Remittance Cost

Remittance cost is the full price paid to send money from one country to another, measured as a share of the amount sent. It has two main parts: the explicit remittance fee charged by the provider, and the margin hidden in the exchange rate when the money is converted. Any fee deducted on the receiving side is part of the cost as well.

The measure matters because remittances are mostly small, regular payments from migrant workers to their families, and a few percentage points of cost amount to a large sum across all senders. International bodies track remittance costs by corridor and have set targets to reduce them. The standard reference is the Remittance Prices Worldwide database maintained by the World Bank Group.

The usual calculation is:

• $\text{Fee}$ is the charge the sender pays to the provider, in the sending currency.
• $\text{FX margin}$ is the value lost through the exchange rate, found by comparing the rate the provider applies with the mid-market rate at the same time.
• $\text{Amount sent}$ is the principal the sender wants to transfer.

Suppose a worker sends $200 and pays a $4 fee. The mid-market rate is 100 units of local currency per dollar, but the provider converts at 97. The family receives 19,400 units instead of 20,000, a shortfall worth $6. The total cost is $10, or 5 percent of the amount sent, even though the advertised fee was only 2 percent.

The World Bank's surveys use benchmark amounts of $200 and $500, or local equivalents. Because fees often include a fixed component, the percentage cost of a small transfer is higher than that of a large one.

Costs vary widely between corridors and providers. Several factors explain the differences.

• Type of provider. Banks are generally the most expensive channel in the World Bank's data. Specialist operators and digital-only services are usually cheaper.
• How the transfer is funded and paid out. Paying in cash at an agent and collecting by cash pickup costs more than sending from a bank account or card to an account or mobile money wallet, because agents earn commission and cash must be handled.
• Competition in the corridor. High-volume routes with many providers have lower prices. Small corridors, and those where one operator has exclusive agreements with the main agent networks, cost more.
• Currency liquidity. Thinly traded currencies, exchange controls and gaps between official and market rates widen the FX markup.
• Compliance and banking access. Customer identification, monitoring and licensing in each jurisdiction add cost. Where banks have withdrawn accounts from money transfer businesses through de-risking, operators pay more to move and settle funds.

Governments have made repeated commitments on the subject. In 2009 the G8 adopted an objective, later endorsed by the G20, of cutting the global average cost by five percentage points, to 5 percent. The United Nations Sustainable Development Goals, adopted in 2015, go further. Target 10.c calls for the cost of migrant remittances to be reduced to less than 3 percent by 2030 and for the elimination of corridors where costs exceed 5 percent. The G20 program to improve cross-border payments includes a matching goal for remittances.

Progress has been slow. The global average recorded by the World Bank has fallen from close to 10 percent in 2008 to a little over 6 percent in recent years, which is still about double the target. Sub-Saharan Africa has consistently been the most expensive region to send money to, and South Asia the cheapest. Digital services, measured separately, come in well below the overall average.

Because the exchange rate margin is hard for a customer to see, regulation has focused on disclosure. In the United States the Dodd-Frank remittance rule requires providers to disclose the fees, taxes, exchange rate and amount to be received before the sender pays. European Union rules on cross-border payments require currency conversion charges to be shown before a transfer is made. Comparison websites, some run or certified by public bodies, let senders see the total cost across providers for a given remittance corridor.

Published averages have limits. They are based on quoted prices for sample corridors, not on actual transactions, and a simple average gives a small, expensive provider the same weight as a large, cheap one. They exclude informal channels such as hawala, which can be cheaper and which grow when formal costs or exchange rate gaps are high. They also leave out indirect costs, such as travel to an agent or the time a transfer takes. Newer methods, including transfers settled in stablecoins, may not be captured in survey data at all.

• World Bank: Remittance Prices Worldwide
• United Nations: Sustainable Development Goal 10