Keith Rankin: People's Bank
Keith Rankin, 25 January 2001
In this era of globalisation, national boundaries are no barrier to the transmission of money and knowledge, right? Further, flows of people are, very slowly, starting to reflect the new reality of a single planet-wide economy. So why is it then so costly for ordinary people to remit money overseas?
More New Zealanders were born overseas, according to the 1996 census, than in preceding decades. Also, more New Zealand families have relatives overseas - many of them young adults of uncertain means on indefinite OE. There must be a huge number of people wanting to make small but frequent remittances to overseas family members who are fully or partly dependent on them.
Anyone who has studied the history of migration - both intranational and international - will appreciate the family dynamics involved. "Economic migration" exists not only to benefit the individual migrant. Rather it's frequently a means by which one family member goes out to support the family, often an extended family. It's kind of like commuting, but with a one-way ticket. The pattern of third world families being supported by a single family member cleaning toilets in some first world city is likely to become more prominent this century.
Many of the people in New Zealand who are supporting overseas relatives are themselves on very low incomes. Those who cannot find work here are on benefits or are retraining, as students. They can only remit small amounts at a time. Also they may prefer to send small regular amounts rather than send one or two large amounts per year. Just as NZ students were tempted to misspend their student loans when they received $2,500 in one hit, so temptation can affect dependent families overseas.
I asked New Zealand Post and the ASB Bank how much it would cost to remit overseas $50 each week.
NZ Post have reinstated the registered mail service that was discontinued 2 years ago. The reinstated service costs $10 to use. But they don't recommend it as safe for sending money, documents, bank drafts etc. Instead they promote a courier-type document service that costs about $30. If you post an ASB bank draft for $50 using the recommended NZ Post service, you must pay $100 in total! If you just buy overseas cash instead of a bank draft, you are up for a total of $35-$40 in charges.
NZ Post acts as agent for Western Union, an American remittance firm with agents in most countries. Western Union charge $26 to send $50. I expect that there are many takers, despite the huge costs that these charges impose on people who can least afford them.
The ASB Bank charges $25 for a bank-to-bank remittance. In many recipient countries, further charges are deducted. A bank draft costs $20.
Why is it so much harder (or at least so much more expensive) to send money to Bangkok or Birmingham than to Blenheim? After all, we live in a global village, don't we? We are now in the era of the world wide web, an era of instant communication, a world where successful revolutions are conducted by cellphone text messaging (eg Philippines last Saturday).
I pressed the ASB Bank further. Yes, you can get a cash card for other family members - including foreign residents - to use with your bank account. About half of the world's cash machines will accept ordinary cash cards, at least some of the time. (This may of course be well below 50% in many third world countries.) The ASB charges $5 per foreign withdrawal.
What about a VISA card I asked? Yes, you can get up to 9 supplementary VISA cards per VISA account. The ASB only charges $3 per overseas VISA withdrawal. And - here's the good bit - it's free if the VISA account is in credit.
So it is possible to remit small amounts of money overseas without paying a toll to the banks. It's just that the banks will not tell you that unless you push them.
Now, if the new People's Bank wants to establish a decent share of the banking market, I suggest that it offers family VISA debit cards in conjunction with cheque accounts. (Westpac have debit VISA cards linked to cheque accounts - they are called "Encore VISA" cards.) And the People's Bank should promote this remittance service, especially to the many new New Zealanders who are being exploited by the present cosy banking system's scale of charges. By using VISA debit cards as a means of remittance, the overseas family member is not reliant on cash machines; they can make cash withdrawals via human bank tellers.
This is a classic case whereby vulnerable people with minimal voice are being exploited by a rent-seeking international banking system. The problem, in New Zealand, can be solved by a publicly-owned non-profit-maximising competitor entering the market, providing for the poor the same service that the commercial banks already make available to the rich. It is in these situations that contestability theory is most applicable.
The People's Bank does not have to maximise profits in order to make a profit. To be successful as a people's bank it must have social goals as well. Beneficial social outcomes should be regarded as part of a broadly-defined profit. It's raison d'être would be similar to those of companies like State Insurance, Government Life and the National Provident Fund when they began. At the beginning of last century, those public companies successfully regulated the insurance and superannuation industries by competing with the established players.
I hope that the People's Bank does make a special effort to serve the particular needs of new New Zealanders. Making modern remittance services available to them will not however win all new New Zealanders away from the banks they presently use. Faced by real competition, the other banks will suddenly make the same service available.
On the matter of overseas remittances, the five banks today act like a cartel. The People's Bank should be the means to break that cosy lucrative arrangement.
© 2001 Keith Rankin http://pl.net/~keithr/