Remittance sending costs in the post COVID-19 world

COVID-19 and the crisis that followed dramatically altered the global economic landscape. Remittances as well as the cost of sending them were not spared from the impact. Remittances are the lifelines of millions of families worldwide. Governments are working to realign remittance policies with the demands of a new era.

The cost of sending

In its Remittance Prices Worldwide (RPW) Report of September 2020 the World Bank calculates the global average cost of sending remittances at 6.75% in Q3 2020. This is a marginal increase from 6.67% observed in Q2 2020. The report attributes this largely to lockdowns and closures of brick-and-mortar remittance agents. Many remittance service providers had to cope with declining volumes by raising their service fees. Low and medium income countries (LMICs) were particularly impacted by this. As an example the cost of sending remittances from the US to Haiti went from 4.5% in Q1 to 3.85% in Q2, and back up to 4.73% in Q3. Reducing remittance costs is vital to the economic progress of many small developing economies.

The World Bank estimates that if the average global cost of remittances is reduced by 4%, an additional $16 billion would reach developing nations every year. UN Secretary General António Guterres recently urged member states to, “…take a step further and get the cost as close to zero as possible.”

The largest remittance corridors

The World Bank reported that remittance costs in the US-Mexico corridor increased from 4.04% in Q1 to 4.22% in Q2, and dropped slightly to 4.18% in Q3. The rise in the costs between April and June was attributed to COVID-19 related economic slowdown. The US economy is gradually restarting. More offline remittance agents are reopening. Remittance costs have entered a ‘correction phase’.

UAE-India is another high volume remittance corridor. It showed a similar trend with remittance costs, which went from 3.04% in Q1 to 3.45% in Q2, and 2.97% in Q3. Similar trends are being reported from the US-India corridor, and from other regions.

Making remittances cheaper – What will it take?

The global average cost of sending remittances stands at 6.75%, which is far higher than the UN’s Sustainable Development Goal (SDG) of 3% by 2030. Achieving this target requires national governments and global financial entities to work together.

Improving compliance can play a vital role. KYC (Know Your Client) solutions powered by technology are helping connect banks with more money transfer service providers. This can help reach remote and unbanked customers. KYC helps reduce the number of ‘high risk’ customers in the long run. This helps reduce costs related to security procedures, eventually reducing the cost of sending and receiving remittances.

Another important contributing factor can be standardization. Currently the lack of well-defined global standards is a major cause of higher remittance costs. Many service providers still follow monopolistic pricing practices. This makes certain remittance corridors very expensive. For example the costs of sending remittances from New Zealand to Tonga reached as high as 10.10% in Q2 2020. Establishing and enforcing standard procedures for the global remittance industry can cause a dramatic improvement in service fees and remittance costs.

Developing a robust mobile money ecosystem can help reduce costs as well. It costs less to remit online than offline. Currently the market for mobile money services is considered to be in its infancy in many countries. A recent study by Global System for Mobile Communication (GSM) concluded that there are 184 unique corridors for sending remittances between 35 sender countries and 40 recipient nations. Supporting digital remittances through channels like mobile wallets can decrease the costs of remittance sent to several Pacific countries such as Samoa, Tonga, and Fiji.

Global efforts 

Several developed countries have taken the lead in achieving the SDG target of 3% global remittance costs by 2030. 

In 2009 G8 nations including the US, UK, France, and Germany came together and set a target of reducing the cost of remittances by 5% in 5 years. They dubbed this the ‘5×5 Objective’. The plan involved the implementation of many measures. These included reworking the rules for international payments and refining the framework to improve remittance flows. The planners also focused on improving exchange rate margins and lowering the service fee charged to beneficiaries. While they missed their target, it was a bold step in the right direction. The global average cost of remittances fell from 9.7% in 2009 to about 7.8% in 2013.The World Bank estimated that the cost reduction saved migrants $60 billion during these 5 years. 

In 2014 the G20 nations rolled out their ‘G20 Plan to Facilitate Remittance Flows’. It replicated aspects from the G8’s 5×5 Objective, and added a few more. This included improving the availability of services in developing countries and working towards financial inclusion. There is evidence that these efforts are working.


About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.


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