How to send money overseas without breaking your bank

An estimated three million Kenyans live and work abroad. And as the number of migrants continue to increase, so has cross border money transfers, vital a system that supports the diaspora’s family members and friends back home.

On average, sending money across the world costs about 8 per cent of the amount being sent at the moment.
However, it costs a little more if you are sending that money to a recipient in Kenya.

The latest survey by the World Bank for the second quarter this year shows that senders paid 9.72 per cent of the amount being sent to sub-Saharan Africa.

And despite the uptake of mobile money transfer systems especially in Kenya, sending money through post office remains the least expensive in sub-Saharan Africa while going through a commercial bank is the most costly. The World Bank data shows that post office charges fell to 5.14 per cent between April and June.

“The largest change in Q2 (second quarter) 2015 was recorded in sub-Saharan Africa – a decline from 10.21 to 9.74 per cent, largely driven by significant decline in cost of sending remittances from South Africa,” said the World Bank Group, which has been leading a global call to cut the cost of sending money home.

COMMERCIAL BANKS
For the senders, who turn to commercial banks to send money to family members and friends overseas, the banks usually hit them with high fees.

“Average total cost of sending money through commercial banks was 10.96 per cent in quarter two 2015, below 11 per cent for the first time … while the cost of sending money through money transfer operators has increased to 6.59 per cent.”

Quite often, senders turn to banks because they know that they are regulated and thus provide a secure system, but it is also wise to check on their fees.

“Account to account services are the most expensive product type at 11.20 per cent, but cost of transfers within the same bank or to a partner bank in the receiving country is significantly cheaper (7.16 per cent),” said the World Bank.

ONLINE COMPANIES

Notably, new online firms are springing up and hoping to rock the boat by cutting the cost of sending money. These digital-first companies are leveraging on the growing preference for mobile and online platforms to compete with legacy institutions such as Western Union and MoneyGram on both reach and transaction fees.

“Online products are the cheapest product type, at an average cost of 5.48 per cent,” said the World Bank’s remittance report for the period between April and June.

And as the competition for a share of the brisk cash transfer business intensifies, the Kenyan diaspora —which continues to shuffle around the world doing business or in search of greener pastures — could realise even more savings by shopping online for cheap money remittance deals.

Take Continental Money for instance: “We charge one British pound (£1) for any amount being sent. This is set to bring about more savings to Kenyans,” Continental Money chief executive officer Njuguna Kirubi said, adding: “An unrivaled exchange rate matched with competitive fee structure gives the customers value for money. This brings about savings to Kenyans.”

By cutting on remittance fees, which remains a huge pain point for the diaspora community sending funds back home in Kenya, is giving the company an edge over the established players.

Continental Money is an online money transfer company that offers services round-the-clock.

“We can pay for university education the US and UK or for your hospital bills in India,” Mr Njuguna said, adding that unlike the traditional remittance systems that may take days, in digital-first companies, the service is undertaken in minutes.

At the moment, there are 14 registered money remittance providers in Kenya according to the Central Bank website.

“A number of providers are emerging in the online space, offering senders different options to pay for the transaction (from their bank accounts, with either a wire transfer or direct debit, or by debit or credit card),” the World Bank says, adding: “Cutting prices by at least five percentage points can save up to $16 billion per year.”

The diaspora can also choose various ways for the money to be delivered, say the recipient’s bank account, mobile phone or in cash at an agent in the receiving country — an element that the crisis lender says increases the total cost of the transaction.

BRICK AND MORTAR

Money remittance giants such as Western Union, MoneyGram and Ria have dominated the industry for years, operating a total of approximately 1.1 million retail centres in over 200 countries to facilitate cash pick-ups.

However, their traditional brick and mortar remittance systems are likely to get a run of their money from digital-first companies that are leveraging on technology and fees to woo customers.

According to the Central Bank, diaspora inflows to Kenya increased in the first half of this year by 9.2 per cent to $754 million from $690 million in the first half of last year.

In June, remittance inflows increased by 17.1 per cent to $136 million compared to $116.1 million recorded in June 2014 and went up by 5.3 per cent when compared to inflows in May. This rise was largely driven by inflows from North America.

By embracing cheaper models of sending diaspora remittances, both the senders and recipients would realise billions of shillings in savings.