Money transfer fees and their association with payout methods: An analysis of how different payment options affect remittance costs
News Article: Cash Pay-outs for Remittances: A Premium Cost Compared to Bank Transfers
A new report has shed light on the cost differences between cash pay-outs and bank transfers for remittances, revealing that the former typically requires a substantial premium. The premium comes from higher transfer fees, less favorable exchange rates, and additional handling charges.
The report, authored by Lucy Ingham, delves into the key factors contributing to the premium difference among providers. One of the primary factors is the fees structure, with cash pick-up services often charging higher outgoing and incoming transfer fees due to physical cash handling, agent commissions, and convenience fees.
Another factor is the exchange rate markups. Providers facilitating cash payouts frequently offer less favorable exchange rates compared to bank transfers or online services that provide closer to mid-market rates. The markup on currency conversion effectively increases the premium for cash pick-ups.
Intermediary bank fees also play a significant role. While bank transfers can sometimes avoid or reduce intermediary bank fees by using direct payment services, cash payouts often involve multiple intermediaries or local agent commissions that elevate costs.
Speed and convenience are another factor, as cash payouts provide immediacy and often same-day services, which come at a cost premium. Services like Western Union or MoneyGram may charge more for urgent or cash pickup facilities, reflecting operational costs and risk management.
The report also finds that provider differences contribute to the premium. Online transfer platforms (Wise, PayPal, etc.) usually have lower fees and better exchange rates, favouring bank payouts, while traditional money transfer operators supporting cash pick-ups charge more due to agent networks and infrastructure costs.
The premium also varies based on geography and currency pair. Transfers to countries with limited banking infrastructure or less common currencies tend to incur higher premiums on cash payout options.
The report further examines whether there is a correlation between countries with lower account use and the cost of cash pay-outs for remittances. It discusses potential causes and solutions for the higher cost of cash pay-outs, and investigates the factors that contribute to the higher cost.
According to the World Bank Findex database, in 30% of countries, the share of the population aged 15 or over with an account is at 50% or below. Between 2011 and 2021, the rate of account ownership at a bank or other regulated financial institution has increased from 51% to 76% overall, with the rate at 71% in developing economies.
Despite the growth of digital services, there remains a significant need for cash pay-outs for remittances. All major remittance-focused players continue to provide cash pay-outs as a key part of their services. The world's biggest destinations for cross-border remittances payments show a significant crossover with countries where the share of adults with an account remains low.
The report is a valuable resource for understanding the factors that influence the cost of cash pay-outs for remittances. It is focused on the analysis of remittance pricing and uses data from the platform's FX Pricing Data to determine the premium cost of cash pay-outs versus bank accounts for remittances. The report can be accessed through the platform's newsletter.
Notably, MoneyGram saw its share of transactions that were digital pass 50% for the first time in 2023, while Western Union's branded digital revenues now account for 23% of all revenues. Remitly, a digital-only pay-in service, has become one of the highest profile remittance players after launching in 2011.
In conclusion, choosing direct bank transfers or online platforms with transparent, mid-market exchange rates and low intermediary involvements can minimize the premiums associated with cash pay-outs for remittances.
The report highlights that cash pay-outs for remittances typically require a substantial premium due to higher transfer fees, less favorable exchange rates, and additional handling charges compared to bank transfers. It also suggests that choosing direct bank transfers or online platforms with transparent, mid-market exchange rates and low intermediary involvement can help minimize the premiums associated with cash pay-outs for remittances.
