A Note on Money Transfer Services to India

Executive Summary

The money sent by immigrant workers to their families living in their native countries is termed as a remittance. Remittances are important and stable sources of funds that help developing countries maintain a favorable balance of payments position. India, China, Mexico, and Philippines are among the top receivers of remittance flows in the world. The United States of America, Saudi Arabia, Germany, and Switzerland are the major sources of remittances. Remittances are carried out through both formal channels and informal money transfer systems.

This report discusses the various channels of cross-border money transfer and gives brief profiles of the major institutions that provide money transfer services to India. It also outlines the issues related to informal money transfer systems.

Formal channels include banks and money transfer companies like Western Union (a subsidiary of First Data Corp.) and MoneyGram. The advent of the Internet and vast advances in communications technology has spawned the growth of 'new age remittance services'like money transfer websites and use of remittance cards. Even banks have embraced technology to set up online money transfer services. These transfers are fast, easy, and economical.

Convenience and online tracking status are other major benefits. However, these systems have a higher cost attached to them. This may put these services out of the reach of low income groups who form a major portion of the immigrant population. E-mail frauds and fake websites are also a cause for concern.

Informal money transfer systems have been popular among emigrants and expatriates as they cost less and are perceived to be efficient and reliable. Due to the absence of proper records, informal channels have become the preferred route for money laundering and funding of terrorist activities. It would be desirable for regulatory authorities to encourage remittance flows through formal systems by reducing transfer/transaction costs and facilitating better accessibility. Given the rapid rise in remittance flows, regulatory authorities need to ensure a balance between facilitation and regulation of remittance flows.

Keywords

Money Transfer Services, Remittances, Immigrants, Western Union , MoneyGram, State Bank of India, ICICI Bank, First Data Corporation, Phishing, Informal Money Transfer Systems, hawala, Financial Action Task Force, PayPal, TimesofMoney.com, Travelers Express, iKobo

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