Transferring money to the Pacific is expensive, despite NZ efforts to cut costs

Sending money to the Pacific from New Zealand is becoming more expensive, despite Government efforts to lower the costs.

Several Pacific countries will report on the issue to the United Nations in New York this week, as part of a huge meeting on the complex Sustainable Development Goals.

Remittances - money sent home to families in the Pacific from workers in Australia and New Zealand - make up a substantial part of small economies in several Pacific islands.

Over a quarter (27 per cent) of Tonga's economy is made up of remittances, and over a fifth (21 per cent) of Samoa's. Both countries have overseas emigrant populations about half the size of their resident populations. 

New Zealand workers made up about a third of remittance payments in the region, alongside Australia and the United States.

But the cost of sending money to small states in the Pacific is among the highest in the world, averaging at between 8 and 12 per cent of the amount sent.

In Vanuatu, which is known as a tax haven, remittance costs can get even higher, right up to 15 per cent for payments from New Zealand to the country.

The UN goal for 2030 is to get these costs down to just 3 per cent, but currently the costs are actually growing as Money Transfer Operators shut up shop and commercial banks "de-risk" to meet strict banking regulations in larger countries following the financial crisis.

Many of the goals set by the UN in 2015 for "Agenda 2030" are heading backwards.

A report from the International Monetary Forum (IMF) found that the closures often came as banks faced tighter regulations following the global financial crisis and "know-your-client" rules. Compliance with New Zealand's Anti-Money Laundering and Countering Financing of Terrorism law from 2009 is specifically singled out as an issue. The relative smallness of the market and the amount of money transferred has meant international banks have not seen much reward for the risk taken on.

Reducing remittance costs has been a priority for international fora and technology companies for several years but have remained stubbornly high.

The Reserve Bank, which regulates banks in New Zealand, is currently working on a new proposal with the Ministry of Foreign Affairs and Trade (MFAT) to bring down the costs, a spokesman said.

"Currently, some remittance transactions in the Pacific region are relatively expensive due to structural reasons such as size, remoteness, and limited infrastructure. International financial regulations and associated concerns about AML/CFT compliance are now compounding this problem as Pacific-based institutions struggle to access global financial services that enable money transfer to and within the Pacific," the spokesman said.

He noted that reducing costs would actually help fight money-laundering as it would reduce reliance on informal channels.

"The Reserve Bank and MFAT are framing up a project intended to support the whole industry (banks, MTOs, regulators and Pacific Island nations) to find solutions that will work for all.

"Close collaboration amongst New Zealand Government agencies and with partner agencies working in the Pacific region is vital for improving the coherence and impact of New Zealand's efforts in the Pacific and is a strategic priority for both MFAT and the Reserve Bank."

MFAT also helps fund a number of initiatives aimed at brining down transaction costs through its aid contribution to the Pacific.

A spokesman for Westpac, who provide banking services in Fiji and Papua New Guinea, said the bank had several initiatives underway to reduce costs, including an $8 "Express Card" which could be loaded with cash by an NZ customer and then used for withdrawals at Visa ATMs within the Pacific.

Westpac's correspondent banking network is used in several other Pacific nations.

FACEBOOK LOOKS TO STEP IN

Banks may face competition in the area from cryptocurrency platforms.

Facebook has promised its new "Libra" currency would open up low-fee international money transfers for the developing world. 

"Moving money around globally should be as easy and cost-effective as — and even more safe and secure than — sending a text message or sharing a photo, no matter where you live, what you do, or how much you earn," the company wrote in a white paper introducing Libra.

Libra is backed by Facebook alongside a consortium featuring several NGOs, credit card companies, and other large tech firms.

Facebook has already experimented with low-cost payment transfers within India with its WhatsApp Pay service.

But Facebook could face serious regulatory hurdles as governments around the world become warier of big tech, particularly as it encroaches on territory typically dominated by nation states.

Several reserve bank heads and other regulators issued statements of caution following Libra's unveiling earlier this year.

"I think there's a lot of water to flow under the bridge before Facebook's proposal becomes something that we're using all the time," Australian Reserve Bank head Philip Lowe said in a press conference.

The Westpac spokesman noted it faced regulatory requirements non-banking systems did not.

"We recognise the technology around international payments is evolving, but it is important to note that not all providers use the same platform as banks. We invest in robust platforms and systems to ensure compliance with regulatory requirements both domestically and internationally."

This reporter's attendance at the United Nations was supported by the Pacific Islands Forum Secretariat and UNDP Pacific Office.