Tuesday November 11, 2014
AUSTRALIA is backing a global deal to cut the cost of financial transfers worth $500 billion a year, as Tony Abbott joins other G20 leaders to put pressure on banks and payment agencies to cut fees. The Prime Minister is acting on concerns from his Indian counterpart, Narendra Modi, and other leaders to free up the flow of remittances that provide a vital source of income for families in developing countries.
The Australian has been told an agreement will be reached at the G20 summit in Brisbane this weekend to act on the problem, which can see migrants in rich nations pay fees of up to 20 per cent to send cash to their families.
The plan could be derailed by national security laws that are forcing banks to sever their links with overseas payment agencies and shut down their remittance services, leaving Australians with fewer ways to transfer cash overseas.
At stake is the ability of millions of Australians to keep sending $7bn overseas each year without paying exorbitant fees so that people in need in developing nations can rely on a steady flow of extra income.
Community leaders are urging banks to delay any closures — due to take effect within weeks — so that customers can send money to their extended families for Christmas. The World Bank has been pressing for progress at the G20 to reduce the cost of the transfers, arguing that halving the average cost from 10 to 5 per cent would add billions of dollars a year to the amounts that end up with families.
Mr Abbott has put the problem on the development agenda for this weekend’s talks, alongside issues such as food security, amid frustration that many countries have not acted on commitments they made at their 2011 summit.
Mr Modi has signalled in recent days that he wants a commitment this weekend to drive the average cost down to 5 per cent, given that Saudi Arabia has agreed to reduce fees to 3.5 per cent. The Indian Prime Minister’s top G20 aide, Suresh Prabhu, has described the problem as an “ethical, logical and economic” challenge given the huge sums transferred home by nonresident Indians.
Australians make about 20 million remittance transactions worth about $7bn a year, according to the Australian Centre for Financial Studies, which estimates the global transfers at $500bn. Consumers pay fees of about 14 per cent on average in Australia, almost twice the rate in the US and higher than the G20 benchmark of 10 per cent, according to a World Bank report in 2011.
“We feel that the fees we pay for the remittances are totally unjustified,” said Balesh Dhankhar, a spokesman for the Indian Australian Community Foundation. “It should be easier for working-class people to send money overseas.”
Another community leader, Berhan Ahmed, an Eritrean Australian who leads the African Australian Small Business Association, said he paid fees of about 20 per cent a month.
While the G20 cannot dictate the fees charged by commercial banks and money-transfer companies, it can agree on regulatory changes that could reduce burdens on the sector and encourage lower charges for consumers. Australian Centre for Financial Studies research officer Martin Jenkinson said: “There are a number of areas where you could see costs being cut.”
Leading options include the use of newer technologies, such as digital wallets, to send money over the internet.
Australia is yet to deliver on all its commitments to cut remittance fees but Kevin Rudd promised funding for the problem and Julia Gillard led some of the discussion on the issue at the G20 summit in Cannes in November 2011.The Australian was told that this weekend’s summit would act on ideas put forward in 2011 to keep cutting the cost of transactions.
But the growing regulation of money transfers under national security laws, to curb money laundering and terrorism, discourage banks from transferring funds when they cannot be sure of the identity of the final recipient. Westpac has told some customers it will shut its remittance service on November 24, following similar closures by other major banks.
Oxfam Australia chief Helen Szoke said Somali migrants in Australia sent about $10m to friends and family in Somalia each year to buy food and pay for education to help them buy basics such as food, water and to pay for education and healthcare.
“Oxfam is deeply concerned the closure of accounts that allow the Somali diaspora in Australia to send money home will worsen the already dire humanitarian situation in a country where over 3 million people do not have enough to eat,” she said.
The Australian Bankers Association said governments should look closely at the “real impacts” from the anti-money laundering and counterterrorism laws.