Cash surcharges on remittances disproportionately affect the most financially vulnerable clients
===============================================================================
In March 2024, a comprehensive report published by our platform revealed that cash pay-outs for remittances generally cost approximately 2% more on average than bank account pay-outs or digital transfers, across different providers and countries.
The research, which focused on standard pricing from five major providers across ten geographically spread corridors, determined how much of a premium cash pay-outs require. According to the report, the average total cost (including fees and exchange rate margins) of sending remittances varies by country but for G20 countries was around 6.4% in recent years. Cash-based remittances usually incur higher fees, about 1-2% more than digital or bank account transfers on average.
The primary reason companies charge extra for cash pay-outs is due to the additional cost required to maintain a retail network. However, the cash premium impacts vulnerable customers the most severely. Companies should use data and insights to ensure their pricing strategies are fair and that customers who are reliant on cash are not overcharged.
Some providers charged a much greater premium for cash pay-outs compared to bank account pay-outs. For instance, Provider A charged an extra $13 on average for cash pay-outs versus bank accounts, while Provider E only charged an additional $0.66. Three providers (B, C, and D) charged an extra $4-6 on average for cash pay-outs versus bank accounts.
The report underlines the need for companies to address the disproportionate impact of the cash premium on customers in countries with a low bank account penetration rate. In countries where a smaller proportion of the population have bank accounts, the additional costs for cash pay-outs disproportionately impact customers.
The UN and G20 goals include reducing the cost of remittances, and the report calls for companies to use data and insights to reduce the cost difference between cash pay-outs and bank account pay-outs. Lucy Ingham, Editor-in-Chief and Head of Content, emphasized the importance of minimizing the cost difference between cash pay-outs and bank account pay-outs.
Across regions, Sub-Saharan African countries tend to have the highest remittance costs overall, often much higher than the global average, reflecting both institutional costs and less competitive local options. For wire transfers, bank fees for sending money abroad range between $0 and $50, depending on the bank, whether it is online or branch-based, and whether the currency is USD or foreign currency, generally applying to bank account transfers rather than cash payouts.
The report also highlighted the importance of fair pricing in the remittances market, particularly for vulnerable customers. It revealed the extent of the cash premium in the remittances market and underscored the need for companies to address this issue to meet the UN and G20 goals of reducing the cost of remittances.
[1] Remittance Prices Worldwide Report (RPW 2023) - World Bank Group [2] Wire Transfer Fees: How Much Do They Cost? [3] Remittance Costs and the Role of Digital Transfers [4] New 1% Excise Tax on Cash Transfers in the US: What You Need to Know [5] Remittance Costs in Sub-Saharan Africa: A Comparative Analysis
- In the remittance dataset analyzed in the 'Remittance Prices Worldwide Report (RPW 2023)', it was found that companies charge an average premium of 1-2% for cash pay-outs compared to bank account pay-outs or digital transfers, highlighting the need for fair pricing in the finance industry.
- As technology advances and business models evolve, it is crucial for remittance providers to leverage their pricing dataset and digital insights to reduce the cash premium, aligning with the UN and G20 goals of reducing remittance costs and promoting financial inclusion, particularly for vulnerable customers.
