Lowering the Cost of Sending Money Home

• Author: Kai Schmitz and Isaku Endo
• Position: Prepared by and of the Payment System Development Group of the World Bank. The data are from the Remittance Prices Worldwide Database, which provides information on 200 remittance corridors, available at http://remittanceprices.worldbank.org.

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INTERNATIONAL remittances to developing countries reached $325 billion in 2010. These transfers, mostly from migrant workers to their home countries, are one of the largest flows of capital to developing countries, often representing as much as 35 percent of gross domestic product in the recipient nation. But it costs a lot to send this money home—often as much as 20 percent of the amount being sent. Reducing remittance costs has therefore recently become part of the development agenda of both the Group of Eight and Group of 20 leading economies. To make pricing more transparent, the World Bank has created a database on the cost of sending and receiving small amounts of money from one country to another. It costs over 47 percent to send $200 from Tanzania to Kenya, the most expensive corridor, but just 4.6 percent to send the same amount from Singapore to Bangladesh, the least expensive one. If the cost of sending remittances could be reduced by 5 percentage points, remittance recipients could receive over $16 billion more each year.

Sticker shock

An important factor in high remittance prices is a lack of transparency in the market. It is difficult for consumers to compare prices because several variables make up remittance prices. The cost of a remittance transaction typically consists of a fee charged by the service provider and a currency-conversion fee for delivery of local currency to the beneficiary in another country. Other factors include exclusivity agreements that limit competition, ill-designed regulation that creates high barriers to entry, and limitations on access to payment systems.

Location, location, location

Remittance costs vary widely...