Cash premium for remittances disproportionately impacts those most at risk
When sending money internationally, the choice between cash pay-outs and bank account pay-outs can significantly impact the cost of the transaction. A recent report published by our platform has shed light on this issue, revealing the extent of the cash premium in the remittances market and its impact on vulnerable customers.
The report found that cash pay-outs carry significantly higher average costs than bank deposits in the remittance market. Western Union and MoneyGram are among the companies known to charge the highest premiums for cash-based payouts due to their extensive agent networks and convenience features.
On the other hand, bank and digital account transfers remain cost-efficient, especially for larger or recurring transfers. Digital platforms and newer fintech services like Wise, Revolut, and Pesa usually charge lower fees but may not offer widespread cash pick-up options or may partner with local agents with extra fees, which remain lower than traditional MTOs.
The research focused on standard pricing to send $500 from five major providers across 10 geographically spread corridors. Three providers (B, C, and D) charged an extra $4-6 on average for cash pay-outs versus bank accounts, while Provider A charged an extra $13 on average across the 10 countries for cash pay-outs versus bank accounts. Notably, it was found that some providers charged a much greater premium for cash versus bank account pay-outs than others.
Lucy Ingham, Editor-in-Chief and Head of Content at the platform, emphasizes the importance of minimizing the cost difference between cash pay-outs and bank account pay-outs. "Reducing the cost of remittances is a goal of the UN and G20, and companies should use data and insights to ensure fair pricing and prevent overcharging of customers who are reliant on cash," she said.
The cash premium is likely to be felt most harshly by vulnerable customers. These additional costs disproportionately impact customers in countries where a smaller proportion of the population have bank accounts. Cash pay-outs are often the only option for customers in countries with a low bank account penetration rate.
The report does not specify which five major providers were included in the research. However, it is essential for consumers to be aware of the cost differences between cash pay-outs and bank account pay-outs and to choose the most cost-effective option for their needs.
References
- Remittance Prices Worldwide 2021
- World Bank: Remittance Prices Worldwide
- TransferWise vs Western Union: A Comparison
- Revolut vs Western Union: A Comparison
- The recent pricing dataset on remittances reveals that finance firms like Western Union and MoneyGram, renowned for their extensive technology-driven networks, often charge higher premiums for cash pay-outs compared to bank account transfers.
- To minimize the financial burden on vulnerable customers, the report stresses the significance of technology and digital platforms in offering cost-efficient remittance solutions via bank and digital account transfers, as opposed to cash pay-outs.
