Payments involve transferring money from one actor to another, whether individuals, businesses, governments, or any combination of these groups. With the spread of mobile and other payments technologies in developing countries, payments are increasingly made electronically, making them safer, faster, and more efficient than in the past. Electronic payments have emerged as an important topic in financial inclusion because of the potential cost savings for poor people and those who transact with them.
Remittances, the money sent home by migrants, are one form of person-to-person payments and represent a critical source of income for many people. Globally, remittances are three times the size of international aid flows, and the World Bank shows that they amount to more than US$500 billion annually. Remittances are made in many ways, depending on location and circumstance. Payments may be through a formal financial institution or a specialized company, such as Western Union. These are typically automated and regulated, but they can still be expensive. Remittances may also be sent through informal means, such as by bus or hawala, an ancient system of remitting money in which no cash actually changes hands and the transaction depends on trusted brokers. These are more simple exchanges between one person and another and can be less expensive than using formal institutions, but they lack the security and regulation offered by formal services.
Mobile payments are increasingly improving the ability for people to remit money and make payments domestically, though there are still regulatory and other challenges to advancing mobile remittances on a large, global scale. As mobile payment schemes continue to develop around the world, they will likely play an important role in the shift toward electronic payments of all kinds.