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Navigating Global Finance: Unlocking the Future of Travel and Education Remittances
12 Aug 2024

In today’s globalized economy, outward remittance has emerged as a critical financial mechanism that enables individuals and businesses to transfer funds across borders. Whether it's supporting family members, investing in international ventures, or paying for services and goods abroad, the need for secure, efficient, and cost-effective remittance solutions is ever-growing. From FY20 to FY24, outward remittance under the LRS scheme grew by 14%, reaching US$ 31B from US$ 19B. This surge is driven primarily by the travel sector, which holds 54% of the total remittance, reflecting a strong recovery in global tourism.

Amidst these trends, the education sector, while experiencing a 9% decline in CAGR (FY20-24) in remittances for studies abroad, remains the third-largest recipient in FY24. Investment in equity and bonds grew by 37%, and purchases of immovable assets by 29%, indicating robust interest in global markets and foreign real estate.

Given these dynamics, focusing on travel and overseas education presents strategic opportunities for financial institutions and remittance service providers. The travel sector’s dominance underscores a growing international exploration trend. Despite the decline in education-related remittances, its significant share highlights continued importance. In contrast, “maintenance of close relatives” though the second-largest category, offers limited scope for innovation. Thus, the focus on the travel and education sectors not only addresses substantial market volumes but also enables tailored financial products and services that meet the specific needs of international travelers and students.
Outward remittance focused on travel reached US$ 16.6B highlighting the significant expenditure by Indian tourists exploring international destinations. However, Indian tourist numbers have yet to return to pre-COVID levels, with CY22 recording 21,602,734 travelers compared to 26,915,034 in CY19. Despite this, there is an observable trend towards higher ticket size spending, reflecting a renewed interest in international travel experiences post-pandemic. Key growth drivers for the increase in outward remittance to travel include:
  • Relaxed travel restrictions
  • Improved vaccination rates globally
  • Enhanced consumer confidence in travel safety measures
These factors have encouraged Indian travelers to opt for longer stays, premium accommodations, and immersive travel experiences, thereby contributing to the rise in average ticket size for outbound tourism. Moreover, country-wise departure of Indian nationals across age groups depicts one-third of tourists belonging to the 25-34 age group in the leading 5 countries (UAE, USA, Australia, Canada, and USA). This highlights a tech-savvy demographic that values digital tools for travel planning. This age group’s preference for Western destinations reflects a focus on career and lifestyle opportunities. Fintech companies can capitalize on this trend by offering tailored digital payment solutions and travel-specific financial services.
A significant shift towards digital transactions has marked this growth, with more individuals opting for digital modes of payment for their international transfers. This trend has paved the way for the rise of fintech in the outward remittance landscape, particularly through digital payment innovations aimed at reducing costs and enhancing convenience for travelers. For instance, startups like Fi, Jupiter, and Scapia have collaborated with banks to introduce credit and debit cards with zero forex markup fees. Fi, for example, reduced its foreign currency transaction fee to 0% on its Amplifi credit card, making overseas expenditure significantly cheaper for its users.

These fintech innovations not only eliminate the traditional 3% to 5% forex markup fee typically charged by conventional banks but also offer additional benefits such as linked fixed deposits that earn interest. This approach not only secures the credit line for banks but also enhances the attractiveness of these cards for consumers, who benefit from earning interest on their deposits while enjoying fee-free international transactions. The adoption of zero forex markup cards is particularly appealing to tech-savvy millennials, aged between 25 to 34 years, who frequently travel internationally for work or leisure. As the outbound tourism market in India continues to recover and expand, fintechs are well-positioned to capture a significant share by providing tailored, digitally driven financial solutions that meet the evolving demands of modern travelers.
Over the years, the number of Indian students opting to pursue higher studies abroad has seen a substantial increase. From 0.8M Indian students studying abroad in 2019, the number rose to 1.8M in 2023 and is projected to reach 2M by 2025. One key reason for this surge is the pent-up demand during the COVID-19 pandemic. Additionally, students are seeking institutions that offer high-quality education, valuable skills, and exposure to cross-cultural communication.

Other contributing factors include attractive post-study work rights in many countries, the easy availability of education loans, and a variety of scholarship options. Globally, Indian students make up ~19% of the total international student population, followed by China at 14%. The USA and Canada are the most preferred destinations for these students. The outbound mobility of students is concentrated in the top four countries, primarily due to the presence of premier educational institutions.
70% of the Indian students pursuing education abroad enroll in postgraduate courses, while only 30% opt for undergraduate courses. Among the top four destinations, Australia is an exception, with 79% of Indian students enrolled in undergraduate programs. In other countries, over 70% of Indian students are enrolled in postgraduate courses.

As a first step towards pursuing higher education abroad, an increasing number of students take international tests each year, such as IELTS, SAT, ACT, TOEFL, GRE, and GMAT. The number of test-takers has risen from 3.4M in 2018 to 5.8M in 2023.

Due to the rising number of students heading abroad, the overseas education expenditure for Indians has increased significantly over the years. In 2023, India topped the total overseas higher education expenditure, followed by China.
The overall expenditure of Indian students on higher education abroad reached US$ 60B in 2023 and is estimated to reach US$ 69B by 2025. These expenses generally fall into three categories: pre-enrollment (4%), college tuition (60%), and post-admission expenses (36%). Pre-admission expenses include counseling fees, admission fees, test fees, and test preparation costs. Post-admission expenses encompass visa fees, insurance, housing, and living expenses.

For students studying abroad, receiving money from their families in India is a crucial part of their journey. The evolution of financial technology has revolutionized this process, making it more streamlined and user-friendly. An increasing number of companies are stepping up to support students by offering financing and additional assistance services.

Notable NBFCs like HDFC Credila, Auxilo, Avanse, Shiksha Finance, and Varthana support student financing needs. Players providing education assistance are expanding their services, by offering visa assistance, checking accounts, forex cards, credit cards, and accommodation support.

Gyandhan partners with entities like Niyo for forex cards and Zolve for credit cards. IDP collaborates with Convera and Flywire for seamless payments. LeverageEdu launched Flyfinance for student remittances and loans. ICICI Bank's new student forex card supports up to 15 currencies without cross-currency markup. Other key players providing remittance assistance include Wise, Remitly, and Swadesh.
When people move money abroad for remittances, travel expenditures, asset purchases, shopping, and investments, they are subject to a tax known as Tax Collected at Source (TCS). Such transfers are made possible under the LRS. The TCS rate for the majority of remittances (apart from those for medical and educational expenses) increased from 5% to 20% in the 2023 Union Budget. This modification aims to increase tax revenue and promote domestic spending. While education and medical remittances remain at 5% for sums over US$ 8.3K, the new 20% TCS rate has come in force from October 1, 2023. Taxpayers can claim TCS deductions as refunds or credits when filing income tax returns, which can reduce their tax obligations. Effectively handling tax liabilities in cross-border transactions requires a thorough understanding of TCS.

Adding to these developments, the Central Government, in consultation with the Reserve Bank of India (RBI), has recently amended rules under the Foreign Exchange Management Act (FEMA), bringing international credit card spends outside India under the Liberalised Remittance Scheme (LRS). This significant change means that transactions made using international credit cards will now attract a higher rate of TCS at 20%. This amendment aims to track high-value overseas transactions more effectively and does not apply to payments for foreign goods or services purchased from India.

The new regulatory framework introduces a compliance burden for banks and financial institutions, which must now implement mechanisms to levy TCS on international credit card spending. Despite these challenges, industry players acknowledge that these measures are necessary to curb potential misuse and ensure that high-value remittances are properly tracked. For consumers, the increased TCS could mean that more funds are temporarily locked up until refunds are processed during tax filings, which may impact their liquidity. Experts highlight that the inclusion of international credit card transactions under LRS will also affect the computation of the annual remittance limit of US$ 250,000 per person. This adjustment ensures that all forms of international spending are accounted for within the stipulated limit, thereby promoting greater fiscal oversight. Overall, these regulatory changes underscore the importance of adapting to evolving financial practices and ensuring that remittance frameworks remain robust and comprehensive.
In conclusion, the evolution of financial technology has dramatically transformed outward remittances, making them more efficient and user-friendly. The growth in travel and education-related remittances highlights the expanding role of fintech innovations, such as zero forex markup cards and real-time payment systems. Companies like Wise and Airwallex are leading the way with cutting-edge solutions that streamline international transfers and reduce costs. As regulatory changes and market dynamics continue to evolve, financial institutions and fintech firms must adapt to these shifts to meet the increasing demands of global travelers and students, ensuring a seamless and cost-effective remittance experience.

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