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Breaking the Bank Illustration by Paul Kim.

Breaking the Bank

Immigrants have been charged exorbitant fees to send money home, but new technology offers an escape.

Colourful photographs of Gayla Wright’s three daughters punctuate the walls of her small apartment in Scarborough, Ontario. Alexis, twenty-one, wants to be a social worker, while her seventeen-year-old sister, Ayeesha, dreams of studying criminology. Eisha, the twelve-year-old, is too young to know what she wants to be yet. Their mother is raising them alone.

It wasn’t easy to reach this point. Wright, forty-one, immigrated to Canada from Jamaica in 1995, when she was only seventeen, with the help of her father and stepmother who were already here. She studied cosmetology but soon became pregnant and dropped out. On welfare for a while, the single mother began working at Walmart when her children were small. Now she works forty-hour weeks there and recently supplemented that salary with a temporary gig at a FreshCo grocery store on weekends. She secured a subsidized apartment and puts any extra money toward school-related expenses for the girls. “I have to push myself to do what I have to do for my kids,” she says. “I need better for my children.”

But that’s not all Wright is responsible for. On the fifteenth of every month, $200 comes out of her salary and makes its way back home to her grandfather, James. He has dementia and is always at risk of wandering; Wright’s cousin, who lives in Jamaica, keeps her up-to-date on James’s needs. The monthly offering pays for someone to take care of him, to make sure he is clothed, bathed and fed. 

Wright says, “You have to strive for excellence in Canada. You got to work for what you want.” But each time she sends money home, she pays Western Union at least $9.95 in transfer fees, almost 5 percent of the total. This amount adds up over time and she knows it could be put to better use, like buying groceries for her kids. Still, Wright hasn’t missed a monthly payment in the last five years. “If I don’t,” she says, “who’s going to take care of him?”

Canada’s stable economy is a great advantage for Wright’s family and others like it, who want to support relatives elsewhere in the world. But that economy also comes with a built-in problem: it doesn’t regulate the amount that must be paid in international transfer fees. 

In 2015, migrant workers in Canada sent an estimated $24 billion US back to their families or friends in developing countries. This type of cash outflow—international transfers of small amounts of money—is called remittances. They have unparalleled potential to quickly reach their recipients, outstripping foreign aid and investments. 

Canada, in 2017, was the sixth-largest outflow country, but Canadian money transfer agencies are bad offenders when it comes to fees. The average worldwide transaction fee is 7.4 percent of the amount sent, while the cap target set by the United Nations Sustainable Development Goals is less than 3 percent. The World Bank remittance cost tracker estimates that sending $200 from Canada generally costs between 6 and 11 percent of the total amount, with the lowest fees to India and the highest to China. The fees are especially high relative to the usually low incomes of migrants and the amounts of money they’re able to send, typically no more than a few hundred dollars at a time.

But something’s changing. Blockchain—in its first incarnation, as the well-known cryptocurrency called Bitcoin—is beginning to offer an alternative to traditional money transfers and could even render them obsolete. Using a system informally known as the Trust Protocol, a blockchain is a decentralized database, essentially a public, tamper-proof record of financial transactions. No single entity can validate an action; rather, each action is validated by all interested parties. 

The new technology, as blockchain experts Don and Alex Tapscott wrote in a 2016 book, is aiming to do nothing less than “transform the economic power grid and the old order of human affairs for the better.” The world of remittances, where every dollar matters, is one place where it may even deliver on this revolution.

Dilip Ratha was the first to analyze the real global cost of remittance fees. He’s the lead economist and manager of the World Bank’s Migration and Remittances Unit in Washington, DC. In a 2014 TED Talk, he explained that one of the biggest reasons migrants struggle to help loved ones abroad “is the exorbitant cost of sending money home.” More than that, he said, the industry is structured “to milk the poor.”

Ratha owes his own education to remittances. Born fifty-five years ago in the Indian town of Sindhekela, Odisha, he left home for university. His father sent him money to help with expenses, always with 5 percent transfer fees that no one questioned back then. Later, when Ratha began working in India and then the US, he regularly sent money to his father and helped put his younger siblings through parts of their schooling.

In 2002, at the World Bank, Ratha began collecting data for an unprecedented calculation of remittance flows. To his surprise, they equalled about $75 billion US globally—1.5 times the amount of all official aid at the time. And that number has continued to grow. Ratha’s team expects remittances to low- and middle-income countries to reach $549 billion US this year. 

Remittances provide financial assistance to those who desperately need it. Despite historical fears that high global migration rates have created so-called brain drain from developing countries, “migrants do a lot of good to their families and, collectively, to their country,” Ratha says. For example, remittances to Egypt add up to four times the revenue from the Suez Canal, the country’s economic driver, he says.

It’s easy to maximize profits when your customers have a personal, urgent need and a lack of options—they’re between a rock and a hard place. “It makes sense for them to charge as much as the market can take, as much as the people can pay,” Ratha says. “I have heard stories that an agent would look at the line of people and change the pricing.” The absence of innovative competition has led to oligopolistic market conditions and high fees, with Western Union, MoneyGram and the like charging as much as they can. 

Canada’s a perfect example. It has over seven million immigrants, roughly 21 percent of the population. Their top destinations to send remittances are China ($4.1 billion), India ($3.5 billion) and the Philippines ($2 billion). There’s every motivation to push for lower fees, and such pushes have happened—just without success. In 2012, for example, NDP leader Jagmeet Singh, then an Ontario MPP, sponsored a bill at Queen’s Park with the goal of limiting the service fees at 5 percent, but it expired twice. 

In the OneEleven business incubator, on the fourth floor of a building in Toronto’s bustling financial district, young employees zip through the hallways, from office to cubicle to office, on kick scooters. Apparently time is always of the essence to this “community of data-driven startups” in the large coworking space. It’s home to businesses like Keyhole, a social media analytics firm, or, which equips its customers with automated virtual assistants that schedule meetings and plan travel. 

One of the twenty-six tech companies that have set up shop here is called Paycase Financial Corp. It has been working on releasing a blockchain-powered remittance system called Paycase Remit. The startup’s head of marketing, a chipper twentysomething named Lucie Weinberg, leads me through the space, explaining that the floor map is labelled with Toronto street names to create easy meeting points. Her brother Joseph Weinberg, co-founder and CEO of Paycase and a Blockchain Association of Canada board member, meets us at the intersection of Yonge and Queen to explain how they believe Paycase Remit will soon change the remittance industry.

There are generally two formal ways of transferring money internationally: from bank account to bank account, or through private remittance channels such as Western Union or MoneyGram. In 2015, Canadian bank CIBC began offering its customers bank-to-bank transfers with no fees, using a tool called Ripple. Ripple, based on blockchain technology, allows people to make large transactions between banks with no wait time. The catch is that senders must be CIBC customers. In addition to people who bank elsewhere, that leaves out the “unbanked,” or people—usually low-income migrants—who have no access to traditional financial services due to a lack of proper documentation or other factors like the financial inability to maintain a minimum balance.

Paycase promises to charge as little as half the transfer fees of Canada’s private outlets to provide much better service—universal bank-to-bank transfers, cash pick-up, and door-to-door delivery. Essentially, what this means is that the “banked” will be able to send and receive money through their accounts, while the “unbanked” can send and receive cash another way: by connecting with a local certified Paycase Remit user for an in-person pick-up or a home delivery. Like other peer-to-peer services, user ratings would endorse or negate each “teller’s” reliability within the app.

“In five years, we’ll be able to provide these services for free, no transaction fees,” says Weinberg, who previously worked on several other mobile apps currently in use by Toronto-based Xtreme Labs and California’s Pivotal Software. “We have the technology to do this.” The genesis of the project lies partly in a backpacking trip Weinberg took to Peru in 2013. While visiting a small village in the Amazon, he was struck by how few modern services the community had, including ways to send and receive money—but almost everyone did, he noticed, have cellphones. 

Although the app is currently in a private, invitation-only testing stage, Weinberg says the public launch is in the works. He and his team, in guerrilla marketing style, have met in person with members of immigrant communities across Canada to explain the Paycase system and try to earn their trust. Rosemarie Ami Seaborn, an Ajax-based mortgage broker, is one of the people who has tested Paycase Remit, using the app to send money back to her aging mother in the Philippines. She became a fan in the process, she says, finding it “just very convenient” as well as cheap, and adding that she likes that “they’re also Canadian.” Paycase is focusing first on the Canada-Philippines remittance corridor but plans to add others incrementally.

The tenacity of remittance-senders may have made them a cash cow for money transfer services, but the same tenacity will ultimately help them. Marva Burnett immigrated to Canada in the early 1980s and now sends monthly money back to her family in Saint Vincent and the Grenadines, all while supporting her two children and niece as a single mother. 

Burnett, fifty-three, also works full-time at a daycare in Toronto and, in her spare time, is president of the Association of Community Organizations for Reform Now (ACORN) Canada. ACORN is a national activist group of moderate- and low-income families with more than 102,000 members. Since 2010, it has been campaigning for a 5 percent cap on remittance fees, including meeting with Western Union officials to ask them to lower fees. “They were very positive about it,” she says, but not much has changed. (Western Union didn’t respond to a request for comment.) 

The persistence to find some solution isn’t just about how transfer fees affect the lives of Canadian immigrants, but also the lives of the family members they support elsewhere, Burnett says. “Whether it’s to make repairs on a house or to buy groceries or to pay the water bill,” she says, “we know the struggle that’s going on back in our homelands.” When Burnett sends money home, it’s mostly to help family “pay the bills,” but sometimes the cash is more crucial. In November 2016, for example, a severe flood destroyed Burnett’s brother’s house in Saint Vincent and local organizations barely helped. “All my brother got was a bottle of bleach to clean his house,” she says. Globally speaking, reducing transaction fees from 5 to 3 percent could earn remittance recipients hundreds of millions of dollars a year.

Burnett listens carefully as I report that blockchain-based tech startups have begun to offer options similar to Paycase’s idea. Abra, a US-based company that uses the blockchain database, released a free money transfer app in June 2016. Money can be sent internationally through it via smartphone, with or without a bank account, with transfer fees of 1 to 2 percent. There are some limitations: Abra can be used through bank accounts only in the US and the Philippines, and, in global transactions, only with cryptocurrency through the particular Abra “wallet.” Also, Abra “tellers”—local users who manipulate physical cash—can only be found in the Philippines, for now. 

The industry is lucrative. Even PayPal, the mammoth California-headquartered online payment processing company, has recently entered the remittance market. While it does not use blockchain, Xoom, a PayPal subsidiary acquired in 2015, launched in Canada in late 2018 and charges only $4.99 to send $200 to Jamaica. Still, the “unbanked” are excluded. 

Burnett is cautiously thrilled at these developments. In fact, these startups don’t even need to replace standard money transfer agencies, she says—they just need to create sharper competition. “If you have somebody who is willing to shake up the flow, then everybody else will have to stand up and start taking notice,” she says. “What we need right now is somebody to give Western Union and MoneyGram and the banks a run for their money.”

Back in Gayla Wright’s living room, her daughter, Ayeesha, has joined us after school. She sits on the carpeted floor near her mother, who is settled on the couch, and listens as she eats her dinner—microwaved leftovers from a Jamaican dish Wright prepared. I ask Ayeesha if she’s aware of all the sacrifices her mother makes, and she nods.

At the end of our chat, I explain to Wright that the United Nations Sustainable Development Goals have suggested a 3 percent cap on remittance transfer fees. She is puzzled to hear that an international body of that size has already been asking for a cap: why hasn’t it happened? Looking weary as she crosses her arms, she adds that 3 percent would be “fair enough.” It’s easy to do the math: with the $120 Wright spends on Western Union transaction fees per year, her grandfather could visit a private doctor in Jamaica—three times.