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.)
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.