Money Transfers: How MoneyGram and Co. Work

Money Transfers: How MoneyGram and Co. Work

Manuela Szynszy stands in front of a branch of the MoneyGram money transfer service in Kassel and shakes her head. “I transferred 200 euros and had to pay 20 euros commission,” she says angrily: “That’s ten percent. But other providers wouldn’t have been cheaper either.” Szynszy has family in Türkiye who regularly supports her. She transfers around 500 euros every month.

Zaman Mohammad listens again and again to the problem that Szynszy describes. He runs a small food market in Kassel. To earn extra money, he offers money transfers through the MoneyGram service. For him, this basically works like the parcel stores spread throughout Germany: an additional business to the company itself. His computer is located among bags of rice, bags of chips and cans of beer and is used to transfer about 20,000 euros abroad in good months.

“Most people send money to support their families because they can’t find work in their home country or because they get sick and don’t have health insurance,” says Mohammad. He is not allowed to say how much MoneyGram pays him per transaction: “Many customers complain about the fees and also that they do not receive enough money in their home country.”

Hidden charges: Exchange rate differences

What Mohammad means are the so-called exchange rate differences. A problem that Dagmar Sikusa knows well. She has been financially supporting people in India for many years. The problem: she pays in euros and the recipient receives rupees on the spot, but at a significantly worse exchange rate than the official one. “I just searched online and they offered me an exchange rate of 1:100. That’s 100 rupees to one euro. Then I transferred 200 euros to India and my friends there only got 81 rupees to one euro.”

But the 75-year-old has no other way to get the money quickly to India. The town where his friends live does not have a bank branch. And that’s kind of the raison d’être for money transfer companies around the world. “Of course it’s not a scam, they’re not hiding anything, but if I calculate the loss in value of my transfer at the end of the transaction, then that’s pretty powerful.”

Experts warn against money laundering

Lars Wellejus sees it that way too. He is a professor of business administration at the Frankfurt University of Applied Sciences. “With the differences in exchange rates, you can certainly fall into the trap and then quickly lose 10 to 20 percent of your money if you’re not careful.”

The leader of the world money transfer market is the American company Western Union. According to its own data, it sends money on behalf of its clients 16,000 times a day to one of 500,000 branches around the world. MoneyGram, the second largest money transfer service provider in the global market, also comes from the United States. The company has more than tripled its revenue since 2015, from $1.2 billion to $3.7 billion in 2023.

Wellejus also considers the transfer system to be a major security problem: “There are reliable methods for transferring money, but also countless dubious providers, in which money laundering undoubtedly plays an important role.” What is also dangerous is that sending money through these services is almost anonymous: “Unlike a bank account, here we do not have a transaction history that we can use to analyze whether something is suspicious or not. That is why we have Weakest fraud prevention, even in… Germany.”

Why is the system used?

To support families in the country of birth, according to the Bundesbank, more than seven billion euros were transferred abroad from Germany in 2022 alone, one billion more than the previous year. But why do so many people use money transfer providers when the fees are so high?

Manuela Szynszy has a simple explanation: “It’s much faster: you send the money and the recipient can withdraw it in a few minutes.” In a bank it takes three or four days. For people who don’t have a bank account and live in remote corners – like many families in Syria, for example – it is the best way to get money.

And when it comes to high transaction costs, improvements are even in sight, explains expert Wellejus: “The United Nations has set the goal of reducing the costs of money transfers to three percent by 2030.” To achieve this goal, among other things, cost-effective money transfer systems must be promoted. However, it is still unclear what the concrete implementation in Germany will look like.

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