Remittance Costs: Latin America & the Caribbean

FLICKR / BRADIPO FLICKR / BRADIPO

This memo offers an overview and analysis of the transfer costs of family remittances to Latin America and the Caribbean.  It provides a characterization of transfer costs as well as an analysis of supply and demand side issues with regards to this service. 

We find that these costs represent an average of 5% of the amount remitted, a significant decline from 2000 but less so from 2010. Other findings show differences in cost across countries, products, and companies. Globally, Latin America and the Caribbean is one of the least expensive regions for sending money, second to only South Asia. Within the Latin American and Caribbean region, Mexico and Central America are the least expensive and the Caribbean is the most expensive place to send money. Interestingly, there is no single cheapest or most expensive remittance service provider (RSP) since pricing offers vary substantially by corridor and product.

In an effort to contribute to current discussions in the development community that pricing “should” be lowered, this study analyzes what factors are driving current pricing trends. It finds that pricing is not arbitrarily set by companies, but rather that the cost of sending is shaped by the intrinsic components of money transfers, particularly by exchange rate differentials, payout agents, and risk. Specifically, an increase in pricing is statistically significant and positively correlated with increases in agents in the origin and payout, with higher risk sending corridors, and with the spread of the exchange rate.

Finally, an analysis of migrant remitters suggests that immigrants are relatively price-sensitive because they search for an affordable RSP but are prepared to pay more if the sending method is easier or more convenient. Specifically, those who think their RSP is inexpensive and transparent in its pricing pay up to 10% less, but those who say their RSP is easy to use pay up to 7% more for the service.

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