Stating Facts: The cost of remittances

October 20, 2021
remittance cost

The importance of remittances to poor countries cannot be overstated. The G8 vowed in 2010 to cut the cost of remittances by 5%, a commitment endorsed by the G20 in 2015 and 2019, and included in the United Nations’ Sustainable Development Goals in 2020. What is the current cost, and what are economists’ recommendations for lowering it?

Migrants who send money across borders to their families help to boost economic activity and revenue in some of the world’s poorest countries. Cross-border remittances total almost US$600 billion each year, with three quarters going to low- and middle income nations. To put that figure in context, global development assistance totals $150 billion.

Indeed, these transfers account for a large portion of people’s income in many countries. Remittances exceed 10% of GDP in Guatemala, the Philippines, and Senegal, for example.

Despite significant technological advancements in recent decades, remittances remain remarkably expensive.

Hidden Facts

Over 200 million migrant workers send money home to over 800 million family members now, a payment known as remittance. Because remittances are so common, regulators should seek to make them more accessible to everyone.

Mandating increased transparency in the remittance transfer process is one major improvement that might help achieve that goal.

Remittances, defined as “cross-border, person to person remittances of relatively low value” in a 2015 report, provide a vital lifeline to the impoverished globe, covering many basic household requirements. As our global economy reopens, they are taking center stage.

However, they are also costly. According to recent independent research we commissioned, just over half of the $16.3 billion in fees spent by Filipino consumers and small businesses on overseas payments and remittances in 2019 was disguised in inflated exchange rates, or $8.7 billion. Surprisingly, while 55% of customers indicated they knew the expenses of sending money abroad, just 18% correctly identified currency rates as one of the costs.

This definitely creates room for reform, including the possibility of the Bangko Sentral ng Pilipinas (BSP) updating its policies to compel total expenses to be visible rather than buried behind arbitrary “fees.”

In fact, some banks and other financial service providers charge costs for foreign transfers that are more than twice as high as the UN viable standards. This puts people from the G7 countries’ financial well-being at risk, as they will have to pay expensive costs to send money to family and friends in other countries.

Countries for Inward Remittances

Source: World Bank

Most types of cross-border cash transfers necessitate the involvement of a bank at some stage throughout the transaction. For example, an MTO (Money Transfer Operator) requires accounts at both ends of the transfer corridor. Banks, on the other hand, have started canceling or curtailing their partnerships with MTOs in reaction to stricter anti-money laundering (AML) regulations.

Mobile payments pose similar concerns from a bank’s perspective. Mobile payment systems, including virtual currencies like Bitcoin, can be utilized to hide illicit actions (see here). Meeting the Know Your Customer (KYC) criteria demanded by banks (and expected by governments) is costly. As a result, these obstacles may continue to slow the rate at which cost competitive technology companies enter the remittance market.

However, the goal of lowering the cost of minor remittances to 5% is definitely attainable. Efforts to streamline the KYC/AML process (including the use of legal entity identification) may help us get there (and beyond) sooner.

Additional Overview

One important finding is that remittances are counter cyclical in relation to recipient country income and output rising in response to exogenous shocks to which developing countries are especially vulnerable but procyclical in relation to the economic situation in the source Italian province. When both the source and destination economies are subjected to negative shocks of equal magnitude (for example, as a result of the global crisis), the anti cyclical effect resulting from the recipient country’s output contraction wins out.

The second set of findings shows a negative link between remittances and recipient country financial development and a positive correlation with source economy banking system development. Immigrants should have improved access to financial services and lower transaction costs as a result of any strategy to boost remittances.


The use of remittances to promote development in countries has enormous potential. Despite the fact that tremendous progress has been achieved in comprehending remittances, the limits outlined above demonstrate how their potential influence is greatly restricted.

Learning more about the best ways to capture and use remittance costs would necessitate rethinking how consumers receive financial inflows. Furthermore, additional research on how to use remittances to benefit migrants’ home communities and nations would be required by development authorities.