekistan, and 63% in Kazakhstan.
Higher levels of education as well as higher rates of trust in the banking systems positively impacted respondents’ preferences for digital services. 40% of those who do not use digital remittance services cited lack of trust in banks as one of the reasons;
There is also a gender gap in regards to use of digital services with 64% of male respondents preferring digital remittance services compared to only 54% of female respondents;
For both those using digital remittance services and those using physical/cash services, convenience and habit are cited as the main reasons for this choice.

While further research is needed to identify in more detail real or perceived obstacles to digital remittances and related financial services for different segments of the migrant and remittance-recipient community, some recommendations can already be derived for implementation by governments in countries of origin and destination, as well as financial service providers in the region.

Furthermore, three clear and distinct – though obviously related – areas of work emerge to improve the uptake of digital financial services and promote financial inclusion among migrants and remittance recipients: (i) Access to and uptake of bank cards; (ii) Shift to digital services for remittance recipients with bank cards; (iii) Uptake of adjacent and complementary digital financial services for migrants and remittance recipients.

Some specific recommendations deriving from the research include:

  • Assess penetration of financial services throughout the countries, including access to banks and ability to use digital payments in daily transactions to enhance the attraction/value of bank cards for remittance recipients. In some cases, this may be addressed by bringing micro-finance organizations into the national payment systems with capacity to process cashless payments and open savings accounts;
  • Governments, commercial banks, and other organizations in contact with migrants and prospective migrants (such as NGOs) should improve communications tools to promote financial inclusion and literacy, and encourage the use of digital services;
  • Financial literacy programs and messaging should be designed for specific target markets among migrants and remittance recipients based on variables such as age, gender, education level, and should be applied both at the pre-departure stage and while migrants are abroad;
  • Digital financial tools should be developed with the end user’s objectives, preferences, and behavior patterns in mind, in order to improve uptake, in line with a Human Centered Design (HCD) approach and learnings from behavioral insights;
  • Testing of different types of messaging and products should be encouraged, and results shared among institutions in order to enhance knowledge on the types of messaging and financial services that appear most successful/popular among different migrant and remittance-recipient groups.

While there are a number of issues to look at and be addressed in order to improve financial inclusion of migrants and their families, and this research is just a first step in addressing these topics in Central Asia, we are encouraged by the strong partnership and cooperative spirit demonstrated by government agencies and financial service providers throughout the course of this research.

This research was conducted in the frame of the project “Mitigating Socio-Economic Effects of the COVID-19 Pandemic on Migrants and Communities in Central Asia and The Russian Federation” implemented by IOM and funded by the Swiss Agency for Development and Cooperation. For more information on the project and related research report please contact the IOM Sub-Regional Office for Central Asia:


SDG 10 - Reduced Inequalities