This report was commissioned by FinMark Trust and carried out through Genesis to assess the cost of cross-border remittances in South Africa. Using a new approach based on conducting actual cross-border transactions, the report verifies the pricing offered to customers in the market and compares this cost to other studies conducted by the World Bank and Eighty20.

The cost of cross-border remittances from South Africa is argued as being among the highest in the world. According to the World Bank, as at the end of the second quarter of 2016, the global average cost of remittances was 7.43% of the amount sent by remitting customers. For remittances sent from South Africa, the average cost was 16.71%; more than double the global average. The high all-in cost of remittances also reflected high foreign exchange margins. Over the same period the average foreign exchange margin on cross-border remittances from South Africa was 4.36% of the amount sent; also well above the global average of 1.83%

The high overall cost of remittances and the exchange rate margin charged by providers is typically attributed to several features of the local market, including limited competition in foreign exchange services, a restrictive licensing regime for money transfer operators, and the adoption of complex and opaque pricing structures by providers. The high cost of remittances is a particular burden on low-value payments and migrant workers in particular.

Given this context, this report was commissioned by the FinMark Trust to confirm whether South Africa is indeed an outlier by international standards. Using a new approach based on conducting actual cross-border transactions, the report verifies the pricing offered to customers in the market. Having identified this pricing and the way it is disclosed to customers, the report provides a supply-side perspective of what drives providers to price money transfers the way they do. Here the report tries to understand the cost and revenue drivers that contribute to the fees and margins charged to remittance customers.

Cross-border remittance flows

The majority of remittance flows from South Africa (90% of all transfers) are destined for neighbouring Zimbabwe, Mozambique and Lesotho, with 85% of all migrants originating from these countries. Estimates by the FinMark Trust suggest that the bulk (almost 70%) of transfers to these countries are conducted informally and that the high cost of formal money transfers is a major barrier to accessing formal remittance bank and non-bank channels.

The South African market for remittances into SADC is largely driven by the large number of migrants working in the country. According to the 2011 Census, roughly 3.2 million people living in South Africa were born outside of the country. This excludes 1.5 million people who did not respond to the Census, as well as asylum seekers (464,000) and refugees (112,000). Research by the FinMark Trust suggests that these migrants face a number of barriers when accessing formal transfer services, including affordability and access to enabling documentation such as proof of address or identification.

Contrary to World Bank estimates, Genesis found that the total cost of remitting USD200 from South Africa to Zimbabwe, Mozambique and Lesotho is lower than the global average, with an average cost of 6.7% of the amount sent. Previous research has shown that the median value of cross-border remittances from South Africa is USD55, for which Genesis estimated the average cost to be 13.6% of the amount sent, as opposed to previous estimates of 13.3%. Genesis results generally support previous findings that the World Bank statistics over-estimate the average cost of transfers across these corridors.

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» Download the full report: Cross-border remittance pricing: Does market structure drive the prices for cross-border remittances in South Africa? (PDF)