04 Jan $85b in 2018: Contribution by Expatriate Households in AU/NZ/Pacific.
The South Pacific’s connection to New Zealand and Australia is an indelible component of the region’s Pacifika culture, and vice versa. Auckland is widely regarded as the largest Polynesian city in the world; and Australia has an equal number of Pacific Peoples, about 170,000 each.
With cultural and social ties, come economic links, too. Big ones: At the average GDP per capita levels, Pacific Islanders in Australia statistically generate more than NZD 14 billion in household income per annum. In New Zealand, Pacific Islanders, on the same basis, generate around NZD 11 billion per year.
If these households were consistently earning at least the National GDP per capita, then market analysis would suggest that about 7% (USD 1,750m per annum) of this income would be sent back to the Pacific in support of friends and family. The reality is, that less than USD 500m is being sent home through recorded channels – indicating that either the formal channels are too expensive, risky, or time consuming, or that Pacific Households are earning significantly less than the national levels of income (AUD 82,551 per capita, and NZD 64,141 per capita, respectively).
Why is the Pacific so expensive to send money to? Two reasons are given: Low economies of scale, and high risks of money laundering, according to the New Zealand Government; and therefore high costs of compliance. But neither are true.
Banks and New Zealand regulators have long hailed “non bank” channels as “informal” and therefore “high risk” and susceptible to Money Laundering and other proceeds of crime. This is not supported by the Australian Government, which regards the Pacific as “low risk”, as Australia’s Financial Transaction Reporting Body, AUSTRAC, reported in 2017.
Misnomers, and extremely high banking costs, constantly drives the Pacific People away from formal banking services. More than 80% of people in the Pacific are unbanked, and do not trust banks to safely store or preserve their savings (due to fees that can be up to $200 per month for similar services in Australia and New Zealand, that would be free), and so the populations choose to not have bank accounts and remain “un-banked”. And the cycle re-inforces itself.
However, things are beginning to change. For almost 10 years, the Pacific has had near real time, low cost payment services, that most banks have since disallowed their customers to use (BNZ, Westpac, ANZ, Commonwealth Bank, ASB, and BSP).
As a result, the Pacific has some of the world’s most highly utlised cross border mobile money services per capita, specialising in bill payments, online shopping, and direct private aid; which banks in NZ and Australia have campaigned to block, and replace with their own services. These kinds of bank actions were allowed by regulators for the first part of this century on the basis that “profitable banks are safe banks”, but public sentiments are becoming more skeptical towards regulators who have complicitly promoted bank stability, against the interests of their customers. These similar practices in developed markets are beginning to cause wide-spread outrage, and distrust of banks by the public, in Europe, America, and Australia.
For many years, the only real alternative to Bank channels, was physically carrying cash in suitcases to family back home (in the Pacific). The well known Western Union services, and banks’ “wire” payments, or “telegraphic transfers” routinely lose 20% or more of the value of payments made via them. As of 2018, banks now charge more like 15% for a typical payment. But historically, formal options have never been a rational choice in the Pacific – or for Household use due to costs, and uncertainty of payment time-frames. A small payment, such as a $30 phone account, $50 power bills, $100 in weekly rent, or $250 in school uniforms and food, can easily by subjected to more than $35 in fees. Anecdotes exist where more than $10,000 (40%) has been deducted from Red Cross payments, due to foreign exchange charges, and unknown fees, during disasters.
Losing 20% every send, is equivalent to one in five payments, just vanishing, without trace, never ever to be seen again – or about the same as a return airfare.
These high charges, and lack of access, has de-formalized the market, and given rise to concerns that the pacific is “cash based” and “risky”.
It wasn’t until this decade, nearly right up to 2018, that any bank or bank group in the World, genuinely offered an in-house service for real time digital/electronic cross border payments, that didn’t cost more than physically shipping the cash via Fed-Ex; and still no bank really offers real time payments to low income customers – Even card platforms, which have their own versions of exclusion and exclusivity, and are still fraught with difficulty and non-negligible exposure to fraud.
The Pacific isn’t alone.
In Australia and New Zealand, the numbers are similarly large: Australians living in New Zealand, earning the New Zealand average income (GDP per capita) were generating approximately NZD 5 billion in income – and would be expected to repatriate between 2% and 5% of their pay-cheques for family and other obligations, on average. New Zealanders living in Australia generate much more. Although both countries employ about 1.5% of their population as the other country’s citizens, there are 8 times more New Zealanders in Australia, than Australians in New Zealand. About 75,000 Australians call New Zealand home – and over 650,000 New Zealanders live in Australia, giving New Zealanders an average collective expected earning potential of nearly AUD 54 billion; or around 2.8% of its GDP.
Given these regional migration patterns, and the propensity of Pacific Islanders, New Zealanders, and Australians, to retain close social and economic ties with their home countries long after, and during permanent or temporary migration – we expect of a total expatriate income of around $85 billion dollars to generate approximately 2-7% in cross border rental agreements, phone and internet charges, food and family support – or NZD 1.6$ to almost $6b, each year. Statistically speaking, those with Pacific Islander connections could be contributing between 20%, and up to nearly 30% of this flow to their home countries.
In the Pacific, the costs to use bank accounts to make these payments, still often exceeds 15%. Mobile money has significantly reduced this pricing – with banks now offering much cheaper options to match new, more efficient technology, while at the same time becoming more comfortable with lower value payments, as well as picking up market share as banks also close out competitors from the business.
While a lot more accuracy can be revealed than these high level statistics provide, with a more granular investigation – it should not surprise anyone that almost $20m per day should flow back and forth, up and down between households in this part of the world each and every day of the year. This is a very very small part of the total trade in foreign currency between New Zealand and Australia, which is approximately 176,000 payments per day (including commercial or bank position settlements) – which total, according to the Reserve Bank of New Zealand, in all currencies, $106 billion each day in all markets and currencies and derivatives involving the NZD (which is over $500,000 per contract/wholesale payment on average!), or $10b per day, for New Zealand’s local NZD trading and requirements.
Household Payments, such as the ones we study here, tend to be in the $200 – $2,000 value range – so they are hardly a footnote, in overall economic trade, and almost always, nothing to do with Money Laundering or Financial Crime risk, as Australia’s Transaction Financial Intelligence Unit, AUSTRAC reported in 2017.
They equate to less than 0.02% of all cross border payments.
But to our customers, they are the most important. And so they are important to us, $85 billion dollars at a time.