The European Union remittances market and its implications for developing countries

Abstract

Literature on remittances highly considers remittances as a crucial factor in spurring development in receiving countries. Objectively, remittances can serve in increasing liquidity in receiving countries and can lead to a multitude of multiplier effects which can influence society at large and not only the beneficiaries of said remittances. Nevertheless, their development potential is often curbed by a number of regulatory shortcomings which increase the costs to send remittances through formal channels and divert remittances to informal channels. These obstacles are not confined to receiving countries, rather, regulatory obstacles are equally present in sending countries. The EU is one of the leading regions in terms of the volume of remittances outflows and one of the world leaders in terms of the global development efforts. Yet, the EU lacks a remittance policy and on average remitters in the EU pay above average prices in order to send money home. Factors such as the lack of accessibility, familiarity and the extent of transparency of formal services, apart from the costs to remit may deter migrants to use formal channels, undoubtedly damaging the development-contribution of EU-originating remittances. Determining whether the payments market alone influences the shift from informal channels to formal channels would be discrediting a number of temporal and cultural factors which influence remitters’ choice of channel. However, the fact that the payments regulations effects the competitiveness and the attractiveness of formal channels is uncontested. To discover whether the EU remittances market promotes or hinders the development contribution of remittances, this research has analysed key EU legislation governing the payments market in order to evaluate whether the regulatory regime in the EU addresses the number of obstacles noted in the literature or not. By using a mixed-method approach, this research has concluded that the emphasis of EU legislation is on security with the issues at the core of the development contribution of remittances being subordinate to conditions of compliance and stringent requirements aimed at tackling money laundering and terrorism financing.