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Western Union, MoneyGram accused of excessive charges on Africa remittances

By on April 22, 2014

Leading money transfer companies have been accused of imposing a “super tax” on remittances to Africa, according to a report by UK’s leading international development think-tank, the Overseas Development Institute (ODI).

The report specifically called on the UK’s consumer watchdog to investigate Western Union and Moneygram for shortchanging Africans a whopping $1.8 billion annually via excessive charges on money sent home by migrant workers in the rest of the world

Latest World Bank figures show that remittances from foreign workers are expected to rise to $436 billion this year, more than three times what poor countries receive in overseas aid, but the ODI said the cost of sending money back to Africa was far higher than the global average.

The expected increase in remittances to developing countries this year, according to the World Bank, will be maintained in the next few years despite deportations of international migrants from some host countries, adding that remittances will rise to $516 billion in 2016.

“Migrants sending $200 home can expect to pay 12 per cent in charges, which is almost double the global average. While the governments of the G8 and the G20 have pledged to reduce charges to five per cent, there is no evidence of any decline in the fees incurred by Africa’s diaspora. There is no justification for the high charges incurred by African migrants,” the ODI said.

However, a spokesman for Moneygram said the ODI had got its figures wrong. “We don’t recognise those numbers at all. There is no Africa premium.”

He said Moneygram was offering a competitive service for people shunned by high street banks and that someone sending £200 from the UK to Africa would pay a charge of 5.1 per cent, including foreign exchange fees, against a global average of 4.9 per cent.

In defence, Western Union said: “The average global revenue earned by Western Union from transferring money (including fee and FX) is 5-6 per cent of the amount being sent. However, our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility, and other market efficiencies. These factors can impact the fees and foreign exchange rates offered.”

Kevin Watkins, ODI director, said the virtual duopoly operated by Western Union and Moneygram in Africa was stifling competition.

“The $1.8bn lost through the super tax could put 14 million children in school, deliver clean water to 21 million and sanitation to eight million people,” it said.

The ODI report did not allege price collusion between Western Union and Moneygram but said it was concerned by the uniformly high fees across countries in Africa, irrespective of underlying market conditions; “exclusivity agreements” with bank and remittance agents in Africa, which have the effect of restricting market completion; and opaque foreign currency conversion charges.

The report called for investigation of global money transfer firms by anti-trust bodies in the UK and the US to identify areas in which market concentrations and business practices were artificially inflating charges; greater transparency over foreign-exchange conversion charges; and regulatory reform in Africa to put an end to “exclusivity agreements.”

Around $5 billion was remitted to Africa from Britain alone in 2012 and the ODI said that reducing remittance costs to the global average would increase transfers by $85m, rising to $225m if charges were lowered to five per cent.

The World Bank puts global remittances, including those to high-income countries, at an estimate of $581 billion in 2014 from $542 billion in 2013, adding that it may rise to $681 billion in 2016.

For sub-Saharan Africa, flows grew by 3.5 per cent in 2013 to reach $32 billion, with Nigeria accounting for about $21 billion or 65.6 per cent of flows to the region. The flows to the region are forecast to rise to $41 billion in 2016.

The strong showing of Nigeria in the league of high remittance-recipient countries has encouraged its economic authorities to plan  a Diaspora bond to mobilise savings and boost financing for development.

 

 

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