Remittance streams from family members living overseas form an essential source of money for many people living in the Pacific region, and a significant proportion of the GDP of many Pacific islands. However, recently these flows of money have come under threat as many global banks have ceased providing banking services for money transfer operators (MTOs) in the region, due to heightened sensitivity to AML and CFT requirements. This tendency towards “de-risking” has resulted in increasingly restricted remittance streams as the cost of transferring money to some countries has escalated.
Some might argue that this situation illustrates a fundamental incompatibility between the objectives of (a) ensuring financial inclusion and (b) maintaining the integrity of the financial system. Others, however, are embracing this challenge to generate new solutions that actually highlight the ways in which financial integrity and financial inclusion may complement or reinforce one another.
For example, the Alliance for Financial Inclusion (AFI) recently reported on the response of MTOs in the Pacific region to the de-risking issue. AFI describes a recently-developed platform operating in the region – KlickEX – that has both substantially reduced remittance costs and transformed consumer behaviour, promoting financial education and inclusion while also reducing AML / CFT risk.
I asked Eliki Boletawa, Head of Policy Programs and Regional Initiatives at AFI, how the platform works. “There are two options for transferring money using the KlickEx platform, either bank-to-bank or through mobile phone using Digicel. To send money customers register on the KlickEx website by providing all of their details: address, passport, ID (driver’s license), birth certificate and so forth,” he told me. “On the receiving side, the individual receiving the funds already has a bank account or a mobile phone which is registered and both these mediums are verified adhering to the KYC/CDD requirements. As a KlickEx customer, the next time you send money, this information is stored on the system so it does not have to be re-entered. Regulators have access to the system and can track the details of the consumers who are already paying within the space. The transparency of the system reduces the compliance risk.”
Over a relatively short period of time, financial inclusion in the region has been improved through the greater ease of use and lower costs associated with this service. By contrast, sending money overseas using a bank requires the sender to undergo the same KYC checks for each and every transaction, with the associated admin costs making the whole process considerably more expensive. For example, on the day I spoke with Mr Boletawa the cost of sending 200 Australian Dollars from Australia to Vanuatu through the MTO Western Union online was 3.68AUD, while through ANZ Bank the cost for transferring the same amount was 53.14AUD.
Moreover, as lower transaction costs enable consumers to use the service more frequently, AFI believes that financial literacy has improved and consumers have become more discriminating about how they use the service. As Mr Boletawa explains: “As consumers become more familiar with the service they are not using it out of simple loyalty, but are driven by price awareness, being increasingly focused on both the price and speed of transactions.”
More broadly, the service is contributing to improvements in financial education, an important objective for members of the AFI Pacific Islands Regional Initiative (PIRI) working to cultivate conditions that lead to the financial empowerment of Pacific Islanders, he says. Rather than sending occasional large payments, users are opting for more frequent, smaller remittances, which can be more closely aligned with household financial planning, budgeting and savings.
As AFI points out, one positive side effect is that AML risk is also reduced, with remittances typically being for much smaller amounts.
There is a shortage of genuine “good news” stories in the sphere of financial crime compliance. The response of MTOs to the challenge of bank de-risking in the Pacific region may represent one example of a potential “win-win”, in which improving access to financial services could work hand in hand with a reduction in illicit activity. More of the same is surely needed across the sector.
If you have any views on de-risking and the remittance sector – or more broadly about financial inclusion and integrity – I would be glad to hear them.
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