Increasing global concerns about cross-border money transfers, and the subsequent risk of liability for breaching regulations, has led several banks in Australia to close any accounts held with them by money transfer operators (MTOs).
Without a bank account, many MTOs will be out of business, and if the money transfer industry is restricted, there stand to be a lot of losers – not only the MTO owners and employees in Australia, but more importantly the world’s poor.
In 2014 it is estimated that officially recorded remittances of $435 billion will be sent to developing countries – in fact, remittances sent home by migrants to developing countries are equivalent to more than three times the size of official development assistance. (source: The World Bank)
From Australia alone, 157 countries receive remittances.
Remittances reduce poverty and improves the health and education levels of children in the developing world. The prospect of having capital to start a business or buy a home is increased, and they provide aid in times of emergency such as a natural disaster. When Typhoon Haiyan struck the Philippines in 2013 killing 6,300 people and displacing 4.1 million more, there was an 8.5% increase in remittances. Several money transfer companies also agreed to temporarily waive their fees so every cent would
count. (source: The World Bank)
Jonathan Capal of Developing Markets Associates, a Sydney-based consultancy that manages remittance comparison websites on behalf of the
Australian and New Zealand governments as well as the World Bank’s global remittance prices database – http://remittanceprices.worldbank.org –
has released data that shows the impact these bank account closures could
have on the average person receiving remittances.
As Jonathan explained: “In October 2014, average money transfer costs (the fee and exchange rage cost) for sending $200 from Australia to Samoa for remittances sent by MTO was 8.94%. At the same time the average bank cost was 21.82% — almost 2 and a half times the cost charged by an MTO.
To give another example, average costs from Australia to the Philippines, the most competitive corridor with over 115 different options, recorded an average of 5.43% for $200 transfers sent via MTO. Average bank costs were 16.11% — that’s almost 3 times the cost. So if someone sends $200 with a MTO to the Philippines, the friend or family member collecting the money could receive around the equivalent of $189.14, but only $167.78 if they were to receive it via a bank (and probably less because of the receiving bank charges). Assuming someone sends once a month during the year, that’s a difference of $256.32 per annum, the equivalent of 10% of the average annual Filipino salary (source: International Labor Organization).
Should many of these MTO services no longer be available, the lure of informal unregulated low-cost remittance services may prove very tempting for millions of migrants who are used to paying less than 10% of the send amount for their regular money transfer to their home country. A migrant who is paying $5 to send $200 to the Philippines is unlikely to be comfortable with switching to a remittance option with a fee of $30 or more.
The flow of money is unlikely to stop entirely because people depend too much on this money. But remitters will send via other, unregulated ways, which are potentially risky and this money will leave Australia unreported. And then the financial authorities will have less information and control over the flow of money from Australia, who it is sent to, and what it is being used for.
Developing Markets Associates Limited (DMA) is a globally recognised multi-service development consultancy. DMA’s Asia Pacific operation in Sydney manages the Australian and New Zealand government supported project, www.sendmoneypacific.org and the Australian government supported www.sendmoneyasia.org website.