Blocking remittances harms financial inclusion

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About 2 billion people around the world lack access to formal financial services, making it difficult for them to build a nest egg, obtain loans, start businesses, and climb out of poverty. The United States and many other governments have long recognized that improving financial inclusion is a critical aspect of addressing poverty, and recent years have seen significant global progress in the number of people engaging with the formal financial ecosystem.

While progress in improving financial inclusion has been remarkable, it is also fragile. In particular, remittance services, which are a key part of the financial ecosystem, are under increasing threat. Currently, the annual total of remittance payments sent from the United States exceeds $50 billion. There are millions of families in the developing world whose ability to keep food on the table and a roof over their heads depends on remittances sent by immigrants in the United States and elsewhere.

Yet several developments are imperiling those payments. First, in recent years the United States and other governments have been levying large fines on banks for alleged violations of international sanctions and anti-money laundering rules. Banks are responding with widespread closures of accounts held by remittance companies and other financial service providers that they perceive as exposing them to too much risk. The result of this so-called “de-risking” process is that many responsible, law-abiding users of remittance services become collateral damage.

Reducing access to formal financial services such as remittances is deeply problematic from a development and social stability standpoint, particularly for marginalized communities. Our analysis of nearly two-dozen economically, politically, and geographically diverse countries shows that increasing—as opposed to impeding—access to and usage of formal financial services is a key factor in helping people at the bottom of the economic pyramid become more prosperous and self-reliant.

Moreover, curtailing access to formal financial services inhibits consumer protection safeguards and threatens financial integrity. When people are blocked from access to formal financial services, they often turn to less traceable channels, exposing them to exploitative fees and leaving them without adequate consumer protection when transactions go awry. Shifting financial flows to informal mechanisms weakens the overall integrity of the financial system by reducing financial transparency and oversight.

A recent development in the American political sphere demonstrates yet another way in which remittance services—and the people who depend on them—risk being collateral damage for forces well beyond their control. In an effort to compel the Mexican government to finance the wall he wants to build along the U.S. border with Mexico, Donald Trump is threatening that, if elected president, he would cut off remittances that many Mexicans in the United States send to family members in their home country.

According to a memo Trump sent to the Washington Post, Trump wants to propose changing the federal regulation governing how banks address customer identification to require that “no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States.” Trump’s aim is to threaten to significantly impede the flow of remittances via money transfer companies or wire transfer firms unless Mexico agrees to pay for the wall.

Given that more than 95 percent of the reported $24.8 billion sent by Mexicans living abroad back to individuals in Mexico in 2015 came from Mexicans living in the United States, the negative economic and social consequences of curtailing remittances would be enormous—even if “only” those remittances sent by undocumented workers would be disrupted. And, Mexico wouldn’t be the only country impacted. Blocking remittances also would undermine economic development across much of Latin America and in many other places around the world that receive money sent by immigrants in the United States.

Most people don’t view global anti-money laundering standards and the American presidential race as particularly closely intertwined. But with respect to remittances, those topics have recently converged. The debate surrounding immigration reform in the United States is important. So is ensuring the integrity of the global financial system. But the solutions to the challenges those issues raise shouldn’t involve choking off financial flows to the people in the world who can least afford it.

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Daniel Csoka is a visionary payments strategist and has successfully created and brought to market award-winning emerging payments systems and mobile technologies that have been utilized by over 200M people worldwide. Over the past 20 years focused on emerging payments and alternative financial services, he has assembled patent-pending international ecosystems of mobile network operators, financial institutions, card associations, electronics transactions processors, money transfer operators, retailers and POS networks and successfully sold and brought to market innovative Mobile, Prepaid, Payments, E-Commerce, Virtual Payments, Loyalty and Mobile Money Transfer services globally. He has provided a broad range of marketing, strategic and industry oriented consulting services to mobile operators, card associations, financial institutions, mobile financial services providers, equipment vendors, content providers and electronic transactions processors worldwide in the payments industry. He is proficient at identifying new opportunities and is well-practiced at navigating through complex regulatory environments to bring those visions to market. He is adept at pairing industry trends and best practices with internal business knowledge helping companies shape, formulate and successfully execute their strategy. He effectively blends entrepreneurial instincts with a keen understanding of customers’ needs to consistently deliver best of breed payments solutions. He is a recognized industry expert and frequent industry speaker and has chaired, moderated or spoken at numerous payments conferences and forums worldwide. He has been quoted on various issues related to payments and FinTech in many payments industry related business publications including, among others, PYMNTS.com, Fierce Wireless, RCR Wireless, Wireless Week, Wireless Review, Chicago Tribune, The Prepaid Press, Billing & OSS World, Center for Financial Services Innovation (CFSI), Payments News and Business Week.

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