Hidden fees eat into income remittances from overseas

LIKE most overseas Filipino workers, Maria Dinah Abalos used money transfer organizations when sending money to her family in the southern city of Butuan from China, where she worked as a teacher last year.

She told INQ7money she had a vague idea that the fees were steeper than those of banks or credit unions, but what the heck, she said, "It's just a small amount every time I sent money."



This lack of willingness to shop around for the best rates or refusal to understand the process of remittances and find alternative ways of sending money home at a lower cost eats into the incomes overseas Filipino workers remit to their families.

These "small amounts" can stack up to a considerable cost. Asians and Latinos typically send small amounts -- an average of 200 dollars -- but they send money to their families frequently, which means hidden fees often hit them frequently.

Remittance service companies usually charge an upfront fee for telegraphic transfers. That's all in black in white. However, there is a foreign exchange cost that is not often explained.

Let's say you work in Europe and earn British pounds. A Filipino remittance company around the corner converts your remittance to dollars. Flag this down as forex cost number one.

Will the recipient in the northern province of Isabela, for example, accept your remittance in dollars or in pesos? If in pesos, watch the exchange rate, as this could eat into what you send home, which results in the so-called double whammy to remitters.

It's curious that there is very little data on the cost of remitting money to the Philippines, when the World Bank ranks the Philippines as the third biggest receiver of money remittances in the world, after India and Mexico.

Businesses are also increasingly becoming global, and hard cash is naturally not carried around in suitcases. A lot of workers and businessmen need the information on what charges to watch out for and whether they are getting the raw end of money transfer deals.

Manuel Orozco, an international expert on remittance flows, said in a March 2003 study titled, "Worker Remittances in an International Scope," that transfer costs are lowest when sent through regulated financial institutions such as banks and credit unions.

After interviewing experts and businessmen and gathering data on remittances in nine countries in Southern Europe, Asia and Africa, Orozco said that when migrant workers transacted through banks, they got lower rates and fewer benefits from the institutions' other services, such as loans or deposits.

"The mean value of sending through banks was 7.0 percent [for 200 dollars], compared to 12.0 percent for businesses like Thomas Cook or Western Union," a copy of the study showed.

Charges are lower when the remittance is 300 dollars or more.

Data in the study showed that when sending to the Philippines, banks charge an average of 8.0 percent for every 200 dollars, while so-called ethnic stores or Philippine money transfer organizations charge 10.1 percent. Large remittance companies, like Western Union, charge 10.3 percent.

Philippine banks' charges, at 8.0 percent, while lower when compared with other methods, still appear to be steep. They are higher than India's 6.0 percent, Greece's 6.8 percent, Portugal's 3.4 percent, and Turkey's 3.1 percent -- although the banking systems in these countries are considerably less developed in the Philippines.

The Philippines has one of the most competitive markets for remittances, with wide participation of Philippine banks, Orozco said. In addition, the entry of international banks like Citibank NA should have brought the fees and charges down.

Unfortunately, problems with laws against money laundering have added to the cost of money transfers, penalizing both overseas workers and businessmen.

Banks offer at least four types of money transfer services: wire transfer via a network called SWIFT; crediting the money to a recipient's bank account in the same institution; crediting the money to an account in another bank; and picking up cash.

Here's a quick tip: When you deposit money in an account in the same bank, the charge drops to 5.0 percent. In some cases, it goes down even to 2.0 percent. It is also lower if the customer picks up the money from the bank.

An Inquirer reader told INQ7money in an e-mail that some Western Union branches in Switzerland refused to wire money to the Philippines "because RP is not well cooperating about money laundering, together with only four other countries worldwide."

It would be interesting to read a documentation of the experiences of people who often transfer money to the Philippines and how the government's failure to meet the requirements of the Financial Action Task Force on Money Laundering affects them.

For now, the lack of information should not stop overseas workers and businessmen from seeking the best rates. Just like shopping for a home, it still pays to canvass to find the bank or money transfer organization that can beat a 7.0-percent charge for remitting 200 dollars.

(E-mail the author at sduplito@inq7.net)

 

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