Avia Collinder, Business Reporter
The World Bank has tentatively floated the possibility of banking sectors in affected jurisdictions 'stepping in' to assist or fill the gap in circumstances where the overseas accounts of money-services companies are being closed by foreign banks, according to a new migration and development brief on remittance trends published Wednesday.
The trend is a response to terrorism and money-laundering concerns.
The account closures of money-transfer operators (MTOs) is happening in the United Kingdom, but some Jamaican banks have followed suit, citing pressure from their correspondent banks.
The multilateral agency, while acknowledging that a number of international banks and large money-transfer operators were fined for AML/CFT violations, said the actions of the banks to shutter the accounts of money-transfer operators pose a major threat to small MTOs operating in certain remittance corridors.
Remittances to Africa, for example, are reportedly among the most affected.
Additionally, the World Bank has indicated that the cost of remittance transfers remains a barrier to cross-border flows.
The global average cost for sending remittances remains broadly unchanged at just under nine per cent despite changes in technology, with some banks also imposing additional fees on beneficiaries receiving remittances, according to the World Bank report Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016.
an unwelcome reversal
The new fees may reflect the efforts of banks to make up for falling interest income in recent years, the report said.
"These developments mark an unwelcome reversal of recent gains in the facilitation of cross-border remittances by migrants," the report stated.
Remittances for Latin America and the Caribbean at yearend 2013 are expected to fall below 2012 levels, the World Bank said, citing double-digit reductions in flows to Mexico, which is itself connected to downturns in the United States economy.
Jamaica's remittance inflows are currently underperforming the transfers of 2012. Inflows amounted to US$1.02 billion for the six months ending June, which was down 0.6 per cent from US$1.03 billion recorded at HY 2012, according to new Bank of Jamaica data released this week.
The World Bank says regions with more diversified sources of remittances are expected to grow.
"Consistent with the World Bank's economic growth projections, remittance flows are expected to register an average annual growth rate of over eight per cent during 2013-2016, to reach US$540 billion in developing countries and over US$700 billion worldwide by 2016," the remittance report says.
Flows are expected to remain strong or even increase in several countries affected by weakening balance of payments, notably India, the top recipient of remittances in the world.
A rather unwelcome develop-ment in recent months is the imposition, by many banks, of "lifting fees" on incoming transfers, the report states.
The new transaction cost has, in some cases, doubled the cost of remittance transfers, the multilateral said.
"This fee paid by the recipient is additional to that already paid by the remittance sender. For example, including the lifting fee, the total cost of a remittance of US$200 from the US to Kenya can be 16 per cent, twice as high as the average sending cost," said the World Bank.
"The lifting fee is yet another example of the lack of transparency in pricing that pervades the remittance industry. There is clearly a need for more transparency to strengthen consumer rights."
The World Bank fears that the closure of MTO accounts could lead to the closure of some remittance companies, which, in turn, could serve to erode competition and drive up the cost of transfers.
"In this context, it may be worth pondering whether major international banks have the right business model (and desire) for providing remittance services to a large number of small-value customers," the World Bank said.
"There may be a need to explore alternative service providers. Perhaps national banks of major remittance recipient countries could step in?" it posited.
The multilateral agency suggested that national banks should consider providing services to MTOs which have been locked out by other private bankers, thereby keeping remittance channels open.
The World Bank also decried the high costs for remittance transfers, which it says flies in the face of advances in technology.
"The persistence of high costs is inconsistent with the recent advances in technology and falling information costs. Indeed, there is anecdotal evidence that banks are beginning to levy additional service charges or 'lifting fees' on recipients."
Such fees, the bank notes can be as high as eight per cent of the transaction value and add to remittance charges already levied, increasing the cost of the transaction to as high as 16 per cent in some cases.
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