By definition, Remittance refers to that money that is transferred to another party. The same money could be sent through a wire transfer, mail, or check.
However, when we are talking about digital remittance, it’s self-explanatory. Receiving or sending payments through digital payments, like online transfer, PayPal or other means refers to Digital Remittance.
Remittances usually could be used for receiving payments that could include the invoices or a variety of other obligations. However, it is usually used to define the payments that are sent to other countries, usually to a person’s home.
Understanding Digital Remittances
Remittances include the payments that are made to other parties. Remittances usually help satisfy the obligations that are made, such as bill payments or invoices while online shopping.
But more commonly, remittances are made by a person in a particular country to somebody that lives in a different one.
These remittances could be made by people in foreign countries to send payments to their homes in other countries. However, these payments aren’t specified for individuals only as these could also be used by businesses.
Remittances could be captured electronically through a bank or a wire transfer, however, they could also be captured digitally.
Digital Remittances are self-explanatory which involve making payments to foreign accounts through digital means.
Digital remittance capture involves receiving payments from cards, ACH or even wire transfers from financial institutions.
- You can typically receive the payments for multiple invoices in just a single transaction.
- Usually, there isn’t remittance with the payment.
- The payer could send the remittance to the financial institution by making the electronic payments to imbed the remittance (CTX).
- The payer could send the remittance by email, EDI, or even other means they find feasible.
- The payer even indicates the seller must have logged in their website for remittance.
Remittances play an important role in the economies of small and developing countries which makes them an important part of most of the financial transactions of an organization.
These could even be used as a way to help raise the standard of living for people in different countries and deal with poverty overall.
This is why, since the late 1990s, remittances have been exceeding the development aid and even make up a good portion of a country’s GDP.
Digital Remittance Capture advantages and disadvantages
The whole transition to electronic payments has also created the advantages as well as disadvantages for both the buyers and sellers as well.
The remittances are provided over emails with attachments by either an EDI or a website.
Card payments, wire transfer, and remittances are provided through the disparate sources and processes.
However, matching payments to the remittance information as well as a reconciliation of payments to invoices at times becomes difficult.
Getting more into details, here are some of the brief pros and cons of digital remittance:
- The payments are done in time with an extended DPO.
- There are very fewer chances of fraud.
- The postage and other costs are cut off.
- Digital remittance could involve capturing the email, EDI, and other personal info as well.
- The processing of payments could be more costly.
- A lot of time could be taken to complete the cash application.
Countries that have a low income or the ones that are potentially struggling with economy, the digital remittance represents one of the largest sources of income for the population.
As per the World Bank, some of the top remittance receipts in 2018 were in India with about $80 billion and then China followed by Mexico and Egypt.
Rightly, the oil prices and other production expenses have also elevated the Venezuelan population and forced to migrate to other countries over the last few years.
With such refugees and immigrants living abroad, the digital remittances globally have surged.