Shining the spotlight on global money transfer markets
Every year, consumers transfer hundreds of billions of US
dollars around the world. In many countries, the remittances sent
by migrant workers to their families make a significant
contribution to economic development - allowing the recipients to
meet basic needs and invest in their futures.
However, consumers must reckon with unreasonably high
charges for this relatively simple transaction - often as much as
10% or 20% of the funds being sent. They are also faced
with a lack of 'real' choice between different money transfer
services and are consequently often stuck in bad deals.
In
The Remittances Game of Chance: playing with loaded
dice?, Consumers International (CI) examines the impact
that high costs have on comsumers, and explores a number of
solutions to address the root causes. In making the case for
bringing down sky high charges, the report makes a number of
recommendations organised around three key themes:
Transparent pricing
Current industry practice makes it very difficult for consumers
to compare different services and shop around for the best deal. As
well as charging a fee to transfer funds, many money transfer
companies (MTCs) also generate a secondary profit on the foriegn
exchange rate offered. However this fact is often not clearly
communicated to the consumer, with the result that they may not be
aware of the true cost of the transaction. Clear and accurate
information must be available to consumers in order for them to
excercise their right to choose.
Promoting competition
The opaque pricing described above is part of a broader problem
of lack of competition in many money trasfer markets. Money
transfer routes, or "country corridors" as these are known in
remittances parlance, are often dominated by a small number of
multinational companies, leaving consumers with little or no
meaningful choice. Potential new market entrants find themselves
locked out for a number of reasons, such as the signing of
'exlusivity agreements' by major MTCs with national Post Offices or
central banks in recieving countries, or the acquisition of smaller
companies by bigger ones. The result is often a market where MTCs
do not feel pressure from competiting companies to offer consumers
better prices or service quality. Promoting effective competition
will help to ensure that consumers have a real choice and is vital
to bringing down average prices, as well as driving innovation.
Empowering consumers
Consumers need to be equipped with the right skills and tools to
make informed choices and find the best option for them. Empowered
customers also play a vital role in holding MTCs to account, either
by withdrawing their business or through making full use of avenues
for redress that are available to them. The users of money
transfer services, many of whom will be migrants living in foreign
countries, should be targeted with specific information and
outreach activities to help build awareness and understanding of
the choices available and their rights as consumers. Improving
levels of financial literacy will also help consumers to navigate
the market and to manage their money effectively. MTCs can
also play a vital role by working with other organisations to
support financial inclusion initiatives that target the users of
their services, many of whom are currently unbanked.
World Consumer Rights Day 2012
On 15 March 2012, consumer organisations around the world will
mark World Consumer
Rights Day (WCRD) by calling for real choice in financial
services. The lack of competition in money transfer markets is a
real concern in many countries and many CI members will be
focussing on this issue in their WCRD activities.