Breaking the Western Union’s Remittance Monopoly
Economist James Henry says remittance transfer costs combined with the foreign exchange amounts to 15%, which is simply unaffordable for the poor who depend on remittence as a life line
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to the Real News Network. I’m Sharmini Peries coming to you from Baltimore.
Banking for the poor is the topic of our next report by James Henry. So of course joining me now is James Henry. He’s joining us from Sag Harbor, New York. James is a leading economist, attorney, and investigative journalist who has written extensively about global issues, but today he is focused on banking for the poor. James, thank you so much for joining us.
JAMES HENRY: You’re quite welcome.
PERIES: James, I understand that in a country like Haiti remittance, which is people abroad giving money to their families and friends in Haiti, has more of an impact in terms of the local economy than, say, foreign aid for development. So how does this actually transpire in terms of a model for global banking, and particularly in terms of Haiti?
HENRY: Sure. There’s a lot of talk lately about global poverty. The UN had its big summit in New York a couple weeks ago to discuss the new sustainable development goals for the year 2030. The IMF World Bank meetings were at Lima, and they were about global poverty.
So I’ve been thinking about concrete ways to actually do something for the poor, and one of the most important developments we’ve seen is that for very poor countries like Haiti the Haitians who are working outside of the country, 2.2 million Haitians who are outside the country, about 20 percent of the population, are sending back now about 25 percent of GDP to Haiti in the form of private aid to their families. Pay for schools and hospitals. Very concrete payments. And this in Haiti’s case now exceeds all foreign aid. It also exceeds all of Haiti’s exports. It’s the largest single source of foreign earnings for Haiti. And worldwide we’ve seen remittances grow to about $450 billion now, it’s three times the amount of foreign aid that is provided to developing countries. So these private grants by the poorest people in the world to their own friends and families are really helping to sustain these economies.
The problem is that when we look closely at this we find that there is what I call the remittance cartel. This is led by a big company called Western Union, which recently acquired Moneygram, another direct competitor, and they work with local banks. In Haiti’s case they have a consortium of six banks that dominate this market. And they’re charging Haitians about 10-13 percent of every dollar that is sent back to Haiti from the United States, from Canada. From other countries where the Haitian diaspora is working hard to make these payments.
So you know, this is about three or four times what it actually costs these companies to make these payments. If you’re [lucky] you have a bank account at both ends it costs maybe 1 percent of the amount that you send. But in the case of the poorest people on the planet, sending a $100 payment to Haiti, it’s about $13 to do that. And then they require you to take the payment in dollars. And you want to spend the money in Haitian local currency, the gourde, you have to go through another exchange transaction. So the total cost to poor Haitians is maybe on the order of 15 percent. That’s kind of outrageous.
PERIES: And that’s a key word, poor Haitians, because this kind of taxing on their transactions is something that the state can actually deal with which will be beneficial for them as well as the people in this poorest country in the world.
HENRY: It’s the equivalent of a private tax, because essentially these private companies, the banks and Western Union, are collecting this from the poorest people on the planet. Government doesn’t really–this is also bigger than the Haitian entire tax budget, because it’s only about 10 percent of GDP. This is more than a quarter of GDP provided by the poorest people in the country.
PERIES: So what can the Haitian government do to regulate this kind of activity on the part of the banking cartels?
HENRY: Well, several things they could do. One is to get rid of this crazy policy requiring Haitians to take the payments in dollars. That simply sets up another costly transaction. But they could require [twice] controls like we have for, let’s say, internet service providers, cable companies in this country, where there’s no competition. Or they could introduce new competition into the market. I’ve recently proposed, because Pope Francis was coming to the United States and he’s been trying to reform the Vatican Bank, I said, well, let’s take on a new mission. Let’s have the Vatican Bank become a bank. Basically help work with other financial institutions. There’s more than 2.5 billion people on the planet who do not have bank accounts. Some of the poorest people in the world. And they could really benefit from having bank accounts. Not only for the sake of reducing the cost of remittances, but also to have savings vehicles, to be able to avoid the risks, dealing so much in currency.
And so this is something we’ve been talking about. Ten years ago I proposed this idea to the World Bank. We went down and met with the president of the World Bank, said let’s make the World Bank a bank, actually do banking for the poor. But the, for whatever reason, the World Bank has just avoided getting involved in this directly. I think it’s too political for them, because they’d have to take on these powerful interest groups.
PERIES: And how did the pope receive your proposal, and which pope was this?
HENRY: Pope Francis. We’re getting it to him now, we just published this a week ago. Larry Kotlikoff who’s a professor at Boston University and I have been working on this scheme for some time.
But you know, the idea is that basically if you had like-minded churches they had a network of local churches, by the way, 90 percent of Haitians are Catholic. They’re well-represented throughout the developing world. They could set up bank accounts for schools and hospitals, and places that could receive remittance payments on the behalf of the poor, and reduce this outrageous 10 percent fee to something like 1 or 2 percent. And that’s a service the church doesn’t have to provide itself. But if they worked together with other private foundations and other religions, they might well provide a solution to this, to this growing problem.
We’ve seen–migration we know is increasing dramatically. We now have more than 450 million immigrants worldwide. And the volume of remittances now exceeds about $500 billion. It’s more than three times the total amount of foreign aid that was given this year, $135 billion. So it’s a very important source of finance for the poorest countries in the planet, and it is just outrageous that 10 percent of that is going into the pockets of the very wealthy financial institution. So you know, it’s a direct example of inequality being generated that we can actually do something about.
PERIES: And what you’re essentially proposing here is a public banking model. Are there examples out there that we can point to that are successful?
HENRY: Well, there are a number of different alternatives. One is in Kenya, for example, they have successfully lowered the cost of remittances below 2 percent on average of transactions by using digital phone technology. Mobile technology. You know, there’s more than 7 billion cell phones in the world now. In Haiti’s case you’d have 70 percent of the population has cell phones, whereas only 20 percent have bank accounts.
So we could use what’s called e-wallet technology to have transfers of cash to poor Haitians, or to schools. That’s already been tried to some extent in Haiti, but it was blocked by the remittance cartel. So we really need the Haitian government to also get involved here, and try to regulate this, to introduce more competition from new technologies that can really sharply reduce the cost of this remittance system.
PERIES: And when you say remittance cartel, besides Western Union who are some of the other key players in this area?
HENRY: Well, I would say Western Union and Moneygram but Moneygram just got acquired by Western Union.
PERIES: So essentially Western Union.
HENRY: Yeah, essentially Western Union. They [inaud.] global business out of this in most, in almost every developing country. We don’t want to run them out of business, but we do think they’re extracting exorbitant profits from the system.
But the other key players in this are other financial institutions that can also help out here. So if you have a Citibank account in New York you can transfer money to Haiti’s Citibank account in Port-au-Prince for a 1 percent fee. But maybe they could open up so that poor people could also get access to those services.
PERIES: All right, James, important idea and we’d love to follow it. Thank you so much for joining us.
HENRY: Thanks very much.
PERIES: And thank you for joining us on the Real News Network.
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