Transfer cash, but at what cost or risk?

By Catherine Ndioo

In an era when geographical boundaries hardly matter in financial transactions, the use of money transfer services is becoming an everyday transaction.

For a commission, one can transfer funds overseas, send money upcountry, or pay for goods bought online.

"Money transfer is now a service that is part of many people’s lives, especially those who don’t have bank accounts," said Ms Nikki Spottiswood, MoneyGram International Regional Director.

Consequently, it is important to ensure that the money is safe till the transfer process is complete for users to gain confidence in the service.

A recent IMF report ranked Kenya as the second biggest recipient of foreign remittances in Sub-Saharan Africa after Nigeria due the growth of investment opportunities that have attracted the attention of the Diaspora.

World Bank statistics show that some Sh85 billion was wired into the country last year up from Sh67 billion the previous year.

Users should be sure about the reliability of the service provider when sending cash and be wary of offers that sound that sound too good.

Transaction Risks

Many fraudsters use transfer services for money laundering and other illegal activities like fraud, and one would not want to be caught in the web.

"To prevent unlawful transactions, money transfer providers usually seek clearance from the Central Bank when one is transferring huge amounts in a transaction," said Spottiswood.

When using the service, it is important to know the person who will receive money incase there is an error in the transaction.

Further, it is not advisable to use international money transfer services to pay for lotteries and online gambling because the money could end up in fraudsters pockets.

One should keep close tabs on transaction costs. These charges range from 0.5 per cent to 35 per cent of the amount being transferred.

For example, Western Union charges Sh1,150 to transfer less than Sh7,750 and Sh1,700 for amounts below Sh15,000. To send money to Uganda, Tanzania and Democratic Republic of Congo the charges are between Sh500 and Sh700.

PostaPay charges are determined by the amount and country the money is destined to. Sending Sh10,000 from Nairobi to the UK one pays a commission of Sh800, while Sh100,000 would attract a commission of Sh3,680.

Safaricom’s M-Pesa charges range between Sh30 and Sh400 for sending and receiving cash upto a maximum of Sh35,000.

MoneyGram charges a minimum of Sh480.

In all transactions, it is cheaper to transfer large amounts for both local and international transfers, due to a minimum fee charged for every transfer.

Commercial banks are major players in the electronic funds transfer (EFT) deals, servicing large users and to a smaller extent, low-income users.

EFT works is suitable for large transactions. The money is usually transferred directly into a bank account, making the money to be available to recipients at moments it has been wired.

Transaction Risks

To avoid penalties, always ensure that your account has sufficient funds instructing your bank to wire money and always keep an eye on commissions, which are usually a percentage of the money remitted.

It is also important to know the exchange rate used for international transfers. One should also know the minimum transaction amount and the different pay points so that the recipient can collect the money as quickly as possible.

To make it convenient for customers to send and receive cash, money transfer firms have penetrated remote places by signing in agents to their networks.

Western Union has local agents like Post Bank, Kenya Commercial Bank, Diamond Trust Bank among others, and has 300,000 agents worldwide.

Safaricom has signed up hundreds of agents for the M-Pesa service. The mobile firm has also partnered with financial institutions like Equity Bank, Post Bank and Housing Finance.

Moneygram services are accessible from Cooperative Bank, Stanbic, Prime Bank, I&M Bank and Imperial Bank branches.

PostaPay, available both for people sending money within Kenya as well as internationally, operates a network of 500 pay points.

Source: The Standard