An Own Goal Regarding Financial Services Development


The title is as it is because, being in Europe, we thought it appropriate to adopt a phrase from this part of the world’s favorite sport.  And scoring against yourself, making it harder for yourself to win, is what has happened here in Bern at the UPU.  Last week, the UPU dramatically committed an “own goal” when the Postal Operations Council (POC) postponed the decision to establish a new Postal Payment Services Clearing User Group. The delay in this establishment was based on the phantom “problem” of governance by weighted voting versus one country-one vote.

The proposal, now postponed for at least six months, would have established a new user-funded group to expand and manage the UPU’s international money transfer system among the nations of the world.  International money transfers through paper were part of the international postal system for many years, and the digitalization of the service has made it faster, safer, and cheaper.  What it hasn’t done is make it cheaper to operate and expand, which is what the members need to do.

Sadly, even the Director General’s intervention could not bridge the gap and obtain agreement.  Veteran observers from previously formed groups with weighted voting quietly suggest that the problem was the failure of the proponents to “network” the proposal more.  The most powerful argument is probably that because of an enforced policy of “no growth in the budget”, the UPU is gasping for resources. One of the solutions that has evolved is the self-funded user group of member States whose contributions to the activity is weighted by their financial contribution to or use of the system.

Currently, the UPU has a network of international money transfers among 117 member countries. This is known as Postal Payment Services (PPS).  In fact, some 160 countries offer postal payment services of some nature.   As more and more consumer-facing e-commerce volumes travel in international traffic, and as more and more citizens leave their homelands for better opportunities, the money transfer market will continue to expand.

The data on this subject is breath-taking.  In 2013, the total amount of remittances (payments back to the sender’s home country, mainly to families) worldwide by any metered (and not-extra-legal) system was USD$ 548.9 Billion, with $414 billion going to the developing countries.  One half of Pakistan’s GDP consists of remittances from citizens living abroad! $2 billion pass into India alone from citizens abroad.

According to the International Association of Money Transfer Networks, in 2013 the largest senders of remittances back to home countries were the USA, Saudi Arabia and Russia. India, China and Philippines were the largest receiver markets in that year.  And these are the “official network” recorded transfers. “Out of system” remittance amounts are obviously not metered and subject to guesswork, but the Association cited above suggests they may amount to a figure approaching 40% of the public system’s $548 billion.

According to available data, the average remittance is US$200 and the level/number of remittances are counter-cyclical, rising when the economy of a country is falling and folks “at home” need more help.  And in many countries, there is only one vendor, which of course leads to monopoly “pricing”.  When Swiss Post joined the UPU PPS a few years ago, the prices charged by the legacy wire transfer company, a subsidiary of the US company Western Union (WU), dropped 50% to match the Swiss Post offer.  And both Swiss Post and Western Union are making a profit.

This is not to suggest that there should not be competition in this market.  After all, the UPU system isn’t universal.  Last year it accounted for only 4% of that USD$548.9 billion in money sent home from abroad. Moreover, although Western Union and other systems partner with the Posts or have shared facilities in some countries, WU and other competitors are in countries where posts do not provide payment services.

The first speaker against the proposal to form the new Postal Payment Services was a relatively small developing country and it was followed by other developing countries who are inclined to vote out of doctrine, not self-interest. (We generally do not identify speakers in UPU debates out of respect for the integrity of the system. This has not been imposed on us by anyone at the UPU.)

As mentioned above, the new system would give a country a vote equal in weight to its financial contribution to the work, and that contribution includes fees it pays for transfers.  It does not provide for total disenfranchisement.  In fact, weighted voting appears to work quite effectively as a fund-raising technique that automatically charges bigger users more money! And given that the UPU system only carries 4% of the global remittances between countries, promotional and development expenditures are desperately needed.

Finally, given the fact that the UPU’s budget has been frozen at around CHF34 million for some years, operating bodies like PPS need more funding to perform their missions.  Many other bodies, such as .post and EMS are on this regimen, as is the entire International Telecommunications Union, which in age is older than the UPU!

Come on team.  The opponent’s goal is the opposite way! It’s got a big sign on it that says “Money is to be found where you spend money.”

Charles Prescott

Executive Director

Global Address Data Association

November 6, 2014

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