It’s no secret that moving money over international borders can be expensive. Any freelancer or contractor who has worked for a foreign client or subcontracted abroad will have had to navigate the choppy waters of international money transfer and, most likely, will have been charged heavily in the process.
Today former Secretary General of the United Nations Kofi Annan will call for a formal investigation by London regulators into the operations of prominent international remittance firms Western Union and MoneyGram, claiming the companies operate a “super racket” and extort fees in the region of $1.8 billion every year from Africans working in the UK who wish to send money home.
It is estimated that somewhere in the region of $5 billion is sent from the UK to Africa every year by workers. International money transfer firms collect around 8-9% of each transfer as a fee, and usually offer customers unfavourable exchange rates which allow them to skim a further few percentage points off the top of every transaction.
Dr Ismail Ahmed, himself a former adviser to the United Nations and currently CEO of WorldRemit, said of the report:
“In certain remittance corridors, prices are so high that as much as 70% of the total transaction can be lost. The report says that, on average, a transfer of $200 to sub-Saharan Africa loses $25, or 12% of the total transaction. The reality of the situation is that many sub-Saharan migrants send much smaller amounts than $200 on a regular basis and so lose a much higher percentage of the payment.
“In fact, the technology already exists to dramatically reduce fees on remittances to Africa. Remittance firms that operate online or mobile-only remittance models have much lower operating costs and more streamlined infrastructures than the traditional agent-based model of Western Union or MoneyGram, and subsequently can reduce fees for users.”
Although the report highlights the treatment of African workers, an investigation into London money transfer operations could have wider implications for migrant workers from around the world, as well as freelancers, contractors and small businesses working with international clients and customers.
Photo by Seth Anderson