overview
issues
frameworks
retail
wholesale
credit cards
intermediaries
smart cards
nanopay
currencies
transfers
terms
landmarks
related
Guides:
Economy
Governance
Consumers
related
Profiles:
Currency
forgery &
forensics
Money
Laundering
Virtual
States
|
transfers
This page considers money transfers within jurisdictions
and across national borders, in particular international
remittances.
It covers -
It
is complemented by a note on money
laundering.
introduction
How do you transfer money from one location to another,
particularly to locations where banking systems are unsophisticated
and where the transfer does not involve payment for goods
and services? Not everyone on the planet is near an ATM
(or even a bank branch); not everyone has a bank account.
Preceding pages have highlighted B2C and C2C payment systems
within advanced economies, useful in making a micropayment
for a sound recording (or a can of drink or a chocolate
bar) or paying a utility bill or tax from an individual's
personal computer.
The digital divides discussed
elsewhere on this site mean that many people lack the
physical infrastructure (if you are living in a mud hut
heated with dried cow dung you are unlikely to be able
to access electronic banking) and social infrastructure
(factors such as education, experience and distrust of
poor regulation mean that you may not trust cards or conventional
financial institutions).
Substantial amounts of money are thus shifted on a cash
to cash basis within advanced economies, from advanced
economies (eg from North America to Latin America, from
Western Europe to Eastern Europe) and across Asia and
the Middle East (eg from by guestworkers in the UAE to
relatives in India, Pakistan, Thailand and the Philippines)
using money transfer systems.
Some of the transfer involves corporate entities such
as Western Union and MoneyGram. Much, however, involves
informal systems such as hawala.
Academic John Wilson commented in that
An
expatriate worker uses an intermediary, the hawaladar,
to arrange a remittance to his home country. He makes
payment in dollars or other convertible currency. The
hawaladar in A contacts a counterpart in the receiving
country, B, who makes payment in local currency to the
remitter’s family or other beneficiary.
Hawala
centres on trust and bookkeeping: typically there is no
physical movement of funds between locations, with 'transfer'
instead based on reconciliation of incomings/outgoings
at both points.
Wilson continues that
Obviously,
some network of family or connections among hawaladars
is required to make such a system work on a large-scale
and ongoing basis. Small scale hawaladars seem to be
concentrated in certain shops and businesses in the
relevant communities: travel agencies are a favourite
candidate; sometimes laundries and food stores. Money
exchanges are reported to sometimes have back-room hawala
operations.
That
has posed concerns for officials concerned with taxation,
money laundering, terrorism and a range of offences.
scope and scale
Figures for money transfers are problematical.
It is clear that remittances from overseas workers often
exceed international aid to the Fourth World and emeging
economies. In 2007 the Inter-American Development Bank
(IDB) indicated that remittances to Latin America and
the Caribbean were over US$60 billion in 2006, of which
an estimated 75% came from workers in the United States.
That money flow was greater than aggregate official aid
and foreign direct investment. In six nations it accounted
for over 10% percent of national income.
The Asian Development Bank (ADB) indicated that remittances
to Asia (from North America, the Middle East and EU in
particular) are equally significant, with the Philippines
claimed to have received US$14 billion in 2006, India
some US$26 billion and China an estimated US$23 billion.
The New York City Department of Consumer Affairs (DCA)
claimed in 2003 that "hardworking New Yorkers send
$3 billion a year to their families back home in their
native countries".
issues
Regulatory issues encompass -
- stability
- transaction
costs
- supervision
Concerns regarding stability are highlighted by the collapse
of UK-Bangladesh specialist First Solution Money Transfer,
with financial regulators noting the risk of transfer
specialists acting as quasi-banks and susceptible to disaster
because operating informally or without detailed supervision.
Observers have noted that transaction costs may be significant,
with some reports indicating that costs sometimes exceed
20%.
Manuel Orozco indicated in 2004 that the cost of all remittances
from the US to Mexico had fallen from around 15% in the
late 1990s to 7.32% in early 2004, with the cost of sending
the average remittance down to 4.4%.
Regulators have highlighted concerns regarding money laundering,
with most transfers being small (under statutory reporting
ceilings monitored by Austrac and its overseas counterparts)
and often involving very weak identification of entities
providing/receiving money.
precursors
People have relied on 'soft networks' - for example personal
relationships among members of diasporas - as a mechanism
for transferring money for almost as long as there has
been recorded history. Corporate mechanisms serving consumers
rather than businesses date from roughly the past 150
years.
Western Union, the telegraph
group controlled by Jay Gould, for example offered 'wire
transfers' of money transfer within the US beginning in
1871. (Wetern Union was subsequently acquired by AT&T
for its infrastructure, divested, shed its telecommunications
assets in favour of funds transfers and finance services
in 1988, was acquired by First Data and then spun off)
industry
It has been claimed that Western Union, Euronet and Moneygram,
the three largest corporate players, account for less
than 20% of the global market. The Remittance Marketplace:
Prices, Policy and Financial Institutions (PDF),
a 2004 report by Manuel Orozco for the Pew Hispanic Center,
claimed that US financial institutions account for under
4% of the US-Mexico remittance traffic (US$13.2 billion
in 2003).
In practice the major corporate entitities operate in
conjunction with one or more levels of agents. The DCA
report noted above thus commented that it
found the proliferation of local money transfer agents
- often neighborhood restaurants, travel agencies, and
stationary stores - are linked to a small group of licensed
agents, permitting remittance companies to charge inconsistent
rates while not disclosing either the cost of exchange
rates or any other hidden fees. It also found that regulation
of these agencies was ambiguous. While New York State
regulates money transmitters such as Western Union and
MoneyGram, it is unclear whether local affiliate agencies
are regulated with as much scrutiny.
... The varied cost of sending $500 to the Dominican
Republic were documented with prices ranging from $5
- $38 and transmission time ranging from "a couple
of hours" to "not more than 24 hours."
Some
transfers involve despatch of funds at a branch office
of a money transfer specialist, transfer via that specialist's
network (or via an affiliated bank or other mainstream
financial institution) and receipt of the funds from a
branch office at the other end of the chain. Transfer
might however involve hand delivered cash (typically on
an informal and unlicensed basis) via a commercial agent
or friend/associate on a nonprofit basis, or receipt from
an agent (such as a cafe or barbershop) that has an account
with a bank or transfer specialist, or from a corporate
entity such as a unit of a retail chain that acts as an
agent for a bank or specialist.
Corporate money transfer services appear to generate most
of their profit through transaction fees and through the
float, ie interest from investment or short-term lending
of money that has been supplied by customers but has not
yet been disbursed to recipients. With sufficient scale
(and use of ICT) the business can be quite profitable.
That has resulted in ongoing industry consolidation, as
major enterprises or well-funded new entrants seek to
achieve the necessary size and geographical spread through
acquisition of competitors.
In 2007 for example Euronet made a hostile US$1.65 billion
bid for MoneyGram International. Euronet (established
as an ATM operator in Budapest in 1994), reportedly made
US$46 million on revenues of US$629 million in 2006. Competitor
MoneyGram has concentrated on transfers to Mexico from
the US but experienced difficulties with investment (notably
in mortgage-backed securities) and was downgraded to to
'junk' status by Moody's in 2007.
studies
There have been no comprehensive studies of the money
transfer sector.
Perspectives are offered in Sending Money Home: Hispanic
Remittances and Community Development (Lanham: Rowman
& Littlefield 2002) edited by Rodolfo De la Garza
& Lindsay Lowell, The Remittance Marketplace
(2004), Billions in Motion: Latino Immigrants, Remittances
and Banking (Pew Hispanic Center, 2002) by Roberto
Suro, Money Laundering and Financial Intermediaries
(Boston: Kluwer Law 2001) by Sandeep Savla, Critical
Reflections on Transnational Organized Crime, Money Laundering,
& Corruption (Toronto: Uni of Toronto Press 2003)
by Margaret Beareand Countering the Financing of Terrorism
(London: Routledge 2008) edited by Thomas Biersteker &
Sue Eckert.
As a point of entry to the literature on hawala systems
see Roger Ballard's 2003 A Background Report On The
Operation Of Informal Value Transfer Systems (Hawala)
(PDF)
and Coalitions of Reciprocity and the Maintenance
of Financial Integrity within Informal Value Transmission
Systems: The operational dynamics of contemporary hawala
networks (PDF),
John Wilson's Hawala and other Informal Payments Systems:
An Economic Perspective (PDF)
next page (terms)
|
|
Ketupa