Even worse than ATM fees

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I get annoyed by the $3 fees I sometimes get charged by ATMs, but this figure pales in comparison to the high cost migrants face in sending remittances. According to World Bank estimates, some $317 billion in remittances were sent to developing countries in 2009. This money is often a vital income-stream for recipients. But according to a new policy note from the World Bank’s Payment Systems Development Group, a combination of fees and currency exchange spreads took a significant chunk out of this money. In the 3rd quarter of 2009, the global average total cost for sending migrant remittances was 9.4 percent.

What’s more, some of the poorest countries face some of the highest average costs. One of the most telling statistics from the report: Mexico alone has more remittance collection points than the entire continent of Africa. The most recent data show that Sub-Saharan Africa (SSA) has the highest average costs of any region of the world (Figure 3 below). (More detailed data can be accessed on the Remittance Prices website.)

Average total cost 

Fortunately, there is a silver lining in this cloud of fees. We now have enough data to start to see a trend in average total costs, and it looks like these are moving downwards. Globally, the average cost to send $200 fell from 9.4% in the third quarter of 2009 to 8.72% in the first quarter of 2010.

And there is more that can be done to keep the trend moving in the same direction. In some countries, dominant money-transfer organizations have exclusivity agreements with remittance outlets, restricting competition. Much can also be done to improve transparency and consumer protection. And of course, many countries need to improve the functioning of their national retail payments infrastructure. Together, these measures should help achieve the goal set out by the G8 in June 2009 to nearly cut in half the cost of sending remittances, with an estimated additional $16 billion going to remittances recipients in developing countries per year.

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Authors

Ryan Hahn

Operations Officer

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nick gogerty
April 27, 2010

This problem looks like an opportunity to the entrepreneur. Let's hope phone-based payment systems and other forms of innovation shrink this market.

Per Kurowski
April 30, 2010

And what’s the chunk the financial crisis has taken out on us?

I believe this issue, the cost of remittances, is an absolutely secondary issue in the hard life of the migrant workers… help them earn more money instead so that they can afford to send private couriers in first class bringing the money to their families… this is an issue that will be solved by market competition and not by expensive IADB and World Bank conferences.

I invite you to read more on this in my “There is already a de-facto American Union” blog http://bit.ly/oBsdw