Jeffrey Miron
Exchanging money with friends or family should be simple and costless. While this currently occurs for many domestic transfers (think Venmo or Zelle), international remittances from hundreds of millions of migrants, totaling $905 billion in 2024, tell a different story. As of Q1 2025, the global average cost of remittances sits at 6.49 percent. And these costs are so high in some areas that senders use stablecoins instead. Although advancements in banking technology and infrastructure have lowered costs, several factors continue to make remittances expensive and slow. The most notable is the regulatory requirement for remittance transactions.
In the US, money service businesses are subject to the 1970 Bank Secrecy Act (BSA) and its numerous subsequent modifications, especially the post‑9/11 Patriot Act and the 2020 Anti-Money Laundering (AML) Act. Although international money transfer regulations vary across countries, all such policies are extensive, expensive, and complicated.
Remittance regulations force money service providers to act as law enforcement, collecting detailed personal data, performing extensive customer screenings to bar sanctioned individuals, obtaining licenses in both sending and receiving countries, and hiring additional compliance personnel. US financial institutions spent $46 billion in 2022 on compliance. Unfortunately, a 2022 IMF working paper finds that
the price of sending remittances [tends] to be higher in countries that impose controls on remittance transactions, since these operate like a tax that is likely to be passed onto recipients.
Not only does this regulatory regime impose costs on consumers, but it also decreases competition. Due to regulatory requirements, entry into the remittance market is difficult, so the number of operators is small. This often results in a nearly oligopolistic market, including major banks with pricing and markup power.
The authors of the IMF working paper concluded that
the market structure is important: banks charge higher fees than money transfer operators (MTOs), [and] a larger share of banks among remittance service providers is also associated with higher fees charged by MTO[s].
To put these costs into perspective, MTOs consistently charge a significantly lower fee (5.04% as of Q1 2025), when compared to banks (14.55% as of Q1 2025).
Indeed, competition in the remittance market directly contributes to price reductions, according to this IMF article:
[a]n example where competition has spurred reductions in fees is in the U.S.–Mexico corridor, where remittance fees have fallen by more than 50 percent from over $26 (to send $300) in 1999 to about $12 in 2005.
Finally, after 44 years of the BSA,
[a]s late as 2014, academic research affirmed that possible benefits from the existing AML framework (internationally) had not yet been demonstrated.
Indeed, the BSA/AML regime seems to result in excessive overreporting: only 4 percent of suspicious Activity Reports (SARs, which are the mandatory reports financial institutions submit to the US Financial Crimes Enforcement Network) received any type of feedback from law enforcement. Finally, alternative money transfer channels such as crypto, where transactions are anonymous, practically untraceable, and most importantly, cheap, are increasingly available, allowing illicit transactions to bypass remittance regulatory frameworks.
In summary, regulatory overhead on international money transfer provides little to no security benefits while imposing significant costs for both money service providers and remitters. The right response is deregulation of the remittance industry to allow decreased operational costs and increased competition.
This article appeared on Substack on August 20, 2025. Eric Jin, a student at Southridge School, co-wrote this post.