RemittancesGateway.org

Aust/NZ banks review remittance costs to islands Average cost higher, report says

Wednesday, 16 February 2011 17:45

Source: Islands Business
By: Rowan Callick

Australian banks are reviewing how much they charge Pacific islanders to send money to their families back home—after a new report revealed it costs an average $A 21.70 for every $A100 remitted.

The report, produced by the governments of Australia and New Zealand for the Pacific Islands Forum, says that such remittances cost at least $90 million per year.

It says “the average cost of remitting to the Pacific is significantly higher than global averages.”

In 2008, the last year for which full figures are available, $470 million was sent to the islands from relatives living in Australia, New Zealand and the USA.

These payments are the life-blood for families in several countries.

They comprise 35.8 percent of the Gross Domestic Product of Tonga, 25.8 percent of Samoa’s GDP, and 18.7 percent of Tuvalu’s—on average across the region, 12 percent of GDP.

Remittances total 60 percent as much as all the aid coming in to the Pacific, which is the most heavily aid-dependent region in the world.
Both the Australian banks with major Pacific networks, ANZ and Westpac, say they are now reviewing their remittance charges.

A spokesman for the ANZ Bank said it “welcomes the report, as we recognise the market in Australia and New Zealand for low-value, cross border foreign exchange payments—principally to the Pacific—could be more efficient.”

He said the bank plans to launch “a new, easily accessible remittance product in 2011 to help reduce the cost of sending money to selected Pacific countries”.

This would involve loading money onto a debit card, which could then be accessed by a recipient, located in the Pacific, using a second card.
A spokesman for Westpac said: “We charge a flat fee for international telegraphic transfers.

“We are committed to providing a quality, good value service to customers transferring money overseas, and we are currently reviewing product options and fees.”

It is 30 percent cheaper to send remittances from New Zealand than it is from Australia—attributed by the report to the larger island communities in the former, promoting competition, to greater disclosure of foreign exchange rates, and to “regulatory change undertaken in New Zealand to allow innovative remittance products.”

While costs have fallen by 1.5 percentage points from Australia and by 3.4 percentage points from New Zealand in the 18 months to July 1, 2010 —they remain above global averages, which have fallen slightly faster than from Australia.

The report says: “Most of the cost reductions have been the result of reduced foreign exchange margins, rather than falls in upfront fees.”
Money transfer operators (MTOs) such as Western Union have seen larger falls than financial institutions like the banks, which are about 29 percent more expensive than MTOs.

Pacific Islands Forum economic ministers as a result pledged at a recent meeting in Niue, to explore plans to promote lower costs.

The G8 countries have established a working group to halve the average global cost of remittances from 10 percent to 5 percent. And in 2007, Pacific central banks and commercial banks agreed to aim to cut the cost to 4 percent.

The Australian and New Zealand governments’ initiative “Reducing the Cost of Remittances to the Pacific” has involved creating a website, www.sendmoneypacific.org, which displays both upfront fees and exchange rates.

The governments say in their report that the barriers should be reduced to make it easier and cheaper for remittance service providers to enter the market in both sending and receiving countries.