Promoting responsible digital wages and remittances for migrant women (ILO)

Arguments

Digitization projects may unintentionally increase inequality

Supporting facts:

• Observation that benefits of digitization end up with the stakeholders that are already well off

• Infrastructure for digital payments is not fully digitized, causing friction and cost converting digital payment into cash

Report

During a discussion on digitization projects, two speakers focused on the potential impact of such projects on inequality. They both expressed concerns about the current state of inequality and how digitization might unintentionally exacerbate it. One of the main points raised by the speakers was that the benefits of digitization tend to be concentrated among those who are already well-off.

This observation suggests that rather than reducing inequalities, digitization may actually reinforce existing disparities. To support this argument, the speakers pointed out that the infrastructure for digital payments is not fully digitised yet. This results in difficulties when converting digital payments into cash, particularly for those who rely on cash transactions.

The friction and costs associated with the conversion process further marginalise individuals who may not have access to digital banking services or prefer to use cash. Consequently, these individuals are left out of the benefits that digitization promises to bring.

Another speaker emphasised the need for strategies that improve the value proposition for end receivers of digital payments. They suggested focusing on enhancing digital and financial literacy, as well as addressing health-related concerns. By empowering individuals with the knowledge and skills needed to effectively navigate digital systems, they can fully participate in the digital economy.

Overall, there was a negative sentiment surrounding the potential unintended consequences of digitization projects on inequality. The discussion highlighted the necessity of reflecting on strategies to ensure that digitization projects are inclusive and do not further widen the gap between the well-off and the disadvantaged.

By prioritising the improvement of the value proposition for end receivers and addressing the challenges in the infrastructure, digitization can be leveraged to bridge the inequality gap rather than exacerbate it.

Arguments

Deepali Fernandes found the pilots presented by Gabriel Bizama very innovative and successful, particularly noting how they have been tried and tested in real world scenarios.

Supporting facts:

• The US-Colombia corridor pilot reduced remittance cost from 6% to 1.6% to 2% with the assistance of blockchain technology.

• The Ukraine program enabled portability across different regions while maintaining currency value.

Report

The analysis focuses on two significant points. Firstly, it highlights the success of Gabriel Bizama’s pilots, which utilized blockchain technology to revolutionize the remittance process. These pilots have effectively reduced remittance costs from 6% to a range of 1.6% to 2%. By leveraging blockchain technology, the US-Colombia corridor pilot achieved this impressive cost reduction.

Additionally, the Ukraine program demonstrated the ability to maintain the value of currency while ensuring portability across different regions. It is worth noting that both pilots have undergone thorough testing and have proven their innovative and transformative capabilities in real-world scenarios.

Secondly, the analysis highlights Deepali Fernandes’ interest in exploring the gender aspects of digital remittances in relation to financial inclusion. This signifies a recognition of the potential impact of digital remittances on promoting gender equality and ensuring financial access and empowerment for all.

While no specific supporting evidence is provided, Fernandes’ interest indicates a desire to further understand and address the gender disparities that may exist in digital remittance systems. Overall, the analysis highlights the effectiveness of blockchain technology in reducing remittance costs and ensuring the portability of funds.

It also emphasizes the importance of considering gender aspects in the context of digital remittances and financial inclusion. These insights shed light on the potential for technological advancements to drive positive change and promote greater financial empowerment and equality.

Arguments

Gabriel Biyazama discusses use cases of blockchain for cross-border payments, digital wages, and cash transfers.

Supporting facts:

• Pilot programs conducted in U.S.-Colombia and UAE-Philippines

• Exploring corridors in Europe-Africa

• Blockchain is cost-effective with a less than half the average cost of the market

• The importance of interoperability and financial education in the system.

Key technology will mainly focus on digital assets and currencies, leveraging digital wallets

Supporting facts:

• Digital wallet RTM enables businesses to pay workers using digital assets like USDC, digital dollars

• Workers can convert USDC to local currency, send those funds to a bank account, or a prepaid account or even do a cash out with local physical agents

• In October, RTM processed over 1 million transactions, over 100 million USD in volume

• The solution is seeing active use in Argentina, Venezuela, Colombia, Kenya, Ecuador, India, and Bangladesh

Report

Gabriel Biyazama explores the potential applications of blockchain technology in cross-border payments, digital wages, and cash transfers. Successful pilot programs have been conducted in the corridors between the U.S. and Colombia, as well as between the UAE and the Philippines.

The use of blockchain technology in these areas is cost-effective, offering a solution that is significantly cheaper than the average market cost. To ensure the successful implementation of blockchain, two crucial factors must be considered: interoperability and financial education. Interoperability is essential for seamless communication and compatibility between different blockchain networks, allowing for efficient cross-border transactions.

Additionally, financial education plays a vital role in ensuring individuals and businesses understand the benefits and processes involved in using blockchain for their financial transactions. Another significant use case for digital assets lies in their potential to support humanitarian causes.

The UNHCR, for example, has utilized digital assets to aid refugees in Ukraine affected by the Russian invasion. This innovative solution provides portability, financial inclusion, and transparency, contributing to the achievement of Sustainable Development Goals such as No Poverty, Reduced Inequalities, and Climate Action.

Digital wallets, such as RTM, enable businesses to pay workers using digital assets like USDC and digital dollars. These digital assets can be converted to local currency, sent to a bank account or prepaid account, or even withdrawn as physical cash through local agents.

RTM has processed over 1 million transactions, amounting to over 100 million USD in volume in October alone. Countries such as Argentina, Venezuela, Colombia, Kenya, Ecuador, India, and Bangladesh have actively embraced this solution. However, the adoption of digital wallets in cash transfers and other financial transactions does present challenges.

One significant obstacle is connectivity, as solutions like RTM require access to smartphones, highlighting the need for robust digital infrastructure. Without reliable connectivity, the benefits of digital wallets and blockchain technology in financial transactions cannot be fully realized. In conclusion, Gabriel Biyazama emphasizes the potential of blockchain technology to enhance cross-border payments, digital wages, and cash transfers.

The successful pilot programs and exploration of new corridors demonstrate the positive impact this technology can have on financial systems. The use of digital assets in cash transfers further amplifies the potential contribution to humanitarian causes. However, addressing challenges such as interoperability, financial education, and connectivity is crucial for widespread adoption of technologies like digital wallets.

Arguments

Most migrant workers prefer their wages to be in cash due to convenience and familiarity.

Supporting facts:

• The majority, as studies show, of migrant workers prefer receiving their wages in cash.

• Many find finance stressful and see no immediate benefits of switching to digital systems.

There is a need for studies that evaluate the potential business case for wage service providers and financial providers offering digital services.

Supporting facts:

• There hasn’t been a study that looks at wage service providers and financial providers in relation to digital services.

• It’s important to understand the business benefits for these institutions, migrant workers, and employers.

Digital wage services support various benefits and opportunities for employers, financial institutions, and migrant workers.

Supporting facts:

• Digital wages can simplify payroll for employees and offer financial benefits for the institutions.

• Digital payment services open a new niche market with migrants.

Significant number of migrants in Senegal receive their wages in cash and have limited access to digital financial solutions.

Supporting facts:

• Eight out of ten migrants in Senegal receive their wages in cash.

• About 25% of these migrants own a bank account, but almost half of those do not have access to digital wages.

Delivery networks are important for migrant workers to make ease of access to digital financial services.

Supporting facts:

• Many migrants prefer services in their own languages which can ease transactions.

• To reach lower income people in developing countries, physical delivery networks remain very important.

Gender disparity in remittances and financial inclusion

Supporting facts:

• Nowhere was the onboarding of women customers near 50% where you expect it to be

• Women prefer or use more the cash-based channels

• Women tend to send remittances in smaller amounts and more frequently

• Women have reported to be less able to cope with an unforeseen expense

• Women have less control over remittances and how they’re used than men

Potential improvement of women’s financial inclusion through digital remittances

Supporting facts:

• Simple tweaks improved gender ratio in onboarding for a remittance company

• Financial health can play a major role in reducing stress related to remittances

• Women generally spend remittances on education, energy payments and healthcare

• Digitisation of remittances could improve women’s control over their finances

Report

The analysis explores the topic of digitisation of wages for migrant workers from various perspectives. One argument is that the majority of migrant workers prefer to receive their wages in cash, citing convenience and familiarity as the main reasons. Studies show that many migrants find finance stressful and do not immediately see the benefits of switching to digital systems.

On the other hand, there is a need for studies to evaluate the potential business case for wage service providers and financial institutions offering digital services. The analysis points out that no study has specifically examined the relationship between wage service providers, financial providers, and digital services.

Understanding the business benefits for these institutions, migrant workers, and employers is crucial in order to make informed decisions regarding the adoption of digital payment systems. Digital wage services, however, offer various benefits and opportunities for employers, financial institutions, and migrant workers.

They can simplify payroll processes for employers and provide financial benefits for institutions. Moreover, digital payment services open up a new niche market with migrants, which can contribute to economic growth and development. In Senegal, a significant number of migrants still receive their wages in cash and have limited access to digital financial solutions.

Eight out of ten migrants in Senegal receive cash wages, while only around 25% of them have a bank account. Furthermore, almost half of those who own a bank account do not have access to digital wages. This highlights the challenges faced by migrants in accessing digital financial services and the need for improved access and inclusivity.

Delivery networks also play a crucial role in facilitating access to digital financial services for migrant workers. Many migrants prefer using services that are available in their own languages, as this can ease transactions and improve overall user experience. Additionally, for lower-income individuals in developing countries, physical delivery networks remain vital to ensure that they can access digital financial services.

The analysis also addresses gender disparities in remittances and financial inclusion. It highlights that women generally face greater challenges in terms of financial inclusion and control over their remittances. Women tend to use more cash-based channels, send smaller amounts more frequently, and have less control over how their remittances are used compared to men.

However, there is potential for improvement in women’s financial inclusion through digitisation of remittances. Simple tweaks in onboarding processes have shown improved gender ratios in a remittance company. Additionally, improving women’s financial health can play a crucial role in reducing stress related to remittances.

Digitisation of remittances could enhance women’s control over their finances and enable them to allocate funds towards education, energy payments, and healthcare. In conclusion, the analysis suggests that the digitisation of wages and financial services for migrant workers should aim to be gender-inclusive.

Addressing the barriers faced by women in terms of financial inclusion and control over remittances is essential. By studying the potential business case for digital services, improving access to digital financial solutions, and focusing on gender inclusivity, policymakers can work towards achieving SDG targets related to decent work and economic growth, reduced inequalities, and gender equality.

Arguments

Digital wage payments are important as they ensure workers receive full wages and provide proof of payment for labor disputes.

Supporting facts:

• A digital wage ensures accuracy and timeliness of wage payments.

• Workers have reported that when paid digitally, the wage payment is much more accurate.

The transition from cash to digital wage payments needs to be done responsibly to fully benefit the workers.

Supporting facts:

• Workers, especially the more vulnerable or less digital-savvy ones, might face challenges when their wages are digitalized without proper financial literate education.

• Instances found where women had to take a day off to go to the bank to cash out their money, indicating gaps in digital literacy

The importance of financial education for women migrant workers

Supporting facts:

• Many workers in developing countries lack sufficient digital and financial education

• The ILO has been working on providing financial education over the past 10 to 15 years

• Financial issues were found to be the cause of mental health issues among migrant workers in Jordan

The need for personal savings products for migrant workers

Supporting facts:

• Many migrant workers return to their home country with little to no savings

• Exploring financial products beyond remittances can enable workers to plan for their futures

• Many Filipino workers returned to the Philippines after working abroad during the pandemic with nothing

Importance of considering local context and ecosystem for successful digitization of wage payments

Supporting facts:

• Mention of Philippines case where workers were willing for digital payment once ecosystem developed.

• Rapid development of financial ecosystem in many places.

Report

The importance of digital wage payments is highlighted in the summary, as it ensures the accuracy and timeliness of wage payments for workers. This helps to reduce instances of payment inaccuracies, which can have significant implications for workers, especially those living in poverty.

Workers have reported that when paid digitally, the wage payment is much more accurate, proving the necessity of digital wage payments. However, it is important to ensure that the transition from cash to digital payments is done responsibly. Workers, especially those who are vulnerable or less digitally-savvy, may face challenges when their wages are digitalised without proper financial literacy education.

Instances have been found where women had to take a day off to go to the bank to cash out their money, indicating gaps in digital literacy. Therefore, it is crucial to provide financial literacy education to workers, particularly in developing countries.

Governments have a vital role to play in promoting responsible digitisation of wage payment by setting the appropriate policies and regulations. Bilateral labour agreements in some countries have a clause ensuring workers’ access to a bank account, which facilitates digital wage payments.

For example, the Ministry of Labour in Thailand has required vessel owners to pay wages digitally, benefiting many migrant workers. By implementing these policies, governments can ensure that workers receive their full wages and have access to reliable payment methods.

While using mobile wallets for wage payments presents opportunities, it also poses risks if not fully supervised. There are laws that restrict the use of mobile wallets for wage payments if they are not backed by a bank. It is important to consider the issue of risk and protection of funds when using unsupervised mobile wallets.

Supervision and regulation are necessary to safeguard workers’ financial interests. Financial education is essential, particularly for migrant workers who often lack sufficient digital and financial literacy. Many workers in developing countries face these challenges, resulting in financial issues that can lead to mental health problems.

The International Labour Organization (ILO) has been working on providing financial education for the past 10 to 15 years, recognising its importance in empowering workers. By equipping workers with the necessary knowledge and skills, they can make informed financial decisions and better navigate the digitised payment systems.

Additionally, there is a significant need for personal savings products for migrant workers. Many of them return to their home countries with little to no savings, despite their hard work. Exploring financial products beyond remittances can enable workers to plan for their futures and secure their financial well-being.

The COVID-19 pandemic highlighted the vulnerability of migrant workers who returned to the Philippines with nothing after working abroad. Preventive action and prior financial education before migration are necessary to address the challenges faced by migrant workers. Many workers get trapped in a cycle of debt to repay recruitment fees and remittances.

Providing financial education before the migration process can help workers deal with potential issues, such as managing their finances abroad and avoiding exploitative practices. This proactive approach can protect workers from falling into financial hardships. The successful digitisation of wage payments depends on considering the local context and ecosystem.

It is crucial to understand the unique characteristics and challenges of each country or region to effectively implement digital payment systems. For instance, in the Philippines, workers were willing to adopt digital payment once the ecosystem was developed. Rapid development of the financial ecosystem has been observed in many places, creating opportunities for the digitisation of wage payments.

It is important to view digital wage payments in the broader perspective of all digital payments that workers need to make. Central banks have released studies showing that a significant portion of private sector workers still receive wages in cash, indicating a need for further adoption of digital payment methods.

The increased number of merchants accepting digital payments also emphasises the growing acceptance of digital transactions. In conclusion, digital wage payments play a crucial role in ensuring accurate and timely payment for workers, reducing payment inaccuracies. However, a responsible transition from cash to digital payments is necessary, accompanied by financial literacy education for workers.

Governments can promote responsible digitisation through policies and regulations. Financial education is crucial for migrant workers in particular, and there is a need for personal savings products to secure their financial well-being. Prior financial education and preventive action can help workers avoid falling into financial hardships.

The successful implementation of digital wage payments depends on considering the local context and ecosystem, and it is important to view digital wage payments in the broader context of all digital payments.