Remittance costs in the spotlight as values grow

Remittance costs in the spotlight as values grow

A World Bank report puts the global amount of remittances in 2014 at $582 billion and estimates that migrants paid an average of 7.9% in fees on these money transfers.

The cost of remittances are an important development issue which has caught the attention of the international community. Speaking at the Sibos banking conference in Boston last week, Bill Gates chided the assembled bankers for wanting to extract higher fees for money transfers to the world's poor even as innovations in technology removed the friction and brought costs down.

In 2009, the G8 announced the goal of reducing the global average cost of remittances from 10% to 5% by 2014, the '5x5 Objective'. The World Bank's report pegs this average cost at 7.9% in 2014, down from 8.9% in 2013.

Meanwhile, fees on remittances towards Sub-Saharan Africa - the most expensive region to send money to - still exceed 11%. The fees applied by service providers and intermediaries prevent large sums of money from reaching their destination. It is estimated that, if the 5x5 Objective were to be reached, an additional $16 billion would reach developing countries.

The public sector's failure to reach the 5x5 objective has spawned a myriad of initiatives to provide remittance services at a fair price. However, the market's complexity and lack of transparency has also made it difficult for migrants to find the service most suited to their needs.

Swiss money transfer comparison Website TawiPay estimate that migrants could save an average of two-thirds on their remittance fees - collectively $28 billion - by switching from the mainstream money transfer operators to the cheapest services.

Comments: (3)

Sriram Natarajan
Sriram Natarajan - Credit Risk Fraud Cards Professional - Gurgaon 09 October, 2014, 11:011 like 1 like

most of this movement happens through banks or exchange transfer companies. If a larger percentage moves to mobile channels, it should eliminate the intermediary costs.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 October, 2014, 15:50Be the first to give this comment the thumbs up 0 likes

MS Windows and Office have been around for over 20 years. Microsoft must've recovered the bulk of their development costs long ago. I'm also sure technology has removed the friction in software development and offshoring has brought down the costs. I hope the Microsoft C Suite follows the "low cost should mean low price" theory of their founder so that I can very soon get my Windows and Office copies for a pittance, if not free-of-cost.

Although I never paid 7.9% on my cross-border remittances via conventional banks, in hindsight I wouldn't have minded the high fees. At least the money reached the destination as advertised on all occasions. Which is something I can't say for the transactions made via PayPal and any of the neobank alternatives. As for mobile channels, suffice to say that, six months later, I still can't access my money in M-PESA. (http://www.finextra.com/blogs/Fullblog.aspx?blogid=9273). 

Nick England
Nick England - VFX PLC - London 10 October, 2014, 09:09Be the first to give this comment the thumbs up 0 likes

As long as the mobile channel uses Regulated rails then this is a great way to go, but it can be Bank to Bank also. Using technology to eliminate the costs is the answer. We have set up a number of JV's using our technology and Regulation which result in an all in cost of much less that the World bank target of 5%. For example - we have powered up the lowest cost instant money transfer to Kenya - you can send up to £100 for £1 only. We now have been approached by a lot of Banks and Telcos who now realise that they need to partner with a white label low cost Regulated (which is key) technology partner. If you are looking to anable a solution that will enable remittances for an all in cost of <5% then get in touch and we can help.

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