In remittances, what does a “free send” pricing model actually mean?
Cross-Border Payments
Asked by Question Bot06/Jun/20141 answer
1 Answer
F
Faisal Khan
Answered 06/Jun/2014
The Free Send Model in Remittances (Money Transfer) has two implications:
- For much of the general world this means, the cost to send money to someone, is free. The Cost is $0 (or equivalent money). There is no on-boarding charge for a remittance transfer. Depending on the setup, either the beneficiary would pay for it, or the money is earned on the FX parity. Usually, it is the FX rate on which the MTOs will make money on the free send model.
- The other Free Send Model is unique to Pakistan. In Pakistan, the central bank (State Bank of Pakistan) has introduced a scheme, with PRI (Pakistan Remittance Initiative). The model provides worldwide tie-ups to send money to Pakistan on a free-send basis. The FX rate provided to the beneficiary is as close to the official rate. The Government of Pakistan subsidizes this transfer and payouts equivalent of 25 Saudi Riyals to the MTOs that is bringing in this transaction, which roughly equates to about $7. This $7 is split between the sending MTO and the receiving MTO. By subsidizing the cost of sending Remittances, the government has substantially increased the in-flow of remittances into the country. This plan was specially designed after being cognizant that the bulk of the transfers are coming from the Middle East, where large amounts of Pakistani laborers work. So by making the cost of the remittance free, laborers are able to send back home their hard earned wages with minimum fees being charged on it.