When overseas Filipino workers (OFWs) get their paychecks, they not only think about how much money they actually made after living expenses and how much they can send to their families back in the Philippines but also how much it will cost to send that money.
Remittances of OFWs are a reliable and steady source of income for a lot of Filipino families, but it seems remitting money isn’t cheap, even today.
Way back in 2004, Western Hemisphere leaders at the Special Summit of the Americas in Monterey, Mexico, had called for the cost of sending remittances to be cut in half. This call was echoed by the finance and central bank chiefs of the Group of Seven (the US, the UK, Canada, France, Germany, Italy and Japan), who also declared in 2004 that, “on remittances, we will continue to work on our initiatives to reduce barriers that raise the cost of sending them and integrate remittance services in the formal financial sector.”
However, a recent story in this paper (Cut ‘excessive’ transfer fees of banks on OFW remittances–lawmakers, by Jovee Marie N. dela Cruz, June 8, 2018), Party-list Rep. Aniceto D. Bertiz III of ACTS-OFW said OFWs are still seen paying $3.1 billion in bank charges to send home $29.3 billion this year.
“A migrant Filipino worker pays an average of $10.57 in bank charges for every $100 wired home,” he said, citing a World Bank study, titled “Remittance Prices Worldwide,” which said the global average cost of a personal cash transfer through bank channels was 10.57 percent in the first quarter of 2018.
There’s no reason banks cannot reduce fees, considering that nonbank money transfer agents are already charging as low as 3 percent, he said. Despite the growth of nonbank remittance channels, Bertiz, however, said Filipinos still prefer to send their money home via banks. In the first quarter of 2018, the solon, citing the Bangko Sentral ng Pilipinas, said OFWs remitted $7 billion through the banking system. In 2017 he said Filipino overseas workers wired home $28.1 billion using bank channels, out of a total of $33 billion in personal cash remittances. Only $4.9 billion in remittances last year were coursed outside of the banking system.
An average remittance cost of 10.57 percent does seem excessive considering that modern technologies today allow for seamless and cost-efficient money transfers through such platforms as the Internet and international mobile telephone short messaging.
Banks should realize that scaling back their remittance costs can win them a larger portion of this multibillion-dollar market.
For instance, the fintech sector—short for financial technology—can lower handling fees. One fintech company in the Philippines has rates that go as low as only 2 percent of the transaction amount, without any additional charges to the recipient. For remittances of P1,000, the total cost of sending is only P20. The recipient also gets the entire amount without any additional charges.
Any potential savings realized by OFWs from lower remittance charges would surely allow more funds to flow into the Philippine economy. So the Philippine government should combine forces with other top remittance-receiving countries, such as China, India, Mexico and Russia and find ways to step up pressure so that multinational banks would reduce their money transfer fees.
The government, through bilateral negotiations, should ask the countries where our OFWs work to have secure and affordable remittance services available; those that can offer significantly lower prices than the regional average, specifically providers who will charge 3 percent or less to send money home to their families here in the Philippines.
Despite the rising cost of compliance, even with banks de-risking their operations to curtail remittance service providers’ operations, the cost of sending remittances is bound to fall considerably because of both modern technology and vigorous market competition.
We hope this problem of exorbitant remittance prices would be over, sooner rather than later, through the efforts of both public authorities and the private sector to make remittance systems more efficient, transparent and affordable, so that more money can end up where it’s needed the most—in the pockets of our OFWs’ families.
Image credits: Jimbo Albano