When disaster aid gets eaten up by money transfer fees

Stan Alcorn Jun 9, 2015
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When disaster aid gets eaten up by money transfer fees

Stan Alcorn Jun 9, 2015
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In the famously diverse neighborhood of Jackson Heights in Queens, New York, there are areas with three money transfers companies on a single block. The competition exerts a certain downward pressure on fees, and when I ask about the cost to send a typical, $200 transfer to the Dominican Republic, the answers are $6 or $7.

“There’s a store next door, there’s a store across the street, there’s a store there,” says Sal Rizzo, regional vice president at money transfer company DolEx, as he looks out the window of a travel agency that contains a DolEx booth. “So if you’re charging $10 when everybody else is charging $5 for the same product, you’re not going to do business.”

But competition isn’t the only thing driving down fees. Six blocks away, between two Tibetan restaurants, is IME Remit, where on a day at the end of May the fee for a money transfer to Nepal was free. 

Bishnu Adhikari discovered this when he arrived to send money to his family in Nepal, who have been struggling in the aftermath of the massive earthquake that hit the country on April 25th. It killed more than 8,000 people, including Adhikari’s brother-in-law.

“I’m here in the United States, so obviously my parents are depending upon me,” says Adhikari.

He scraped together $650 from the 45 hours a week he works as an Uber driver, and thanks to the fee waiver, an extra $5 will make it to his family. 

“I expect that because of the earthquake the flow of remittances this month will exceed a billion dollars,” says Dilip Ratha, an economist who tracks remittances for the World Bank. “If the fee is 4 to 5 percent on average, then that’s about $40 to $50 million, and if that fee is waived, then that would be the amount of money in the hands of poor people, who really need the money.”  

The third-largest money transfer company, Ria, waived fees for transfers to Nepal through the end of June.  

But the largest, Western Union, waived fees for most transfers only until May 14th, and for online transfers until May 31st. Moneygram waived fees through May 31st, but only for customers in the United States sending money to the American Red Cross International Services in Nepal. Had Bishnu Adhikari chosen either of these services to send money to his parents at the end of May, they would have received five fewer dollars. 

“An additional $5 matters a lot,” says Vijaya Ramachandran, a senior fellow at the Center for Global Development who supports the idea of fee waivers after disasters. “To put it in perspective, Nepal’s gross national income per capita is $700.” Accordingly, $5 represent the equivalent of several days income for an average salary—money that she says is particularly critical in this phase of recovery from the earthquake.   

“Of course it is not realistic to expect remittance companies to waive the fees for month after month,” says Ratha. “But at least for a couple of months it would be very useful if the fees were waived.”

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