Send Money Africa sendmoneyafrica.worldbank.org

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1 Send Money Africa sendmoneyafrica.worldbank.org February 2012 The World Bank - Payment Systems Development Group SMA is funded by AIR Project This report presents the results from the first eight months of existence of the World Bank Send Money Africa (SMA) remittance prices database, July 2011 to February SMA is funded by the African Institute for Remittances (AIR) Project. The purpose of the AIR Project is for the World Bank and selected development partners (European Commission, African Development Bank, International Organization for Migration) to collaborate in facilitating the African Union Commission and its member states in establishing the African Institute for Remittances. The Project is funded by a grant from the European Commission to the World Bank, which is responsible for the overall implementation. On July 5, 2011 the first remittance price dataset was collected for SMA. It was gathered from a number of remittance service providers (RSPs) that offer services to African countries. Data was collected from 15 send countries across Europe, the Middle East, North America, and within Africa itself for 50 corridors. Key findings The average total cost of sending money to Africa in February was 11.2 percent for sending USD200 and 7.1 percent for sending USD500. Costs have remained relatively stable since the start of data collection in July. The average cost of sending money to Africa is measured at around 2 percent more than the global average, calculated at 9.30 percent according to Remittance Prices Worldwide, September 2011 (see The most expensive send market of those surveyed is found to be Tanzania followed by South Africa and Germany. The least expensive market of those surveyed is found to be the UAE followed by Saudi Arabia and Spain. Zambia is found to be the most expensive receive country in the February sample with an average cost of sending USD200 at 21.7 percent of the send amount. Mozambique and Botswana are also relatively expensive. These receive countries are only surveyed in South Africa. Egypt is found to be the cheapest receive market; prices have been collected in the Middle East markets of Saudi Arabia and the UAE. The most expensive corridors are generally found to be the ones within the Africa Region.

2 Bank account to account is the most expensive method of transfer in the sample. However, if money is sent within the same bank or to a partner bank, account transfers are significantly more competitive. Cash-to-cash is the most common type of remittance service in the sample. There appears to be no relationship between speed and price. Indeed, faster transfers cost less than slower transfers, due to the fact that the Money Transfer Operators (MTO) are generally faster and cheaper than the banks. Sample Since the inception of data collection in July the sample size has steadily increased. In July 2011 there were 474 different services included in the sample. In February 2012, the sample has increased to cover 570 different services. The breakdown of the sample according to the type of remittance service provider is displayed in Graph 1. The majority of the services included in the sample are MTOs, which comprise 62 percent of the total sample. Banks also constitute a large portion of the sample at 32 percent. Post Offices and MTO/Post Offices (i.e. Post Offices offering a transfer service through a MTO network) are also active, although they only account for approximately 5 percent. Graph 1 The breakdown according to RSP type varies by region. For example the intra-african market, which covers 11 corridors and comprises 111 different services, is considerably more bank dominated than the majority of the European to Africa corridors. Graph 2 shows that almost two thirds of the operators in the intra-africa regulated money transfer market are banks. Post Offices also have a larger portion of the intra-africa market than in the total sample. This can be explained by the fact that there are not a large number of regulated MTOs operating in African send markets and they tend to be dominated by one or two global market leaders. 2

3 Graph 2 Transparency The total cost of remittance services typically includes both a fee and an exchange rate margin. Some providers fail to provide information on the exchange rate applied to the transaction and as such do not disclose their full costs. These providers are deemed non-transparent. Although they are surveyed and included in the database online, including non-transparent operators in the sample when calculating the average would bias the results, as for these RSPs the real total cost is not known. For this reason, non-transparent providers have been removed from the calculated values. Graph 3 In February 2012 a total of 570 different remittance services into or within Africa were surveyed. Of these, 76 services (13 percent) were deemed non-transparent and thus have been excluded from the data in terms of analysis. Banks are found to be considerably less transparent than the other types of providers, mostly due to the fact that their cross-border arrangements do not allow the sending bank to know 3

4 what exchange rate will be applied on the receiving side. Even though they represent only a third of the total sample, banks represent over two thirds (78 percent) of the total non-transparent services. Total Average Cost Since July the total average cost of sending money into Africa has remained relatively stable. In July 2011 the average total cost of sending USD200 was found to be 11.4 percent of the send amount and 7.4 percent of the send amount for sending USD500. Graph 5 The average total cost for sending USD200 dropped marginally in August and September, but then increased in October to 11.4 percent and remained constant through to December. In January 2012 average costs increased to 11.6 percent (the highest in the sample), before dropping to an average of 11.2 percent in February. According to Remittance Prices Worldwide September 2011 the average total cost of sending remittances worldwide was 9.30 percent which indicates that Africa is, on average, more expensive to send money to than the global average. The overall trend for sending USD500 into Africa has been broadly similar; average costs have fluctuated between lows of 7.1 percent (in August, December, and February) and highs of 7.4 percent in January. Although only by a small margin, January 2012 was the most expensive month in the series so far. Consistent with the previous iterations, in February the spread across corridors in the cost of sending USD200 is significantly wider than for sending USD500. For sending USD200 the spread ranges from 3.5 percent to 22 percent of the send amount, whereas for sending USD500 it ranges from 2.0 percent to 12.8 percent. This shows that the average cost of sending USD500 into Africa is consistently less, as a portion of the send amount, than for sending USD200. This is due to the fact that many RSPs have a flat fee independent from the send amount, whilst others have fee bands which are more competitive at the higher end. 4

5 Graph 6 Cost of sending by send markets The cost, as a percentage of the send amount, for sending USD200 and USD500 into Africa varies considerably between send markets. Graph 7 Since July, Tanzania has consistently had the highest average cost of sending money into Africa. In July 2011 the average cost of sending USD200 from Tanzania was 21.8 percent of the send amount and in February remained high at 22.0 percent with relatively expensive bank account services impacting on the overall costs. It is worth noticing that these bank account services are seldom used by the majority of migrant workers in this market, where a few MTO services are also available. The high average cost should then be considered as an indicator of the low level of interest of the banks, which do not offer dedicated services to remitters, besides the ordinary wire transfer that is typically designed for higher amounts, thus more costly for low amounts as the ones surveyed. Despite the stability in the total average cost of sending money into Africa between July and February, there have been fluctuations in costs in some send markets. The rank, however, of the most expensive send countries has remained relatively consistent since July. 5

6 Since July, Saudi Arabia has experienced the largest increase in the cost of sending USD200; although still the second cheapest send market, costs have increased by 17.5 percent since July. Breaking the send markets down by region, reveals that the majority of European send markets have an average cost below the average, with the exception of Germany (see Graph 9). Within the European send countries surveyed, Spain offers the most competitive remittance prices to Africa. Whilst only one corridor (Spain to Morocco) is surveyed from Spain, this result is not surprising because this is traditionally amongst Europe s least expensive send markets. The average cost of sending USD200 from Spain to Africa was 6.8 percent in February (as in July) which is significantly less than the total sample average. The UK also noticeably experienced a fall in the average cost of sending USD200 and USD500 into Africa between July and August due to a leading RSP bringing down its costs in this period. Subsequent data indicate that for some of the operators at least, this was a short-term promotion as costs rose again in January. The spike in costs from the UK in January looks to be primarily responsible for the increase in the total average cost of sending USD200. Sending money from the Middle East to Africa is found to be very competitive by international standards. The average cost of sending money from the UAE has increased marginally from July, when it was 3.2 percent of the send amount, to 3.5 percent in December. Sending money from Saudi Arabia is marginally more expensive at 4.4 percent of the send amount in July and 5.2 percent in February. It is worth noting that only the UAE and Saudi Arabia markets are surveyed for Egypt and that these are high volume corridors due to the large Egyptian migrant populations in both these countries. Tanzania and South Africa are the most expensive send markets included in the sample and prices have remained relatively stable since July. The other two African send markets included in the sample, Kenya and Senegal, offer significantly more competitive pricing with costs below the Africa sample average. However, prices in Kenya have increased from 8.3 percent of the send amount in July to 9.5 percent of the send amount in February. As regards North America, the average cost of sending money to Africa is higher from Canada than the USA, although costs converged between July and January. In February the USA experienced a decrease in average costs, whilst Canada an increase. The average cost of sending USD200 from the USA to Africa is relatively competitive, compared with the total sample average, at 7.6 percent of the send amount in February Cost of sending by receive markets 6

7 With the exception of December, Zambia has consistently been the most expensive receive market in Africa for sending both USD200 and 500. In February the cost of sending USD200 to Zambia was 21.7 percent of the send amount. Graph 8 Consistently since July, the most expensive receive markets in the sample are the markets in Southern Africa where all, apart from South Africa, are above the total Africa sample average. It should be noted that most expensive receive markets in Southern Africa (Zambia, Malawi, Botswana, Angola, and Mozambique) are only surveyed from South Africa, which has a limited choice of remittance options including a number of expensive bank account services. The cost of sending money into North Africa varies considerably. Egypt is comparatively competitive with funds coming from the Middle East, whereas Algeria is relatively more expensive at 14.4 percent of the send amount in December, with the funds coming exclusively from France. The cost of sending money into central Africa is fairly similar across the receive countries and has also remained relatively stable since July. The most noticeable reduction in the average cost has been observed for Tanzania, where a significant fall was registered between July and August due to one large RSP in the UK dropping its costs. It has remained relatively stable since. Despite the total average of sending money into Africa remaining relatively stable between July and February 2012, Graph 20 shows that there have been significant movements in the cost of sending money to different African receive countries. 7

8 Graph 9 Graph 10 Breaking the costs down according to the fee and the FX margin shows that for the majority of receive markets the fee is the main component in the total cost. For a number of countries, including Swaziland, Lesotho, Mali, Cote D Ivoire, and Senegal, the fee is the only component in the total cost as these receive markets currencies are pegged to the currencies in the relevant send countries. Method of Transfer There are a number of different transfer methods available to send money to Africa. The most expensive transfer method for sending USD200 to Africa is the account-toaccount service offered by banks, which averaged at 18.6 percent of the send amount in February (account to account services comprise 31 percent of the total sample). However, if money is sent within the same bank or to a partner bank the cost is found to be considerably more competitive. Online services to account and pre-paid cards are found to consistently be the cheapest method of transfer. However, it should be noticed that these services might not be frequently used to send money to Africa; moreover, these services often incur additional costs such as for maintaining the account and/or withdrawal fees. 8

9 Cash to cash services comprise 33 percent of the services sampled and the average cost is found to be 9.0 percent of the send amount for sending USD200 in February. Graph 11 Graph

10 Speed of Transfer The speed of transfer does not seem to have the expected effect on the average cost of sending money into Africa: there appears to be an inverse relationship between speed and price. Graph 13 It generally costs less to send money using faster methods than slower ones, due to the fact that typically the faster transfers are offered by specialized providers, the MTOs, which offer competitive services both in terms of cost and efficiency. The higher costs found for the six days or more service represents the higher costs charged in a number of countries by banks that do not offer dedicated services for transferring abroad relatively low amounts of money. More surprising is the relatively high cost of the 2 days service which in February, as in most months, was found to be almost as high as the 6 days or more service. However, when these findings are analyzed against the sample, it is seen that the 2 day service is primarily offered to account holders by banks in send countries such as Kenya, Tanzania, and South Africa. Whilst quicker than the services offered by most European banks to Africa these intra-african services are also relatively expensive. 10