MONEY EXCHANGE & TRANSFERS
on the destination, and embedded within it is the exchange rate,” says Promoth Manghat, Deputy CEO, UAE Exchange. “[But] the remittance service provider (RSP) bears several costs, which can be broadly classified into three categories: direct technology costs for the maintenance of systems and networks, cost of moving money (including regulatory and compliance costs), and that of maintaining the distribution network with bank accounts or via cash disbursement.”
Bhairav Trivedi, CEO of Network International, the majority equity partner at Indiabased global digital payment service provider TimesofMoney, says considerable costs are involved because compliance is a moving target for the remittance industry. “RSPs have to constantly change the way they work to check the visibility and identification of customers and ensure that the regulatory requirements of different geographies are met,” he explains.
Every customer — both at the remittance and recipient ends — and every transaction has to undergo KYC procedures, he adds, regardless of the value of the transaction. This is a fixed cost, and involves checking against certain databases that are regularly updated.
“Given that most transactions tend to be less than Dh1,000, it makes the transaction costs — in percentage terms — look relatively high,” says Trivedi. “Sadly, this is a reverse system, where the remittance fee tends to decrease for larger amounts, because RSPs can make more profit on the foreign exchange.
“The harsh fact remains that people who are least able to pay new technologies including a free PayPal app to transfer money to a recipient’s phone. Western Union also offers a mobile money transfer programme to transfer funds directly to mobile phone wallets in Bangladesh, Kenya, Madagascar and the Philippines.
Bitcoin are probably the ones who bear the brunt.”
While commenting on the matter of hidden fees, Hatem Sleiman, Regional Vice-President — Middle East at Western Union, advises caution. “Consumers are advised to ask about the exact amount of money the receivers will get and make sure they calculate any additional fees the receivers may incur, as lower fees are not always all inclusive,” he says. Sending home love
Dilip Ratha, an economist at the World Bank, was perhaps required before initiating any money transfers.
Off the books There are other ways to transfer money — hawala and suitcase transfers — and although they are illegal, people do often resort to them.
Hawala is based on a partnership between two individuals in the sending and receiving countries. The sender pays the money in cash to the hawala operator, who informs his partner in the destination country to pay the recipient an equivalent amount, minus the fees. Since there is no record of the transaction and it isn’t integrated into the financial services system, it’s classified as illegal.
Suitcase transfers involve entrusting your cash to an individual who delivers it to the recipient. Again, there’s no record of the transaction and it is not integrated into the financial services system. It is liable to attract severe penalties. Most nations have a limit on the amount of cash individuals can carry into the country.