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Contributions from
the Column
Focus
Migration demands a
coherent approach
Lawlessness according
to mode 4
“No problem fo us...”
Second-class citizens
From talk to action
04/2006
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“No problem fo us...”
200 million people work in countries that are not their home. According to the World Bank, these people transferred some $ 232
billion home in 2005. Of that sum, almost $ 170 billion went to developing countries. Banks charge high fees for such transfers and
make a handy profit. As regular transactions are expensive, many migrants use informal channels. Greater competition is needed to
lower costs and provide greater security.
[ By Andreas Becker ]
Marina Joarder is in her late 20s and comes from Bangladesh. After finishing graduate school in Germany,
she got a temporary work permit and found a job. She has sent money back to relatives in Dhaka three times – €1,000 each time.
At her local savings bank, where she has an account, Marina filled out a form and declared that she would cover all of the costs. They totalled € 32,
and the money was on the recipient’s account at a Dhaka branch of the HSBC Bank five working days later. “That was quite
straightforward,” Marina says.
Straightforward, but not typical. Migrants from developing countries do not generally transfer € 1,000 at a time, but confine themselves to
smaller sums like € 200, according to the World Bank (2006). And the smaller the amount transferred, the greater the fixed costs that banks
charge are in relation. Moreover, Marina’s relative has an account to transfer money to. That also lowers costs.
Customers can chose from three models for international bank transfers. They can cover all of the costs so that recipient will get the full amount
without deductions, they can share fees with the recipient or pass on all of the costs to the recipient.
Bank shopping
I went to a branch of Commerzbank in Bonn to see what it would cost to wire money to Nigeria. “We charge at least € 12.50,”
the banker informed me, “and the receiving bank will charge roughly the same amount on the other end.” He said he could not be sure
what the transfer would cost because charges differ from one bank to the next.
Iris Laduch of Postbank explained: “There are various levels where charges are incurred in international bank transfers.” She
compared the system to a railway network with various sections, each run by a different bank. “Each of them charges fees.”
In principle, one could ask each bank what it charges, but that would take some effort. Postbank has some examples on its website. For “documented
foreign transfers”, which involve filling in forms, Postbank charges a flat fee of € 8.50. If the transfer goes to South Africa, for example,
another € 19.82 is charged. Transfers to Singapore are almost half as expensive at € 10.97. Customers of the multinational HSBC in Singapore
only have to pay € 1.43 extra.
For the same kind of transfer to a country outside the European Union, Deutsche Bank, a major commercial bank, charges a minimum of € 13 along
with € 1.55 for the Swift code needed for international bank transfers and a commission of at least € 2.50 for the sale or purchase of foreign
currency. If customers choose to cover all fees, Deutsche charges an extra € 17.50 for “foreign expenses.” In the end, a transfer
costs at least € 34.55. Only for some neighbouring countries like Switzerland or Norway, does Deutsche apply EU rules, according to which transfers
within the EU may not be more expensive than domestic ones.
Customers of Citibank, which does business worldwide, pay at least € 18 for the same kind of service. If the recipient’s account, however,
is also at a branch of Citibank, the foreign transfer is free of charge. Comparing the fees of various banks is only of limited relevance, however. One needs
a bank account to make a transfer. Generally, people simply accept the fees their house bank charges.
One banker, who wished to remain anonymous, mentioned a cheaper option. Migrants in Germany can order a credit card and pass it and the PIN code on to
relatives at home. “Those relatives can then withdraw money from cash points and make payments with the card.” In such cases, fees only
amount to ten Euros per transfer. However, this method is open to abuse and banks do not recommend it.
“In God’s hands”
Asked how long it takes to wire money, bank staff in Germany generally agree that the money should reach the recipient’s account within five
working days. But the cashier at one bank admitted that it does not always work out that way. “It’s no problem for us. We have the money
at the international centre in two or three days. But I can’t say what happens after that and who gets the money for how long.” Just to
make sure, he calls the colleague who handles such transactions. “He says that in countries like Nigeria it really depends on who is on the other
end. If you are dealing with someone who just will not cooperate, it may take months, if it gets there at all.” He pauses before adding, “But
like I said, we pass the money on after two or three days. After that, at least in Nigeria, it’s in God’s hands.”
Sab Ekeh is from Nigeria and works in Germany. He has also already sent money to relatives at home several times. He has never had trouble with bank
transfers, but he sometimes prefers to send the money via Western Union. “It’s more expensive,” he explains, “but my
money gets there in half an hour.”
Western Union is the market leader for wiring money worldwide. The company has more than 270,000 offices in 200 countries, including some 5,100
in Germany (thanks to sales partners such as Postbank and Reisebank). If customers want to wire money, they first have to show some identification.
They then fill out a form and hand it in. A few minutes later, the money can be picked up at its destination. The recipient also has to show some identification
and know the name of the person sending the money, the country it was sent from and the amount. The sender usually provides this information by
phone beforehand.
Western Union is attractive for many migrants because neither the sender nor the receiver has to have an account. “Our studies show that only a
third of the people in developing countries have access to an account,” explains Jan Hillered, Vice-President at Western Union for Central Europe.
The fees for wiring money at Western Union vary somewhat depending on the sales partner. At Postbank, wiring via Western Union is sold
as “Minutenservice” and costs five percent of the amount wired to countries outside the Euro zone (with a minimum fee of € 26 and a
maximum one of € 260). At Reisebank, there are different fee categories for different amounts. Wiring € 200 costs € 19, for instance; wiring
€ 1,000, € 42.50. The rates charged by sales partners vary. According to Hillered, that is due to the different contract terms they signed
with Western Union. In the long term, he feels that the fees should be unified.
The Hawala network
Bank transfers and wiring money are not the only way to transfer money internationally. Jan Hillered of Western Union also speaks of “informal
channels”. The best known such system is called hawala. It operates worldwide and has been around for hundreds of years. It is most common in
Muslim countries such as Pakistan, Afghanistan and Indonesia, but also well-established in India and parts of China. “Hawala is fast, it is cheap
and generally only costs one or two percent of the amount transferred,” says Florin Vadean, who is doing research on Hawala at the HWWA institute of
economics in Hamburg.
Hawala basically works like Western Union, with a similar network of offices called hawaladas. However, the hawala system is illegal in most countries,
including Arab states, because no regulator can control the transfers. Some sources estimate that the annual hawala transfer volume amounts to $ 200 billion.
However, HWWA expert Florin Vadean points out that, for lack of data, there are no reliable estimates.
The World Bank believes that informal methods are as widespread as they are because the costs of formal international transfers are so high. According to
the World Bank, the amounts charged are often much higher than the costs actually incurred by banks. German bank staff disagree and point out that
standards vary internationally, with the consequence of making transfers complicated and expensive. For instance, many banks do not have a bank code
number, which makes transfers difficult. According to German bankers, the standardised International Bank Account Numbers (IBAN) and Bank
Identifier Codes (BIC) used in Europe have helped to reduce transfer costs within the EU to domestic levels. Bankers, however, normally shy from
mentioning the EU regulation that brought about these changes. It was adopted against the financial sector’s opposition.
The World Bank believes that more competition is needed to reduce fees for international transactions. Any such reduction would increase the disposable
income for poor migrants. However, it is doubtful that there will be more competition in Germany in this field in the foreseeable future. “Bankers
have repeatedly told me they are not interested in doing business with migrants,” says Jan Hillered, Vice-President at Western Union. “
That really surprised me. Germany has millions of migrants. All of them came here to have a better life. They work hard and are an interesting
target group.”
Nonetheless, Hillered does not believe that his company competes with banks; rather, he is banking on greater cooperation. He wants to get other banks to
offer Western Union services in their branches, as Postbank is already doing. “For remittances, Western Union should be for German banks what
Intel is for PC manufacturers,” explains Hillered.
That does not sound like more competition. But Hillered argues that the fees charged relate to other factors. “We set up special corridors for
each country,” he says. “For example, money transfers to Turkey play a large role in Germany. Once that volume crosses a certain
threshold, we are able to make special offers.” It’s a little bit like with the airlines, Hillered says with a laugh. A flight from
Germany to Nigeria is more expensive than one to Turkey.
The World Bank believes that reducing transfer fees would let more money flow to developing countries. “Most studies confirm that
the money is spent on consumption there,” explains Florin Vadean of HWWA. However, remittances also pay for the education of children
back home. “That is not consumption, but an investment in human capital,” Vadean says.
Andreas Becker
is a radio journalist and works for the business and economics desk at Deutsche Welle, Germany’s international broadcasting station.
boulanger@gmx.de
Reference:
World Bank: “Global Economic Prospects 2006 –
Economic Implications of Remittances and Migration,” Washington
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