Non-resident Indians (NRIs) employed outside the country paid crores in hidden fees while making money transfers to their family, friends or relatives residing in India, a study has revealed. India is one of the world’s top receivers of remittances, according to the 2015 World Bank data.

Indians paid more than ₹26,300 crore in foreign exchange fees in 2020 — ₹9,700 crore as exchange rate markups on currency conversions, payments and card purchases, while travelling abroad, and the remaining ₹16,600 crore as transaction fee.

A ‘markup’ is the difference between the actual market exchange rate and the rate that a bank offers a customer. The higher the markup, the higher the profit for the bank. Transaction fee is paid every time an overseas money transfer takes place. It is often a percentage of the transfer amount with an additional fixed fee.

The annual amount Indians lost in fees and exchange rate markups increased from ₹18,700 crore to ₹26,300 crore between 2016 and 2020.

The figures emerged in a report commissioned by Wise, a global money transfer technology firm listed on the London Stock Exchange, founded by Taavet Hinrikus, Skype's first employee. India is Wise’s biggest recipient country. The report was published in August by London-based Capital Economics, a research consultancy firm.

Incidentally, while upfront fees paid for these money transfers had decreased overall in the past five years, the fees paid towards exchange rate margins have been growing.

India has the largest diaspora in the world with 18 million expats in 2020, according to the United Nations, with the U.A.E., the U.S. and Saudi Arabia hosting the largest Indian populations.

According to the report by Capital Economics, a major chunk of the inflows into India are from Gulf states. Saudi Arabia ranked at the top with 24% of inward remittance to India, followed by the U.S. at 18%; Indians in the UK contributed 15%, while Indians in Qatar transferred 8% of the total money flows to India in remittances. Canada was at 6%, followed by Oman, the U.A.E. Kuwait, each at 5%, and Australia at 4%.

Facilitating easy and inexpensive money transfers is among one of United Nations’ Sustainable Development Goals (SDGs). The aim is to make migrant lives easier and strengthen cross-border partnerships of developed countries with developing countries.

The international body created the Remittance Community Task Force (RCTF) in its Immediate Socio-Economic Response to Covid-19 in March last year. The actions aim to buttress global partnerships for sustainable development—in particular an SDG target that seeks to lower transaction costs of migrant remittances to less than 3%. It also aims to eliminate remittance corridors—multiple bilateral channels between two specific countries—that are set to charge more than 5% by 2030.

One of the UN’s main plans to reduce remittance costs is through digitalisation and strengthening of digital ecosystems.

The EU has also created new rules that require online money transfer and card providers to show total costs of sending money upfront, including the exact amount of exchange rate margins.

“The customer experience while making cross-border payments has not been easy. This is because the experience is not always digital. By easy I mean in terms of signing up and onboarding yourself for remittance, especially cross-border transactions. There is often a great deal of paperwork involved, and some checks and screenings. Digitalisation has made this a lot simpler,” says Anhar Khanbhai, senior manager, public relations, Pacific & Japan, Wise.

The way money moves in the old world is when transfers are made. In the first step the bank sends a notification to its correspondent bank in, say, Japan which might then go to another bank, say, in Russia or another country and so on. There might be up to four-five transactions before the money arrives in the recipient’s account.

When done digitally, if one wants to transfer cash, for example, from India to the U.S., the sender may move the money from his/her bank account online to the fintech’s bank account in the home country. The fintech’s bank in the US receiving the sender’s funds will pay out to the recipient in the US via a dollar account in the US, thereby cutting middlemen out and creating efficiencies so the money transfer from the sender to the recipient can be done via two domestic transactions.

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