By: NY Staff
According to a recent World Bank report, expatriates send over $400 billion US to their home country every year. The figure includes nearly $35 billion US dollars sent back to developing countries. Of the $35 billion, $71 million is sent to Yemen from expatriates working abroad.
The World Bank states that remittances are important to countries worldwide because families they are frequently a source of income that is used to meet basic needs. It also is used to support education, housing, and much more.
Despite the importance of remittances, expatriates pay huge fees when sending money to their home countries. Many efforts have been made to reduce theses costs, yet consumers still pay 10-20% in fees per transfer. The fees amount to billions of dollars every year.
The World Bank contends that a reduction of the remittance fees by a mere 5 points would result in an additional $15 billion in the hands of whom it was intended for. Such a move, the World Bank says, is not simply a matter of protecting consumers; rather, it is a matter of social justice.
The reasons for the high costs vary from one country to another but three are consistent in any country: a lack of choice, convoluted pricing and little information. Frequently, the best deals require services not everyone has access to, such as Internet and a bank accounts. The World Bank argues that these barriers should be reduced; in turn, expatriates sending money to their home countries should be able to conveniently find out the pricing of each company. The World Bank also added that the company should have a presence in each country it does business. Unfortunately, these solutions may never see light in such a non-competitive market where consumers are used to paying large amounts of money.
The International Monetary Fund weighed in on a statement and expressed its desire to reduce the cost of transferring money internationally. The G8 and G20 also approved similar statements. As such, the statements aim to reduce remittance fees from 10% to 5% in the next 5 years through information transparency, competition, and cooperation.
Financial Protection for Consumers Special Advisor to President Obama noted that consumers run the process of choosing the company they do business with. However, he said, consumers are always the loser because the current laws work against them.
“A consumer initially pays an a fee for sending money and think that is it. However, the consumer is often unaware of the current exchange rate, which allows the company to make additional profits unbeknownst to the consumer,” the adviser stated.
The perceived excessive fees have brought scrutiny and many questions. The biggest question amongst these is simple: Do companies need the high fees to cover high costs? Economists revealed that Western Union and Moneygram generated nearly $1.4 billion and $310 million, respectively, in 2011. These numbers represented a respective 7% and 15% increase from 2010.
To create needed transparency, the World Bank suggests that consumers, banks and money transfer stores should provide customers with information about their fees and of other companies so they can compare. In addition to this, companies should provide examples the general cost of procedures to transfer money in various countries. If such measures are not met, it is suggested that investigations should be taken to ensure that companies are not collaborating to keep prices artificially high.
Of course other avenues exist such as enabling telecommunications companies with the permits to engage in exchange and international remittances. This can be done from one person to another via mobile phone, without the mediation of financial transfer companies.