Remittance fees disproportionately impacting those already in financial distress
In a recent report, the extent of the cash premium in the remittances market and its impact on vulnerable customers has been brought to light. The research, published today on our platform, encourages companies to use data and insights to ensure fair pricing strategies and avoid overcharging customers who rely on cash.
The report found that, on average, sending $500 from the US costs an extra $5.55 when paid out in cash, compared to sending the same amount into a recipient's bank account. This equates to an average premium of approximately 2% on cash pay-outs.
The impact of this cash premium falls most harshly on vulnerable customers, as they are often more reliant on cash transactions. The report emphasizes the importance of considering the impact of pricing strategies on these customers.
The report did not specify which of the five providers charged the highest premium for cash pay-outs, but it did highlight that Provider A charged an extra $13 on average across the 10 countries for cash pay-outs versus bank accounts. In contrast, Provider E only charged an additional $0.66 on average for cash pay-outs.
Three of the five providers (B, C, and D) charged an extra $4-6 on average for cash pay-outs versus bank accounts, while the report did not specify which of the five providers charged the lowest premium for bank account pay-outs.
The primary reason companies charge extra for cash pay-outs is due to the additional cost required to maintain an effective and well-managed retail network. The report suggests that the cost of maintaining this network may have a disproportionate impact in countries with a lower bank account penetration rate.
The UN and G20 have goals to reduce the cost of remittances, and the report underscores the importance of these efforts. Digital or bank account transfers tend to be cheaper, saving roughly 2% of the transfer amount compared to cash-based remittances.
Specialized providers such as Wise or Remitly offer competitive fees starting as low as a few dollars or 0.5-1.5%, with more transparent pricing. In contrast, traditional banks and cash payout agents generally impose higher markups and fee layers, making digital transfer services a more attractive option for many customers.
The report did not specify which of the 10 geographically spread corridors had the highest premium for cash pay-outs. However, the report found that some providers charged a much greater premium for cash versus bank account pay-outs than others did.
In summary, the report highlights the importance of minimizing the cost difference between cash pay-outs and bank account pay-outs, particularly for vulnerable customers who rely on cash transactions. The report also encourages companies to use data and insights to ensure fair pricing strategies and avoid overcharging their customers.
- The business community should leverage technology, including pricing datasets, to monitor and address the financial disparities between cash and digital pay-outs, especially in light of the unequal impact on vulnerable customers.
- As the report shows, it's crucial for companies in the finance sector to reevaluate their pricing strategies regarding cash transfers, given that technology-driven alternatives like digital transfers can significantly reduce charges for customers.
