International Money Transfer Charges

Baroness Jowell Excerpts

Wednesday 17th December 2014 Westminster Hall

[Dame Tessa Jowell (Dulwich and West Norwood) (Lab)]

It is a great pleasure to serve under your chairmanship, Ms Dorries.

This Christmas, millions of people will work extra hours in difficult and low-paid jobs so that they can send money to their relatives living abroad. Their remittances, particularly to sub-Saharan Africa but to many other parts of the world as well, now account for more money than donor aid. However, their money transfers will be hit by fees and charges that can be as high as 15%, and in some cases even higher. Five years ago, the G8 committed to reducing this “transfer tax” to 5%, but the deadline for international action has now passed and the target has not been achieved. People who seek to send relatively small amounts are being hit disproportionately by high fees; I am calling for concerted action to change that.

Take, for example, Dorothy Mukasa, who arrived in the UK from Uganda 34 years ago and, like so many thousands of migrants, works for the NHS. Over the years, her family in Uganda have needed her help. For example, she has sent money home to pay the school fees for her orphaned niece, and she currently pays for a nurse to attend to her elderly parents twice a week. Dorothy explained her anger at the extortionate charges that she has to pay, because sending relatively small amounts can incur higher charges. Her case was recently highlighted by The Observer newspaper.

I applied for this debate because of the circumstances of people like Dorothy who are being hit by the double effect of poor foreign currency exchange rates and high fees, of which a key driver in certain parts of the world is the lack of competition in the market. When chairing the Africa Progress panel earlier this year, Kofi Annan highlighted the control that money transfer companies have over the market. He said that the two largest such companies, Western Union and MoneyGram, both

“operate exclusivity agreements with their agents and commercial banks, which raises the cost of market entry.”

He went on to say that money transfer operators

“account for US$900 million taken from African migrants and their families through excessive charging.”

The situation was also illustrated in this year’s groundbreaking report from the Overseas Development Institute. The fees being charged are disproportionately high and far above the 5% level set by the G8 and the G20. The ODI showed that when the fee and, critically, the foreign currency exchange rate were combined the margin levied by MoneyGram would see someone sending £120 to Malawi incurring a 22.4% cost. Sending the same amount to Senegal and Ghana would have costs of 19.9% and 11.4% respectively. It is important to say, however, that MoneyGram disputes those figures.

In the case of Western Union, the other big money transfer company, the ODI’s research shows similarly high charges. The cost of sending £120 to Gambia was 14.2%, and to send the same amount to Uganda incurred charges of 13.4%. The ODI’s research showed that between them Western Union and MoneyGram control two thirds of the remittances market in sub-Saharan Africa. The problem affects not only those sending money to Africa, but large parts of Asia and Latin America as well.

A further challenge is the severe lack of transparency about the components of charges. For example, figures taken from MoneyGram on Saturday show that sending card-to-cash transfers of £100 to six countries in different parts of sub-Saharan Africa incurred a uniform fee of 12%, plus further currency exchange charges. The four countries have different market conditions and underlying factors, yet the basic fee of 12%—more than double the G8 standard of 5%—is the same for each of them. People do not understand why. Along with financial regulators, the UK Government should require companies to be more transparent about such charges, in the interest of consumers. I would like to commend TransferWise for its campaign, which I support, calling on the UK Government to put a stop to hidden fees and to stop banks and brokers overcharging consumers in foreign currency exchange.

The G20’s conclusions show that Governments are aware of the scale of the problem. At the G8 L’Aquila summit in 2009, world leaders agreed to bring the cost of remittances down to 5% within five years. The G20 formally adopted that objective in 2011, but the deadline was missed two weeks ago. At last month’s G20 summit in Brisbane, which was attended by the Prime Minister, world leaders reaffirmed the 5% commitment, but they appeared to weaken their ambition by failing to agree a deadline by which they would act. Perhaps the Minister can assure us that that is not the case for the UK Government. I am very concerned by that omission and I would like reassurance from the Minister on the Government’s determination to tackle the problem.

There are many issues surrounding remittances, and I fully accept their complexity. One such issue is the availability of accounts for money transfer companies. Earlier this year, owing to concern over lack of control of funds, Barclays announced that it would be closing 250 UK accounts held by money transfer companies that deliver remittances to families in developing countries. This year, my hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) led the successful “Save Remittance Giving” campaign, which called on Barclays to reverse its decision and on the Government to throw a lifeline to families in developing countries—particularly Somalia, which faces significant challenges in this respect—by co-ordinating action between the Government and financial regulators in order to secure a long-term solution. Like other Members, I am sure, I want to put on the record my thanks to my hon. Friend for her continuing work on this issue.

A key issue that I have already mentioned is the lack of effective competition, which works against consumers. Between them, Western Union and MoneyGram control two thirds of the remittance market in sub-Saharan Africa. That market must be made more open to a wider ranger of companies, including smaller, secure companies, to ensure that there is a competitive market. The issue has been highlighted by the Association of UK Payment Institutions and its executive chairman, Dominic Thorncroft. The AUKPI represents 120 payment institutions in the UK, and it notes that, since the collective decision of the UK banks in 2013 to stop trading with money remittance firms, more than 150 Financial Conduct Authority-regulated UK money remittance firms have lost their bank accounts and since then struggled to be able to offer money remittance services to their customers.

Some firms are taking action to try to offer alternatives in the market. An example is Xendpay.com, which is a service set up by social entrepreneur Rajesh Agrawal in response to the high charges levied by the big and dominant money transfer companies. However, right now consumers have less choice, and overall fees and charges have inevitably increased. Policy makers, including the UK Government, are just not doing enough to encourage greater competition, which would begin to tackle very high charges. By analogy, we would not tolerate a situation in which two companies controlled two thirds of our energy or banking markets, and we must not tolerate that in the international remittance market either.

Remittances are big business, and the lack of transparency, effective regulation and competition means that very substantial profits can be made by just a few big players. In 2013, Western Union handled £52 billion of transfers between customers. It returned over £420 million to shareholders through dividends and share repurchases. I believe there needs to be a balance between the commercial interests and success of these important companies and the decency of the business, taking into account the population of consumers on whom they rely. That is why I have called on MoneyGram and Western Union particularly to halve their fees in the run-up to Christmas—a time of giving—as a gesture of good will, and as a small stepping stone towards a more permanent solution.

I hope that the Minister will be able to give a commitment that her Government, should the opportunity arise, will act between now and the general election to reaffirm the commitment of the G20 last month and begin to set out specific proposals on how the UK Government might offer leadership in this area to bring down transfer charges. I also hope that her Government, until the election, will agree to speed up the necessary action to force money transfer companies, banks and brokers to be more transparent in their charges and, in particular, their foreign currency conversion rates. Hundreds of thousands of very hard-working people, doing some of the toughest jobs in our country, just want to support their relatives in some of the poorest countries in the world, and I hope very much today that the House will show its support for them too.