How Millions Go To Waste In Remittance Fees

  • 2 years   ago

Qatar was once a sparsely inhabited land of pearlers and camel herders. To develop our prosperous oil & gas fields, experienced engineers, geologists, and drillers needed to be brought in from abroad.

To this day, our country continues to serve as an enclave for expats: of the 2.6 million people who call this country home, only 300,000 are native-born Qataris – the rest are non-citizens. Working in industries such as oil & gas, construction, and finance, many foreign employees send a portion of their paycheque to family members back home. On average, about $12 billion USD per year is sent abroad from Qatar to various nations around the world.

However, the fees levied on these wire transfers are often steep. Each year, expats in Qatar collectively pay millions to financial institutions for the privilege of having a portion of their wealth remitted to family in their home country. Take Lari, for example. For the privilege of sending money home through remittance firm, workers pay an effective transaction fee of 9.32%, meaning they pay 68 Qatari Riyals (QAR) to send the equivalent of 730 QAR in the currency of their choice.

How bad are things exactly? Applying an effective transaction fee of 5% (an average between low and high cost remittance firms) against the annual figure of $12 billion USD, approximately $600 million USD is paid in remittance charges every year. Are there alternatives to sending money abroad through the banks? We’ll answer these questions in today’s article.

Who offers remittance services in Qatar?

There are many banks and money transfer companies who provide remittance services in Qatar. From Doha Bank to private remittance firms like Al Dar Exchange, expats have numerous firms to choose from. However, the foreign transaction fees they charge and their exchange rate margin varies from one institution to another.

Let’s use the Philippine Peso as an example. A Filipino worker in the service industry that uses iRemit (a well-known remittance company based in the Philippines) to send money home pays a transaction fee of 20 Qatari Riyal (QAR) before converting their cash at an exchange rate that deviates from the interbank rate by 3.1%.

However, they would save money using almost any other service. For instance, the Commercial Bank of Qatar charges a fee of 15 QAR and has a margin rate of 2.26%, and the Eastern Exchange Company (while charging a fee of 20 QAR) boasts a tight spread of only 0.32%.

While rates vary from currency to currency, this example clearly illustrates an opportunity for expats to save significant amounts of cash when sending remittances abroad.

What about moving money into Qatar?

While oil & gas has blessed Qatar with abundant wealth, it has also made it an expensive place to live. When an expat from America, Britain, or the European Union accepts a job offer here, they’ll often choose to repatriate a portion of their savings to help them get settled.

The rates for transferring cash into Qatar differ from those charged on funds flowing out of the country. Let’s compare several major currencies to prove our point – to buy a Qatari Riyal, an American expat would have to accept a rate of 3.61 QAR per USD from the Commercial Bank of Qatar.

This rate differs 0.03 from the interbank rate of 3.64 QAR – not bad. However, the disparity widens for other nationalities – the rate for GBP is 4.73, which is 0.06 off the interbank quote of 4.79, while the one EUR fetches 4.14 – a spread of 0.07 from the official rate of 4.21. All these figures don’t take transaction fees into account, which are similar to those charged on remittances.

If you are only converting the last 100 Euros in your wallet to QAR, these spreads won’t break you financially. However, if you are transferring large volumes of cash to start a business or purchase a condo in downtown Doha, using a bank or money transfer company with fat spreads can slice off a sizable chunk of cash from your hard-earned savings.

Let’s say you’re a British finance executive looking for a luxury condo with a view of the Persian Gulf. A nice unit on The Pearl island has caught your eye, and after touring it, you’re ready to buy it outright. In order to close the sale, you need to transfer the equivalent of 2.6 million QAR in Pounds Sterling. If your bank is Barclays, they’ll give you a rate of 4.38 QAR:1 GBP; at this rate, you’ll need to move £538,000 to close the sale. However, the interbank rate as of this writing is 4.75 QAR:1 GBP, a spread of almost 8%.

On the other hand, using a service like World First assesses an exchange rate within a rounding error of the interbank rate – this would save you tens of thousands of pounds, or the annual salary of a working person back in the UK.   



Online money transfer companies are disrupting the old guard            

Thankfully, there are companies that offer better rates than the ones charged by Qatari banks, remittance firms, and money transfer companies. Over the past several years, internet-based money transfer and remittance companies have begun to emerge, offering tighter spreads and low to no transaction fees.

When you compare money transfer rates between banks/money transfer companies in Qatar and internet companies like Currencies Direct, it is not hard to see why the latter enterprises have grown so fast.

How can they get away with charging far less than legacy companies? It’s simple – their overhead is significantly smaller compared to those hanging over real-world banks. With less to spend on infrastructure, there’s room in their books to charge much less for transfers.

It’s your money – keep more of it

Oil & gas has been a highly profitable industry in Qatar for generations. However, banking has been lucrative for far longer. Banks have used their monopoly over services like wire transfers to charge whatever rates they like.

You are no longer at their mercy. The internet has given rise to regulated, trustworthy firms that offer far cheaper rates than established financial institutions. With a demonstrated track record of satisfied customers, there is no reason to spend any more Riyals using legacy providers that charge more for the same service.   

Source: compare money transfer rates