Cost of remittances: too high

Global remittances are a $600B a year business. (The term is commonly used for personal, fairly low amount, person to person transfers.) Remittances from the U.S. to other countries costs way too much.

“Fintech” (technology transformation of finance) is bringing in new players to the remittance field, such as Linxo and other firms. But I see to evidence that they are making a big impact on remittances at this time.

According to World Bank estimates, $69B were remitted from the U.S. in 2020. At the average global cost of remittances (about 6.5%) the charges would be  $4.5 billion; at the typical costs of lowest costs remittance firms (3%) it would come to $2 billion. A cryptocurrency transfer would cost about zero (but entail current volatility). These comparisons don’t take into account days or hours of transfer time.

The global average remittance price (i.e., average based on all countries for which price data is available) declined was 8.96% in 2012. By 2020, the global average remittance charge was 6.56%; the weighted average (adjusted for volume) was 4.82%. Bank transfers were the most expensive at 10.73%. The UN wants these charges to go down to 3%.

One of the leading services for personal transfers between countries is Remitly. (Monito says it will let you compare charges, but I don’t see how it does this.) Remitly will get money into a bank account within two to three working days.

Say you want to transfer money vis Remitly from the U.S. to Ecuador. The company’s website says that an “express” transfer of $400 will cost $8.99, or 3%. This is about the average — for non-bank managed transfers. However, the World Bank asserts that the prevailing rates are much higher – though per the World Bank they have declined by about one third over the past 5 – 8 years, and overall cost 6% .


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