Photograph — Independent UK

The cost of remittances has made the headlines for years, but based on last year’s statistics it seems like the cost of sending money abroad is still blown out of proportion. The UN has been extremely vocal in regards to money transfer transmitters and has encouraged newcomer providers to take a chunk of the massive $613bn market by creating its own WorldBank remittances comparison website, which helped some, but has failed to resolve the issue.

With more than $40bn just in annual remittances to sub-Saharan Africa, a cheaper way to move money into these countries can mean a sharp incline in GDP, or in other words – a better life for more people at the expense of exorbitant money transfer companies.

Before we look at the reasons for which remittances are still a lot more expensive than they should be, we need to look at new competitors in the money transfer industry over the past 5 years, most notably Transferwise, the UK/Estonia based startup valued already at £3bn. The company has admitted to transferring an incredible amount of £2bn a month, so how come its valuation is “as low” as £3bn in total? The reason is that the firm uses a transparent fee system which dictates approximately 0.5%-0.75% in fees, total. That means that their revenue from 2bn transferred each month is just about 10m – when you add all the banking expenses, regulation, staff of more than 1,000 employees globally, and their actual costs of buying currencies and hedging against sudden currency movements – you realise that they are hardly profitable now, and must have been bleeding money quite badly over the past years.

Even a company like Transferwise, which is extremely well funded with more than $400m in funding rounds to date by some of the world’s most prominent venture capital firms and angels, sticks to “easy currency routes.” That means that the company only on-boards clients from countries like UK, USA, Australia, the EU, Canada, and Northern Europe where all other companies operate. They do not handle outbound transfers from almost anywhere in Asia and don’t deal with outbound from Africa transfers at all. Additionally, they only do bank to bank transfers (which are the easiest to conduct as opposed to cash transfers).

There are companies who operate on a much broader audience basis. They cannot compete with the exchange rates applied by Transferwise because simply put, the costs of transferring money in some routes are a lot more expensive, and if they would have been too generous with fees, they would not have been able to sustain their businesses. These two companies are WorldRemit, a company that focuses specifically on African remittances and enables cash deliveries and mobile top-up payments as well, and Payoneer, a company that also issues a MasterCard for its users even if they don’t have a bank account, and by that, they connect the unbanked to the banking systems.

The next thing which is required to really take the fees on remittances down a notch is governmental support to those younger companies which avail Africans, or other immigrants, the possibility of sending money home to their families without paying through their noses. Governmental support means encouraging these companies to open local offices in African countries, offering them free advertising through governmental channels, and perhaps even increasing the taxation and regulation over the money transfer mammoths like Western Union and Moneygram who are exorbitant in their fees.

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