Cayman's remit: End of money transfers impacts thousands

The sudden closure of money-transfer services in the Cayman Islands threatens to render thousands of people here, and thousands more of their family members across the world, in immediate and intractable financial straits.

Last Thursday, the board of directors of Bahamas-based Fidelity Bank decided to stop all Western Union money transfers in Cayman. On Friday, customers wishing to send remittances at any of the eight Western Union branches in Cayman encountered empty kiosks and “closed” signs.

Now, our reporters have been hearing rumblings that other remittance companies in Cayman may soon have to follow suit.

Please note that the Compass does not find fault with the business decisions being made by Fidelity or anyone else. As we reported in the August 2014 edition of The Cayman Islands Journal, a series of money laundering scandals and increasingly onerous U.S. regulations have, over a period of years, escalated the risk and eroded already razor-thin profit margins of the remittance business in general.

At the time, a number of major U.S. banks had pulled out of remittances, or were looking to divest themselves of their money-transfer operations.

In addition to downward pressure from fines and regulations, the remittance industry is also facing outside threats from alternative services enabled by new technology, such as online- or cellphone–based payment systems.

The abrupt closure of money-transfer services in Cayman has stranded thousands of workers and their dependents with no clear alternative solutions. Many of those erstwhile loyal customers will, no doubt, suffer real personal financial consequences as a result of not knowing how to get money from Point A (Cayman) to Point B (Jamaica, the Philippines, Honduras, etc.) in a manner that is reliable, secure, swift and reasonably priced.

While the individual transfer amounts are, as a rule, relatively small — more than 90 percent of the 682,000 remittances sent from Cayman last year were for $500 or less — in the aggregate the amount is quite large: In 2014, nearly US$180 million in remittances was sent from Cayman, with US$110 million going to Jamaica, US$24 million to the Philippines, US$13 million to Honduras and US$12 million to the U.S., for example.

For those who would seize this opportunity to castigate Cayman’s work permit holders for sending money out of this country in the first place, we remind them that our territory’s status as an international financial center is predicated upon the mobility and fungibility of currency. In other words, “easy come, easy go.” Looking at the balance sheet, and weighing expatriates’ internal contributions to Cayman (even in the barest measures of work permit fees, duties paid and living expenses) against the amount of outbound remittances, it is readily apparent that these workers have a net positive, even vital, place in our country.

It remains to be seen how quickly and effectively new players or alternative methods will fill the vacuum created by the departure of cash-only remittances, whose chief advantage is they require neither sender nor receiver to have a bank account. However, if the new transfer services are less convenient or more expensive, they will constitute in effect a further increase in Cayman’s sky-high “cost of living and doing business,” and make our country a less attractive destination for the expatriates upon whom so much in Cayman depends.

Ultimately, in economic terms, the market will decide. However, in human terms, our empathy extends to those who may suffer as a result of these developments.

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  1. Sadly, this was always the inevitable consequence of Global Anti-Money Laundering Laws and Regulations progressively introduced in recent years by the IMF, OECD, FATF, and locally the CFATF. It should not have been difficult to agree that there was no threat of serious money laundering for individual transfers of no more than $500. Money launderers deal in hundreds of thousands if not millions of dollars. But, like all bureaucratic issues, it was easier to just shut the door, so that nobody was left to make a discretionary decision regarding any individual transaction. As you say, the impact on ordinary, decent, people helping their families, wherever in the World, will be enormous. The impact on foreign workers could even result in some of them leaving because they can no longer achieve their goal of supporting their families at home. If there are any imaginative bankers left on the island, this could be an opportunity to jump in to a niche market.

  2. @David Wheaton :

    I fully support your comment but I can’t help but think that there are factors/decisions outside of the control of the local financial sector that have significantly influenced the decisions that are being made locally.

  3. This is a well-written and balanced article.

    Now, the government needs to look at ways…in collaboration with the private sector (financial)…of plugging this gap left by the closure of Western Union. The popularity of Western Union grew due to the fact that it was non-dependent on having a bank account. Many persons in rural areas in other countries, do not hold a bank account so Western Union was the best alternative to receive money from relatives.

    Of even greater interest, is the government’s views on this recent development. Is this the sign of financial institutions retreating from doing business in the Caribbean region? From where I am sitting now (North America), Western Union stores are opening by the dozen everyday…so I don’t get them pulling out of these particular countries in the Caribbean. Unless, the market ROI is no longer favourable…

  4. @ Roger, you must not read this paper and its comments section much. People regularly accuse expats of taking money out of Caymanians’ pockets when they send money home to support their own loved ones. It’s a common complaint. It has also been suggested that their mere presence here is a drain on Cayman’s economy while adding nothing. For example read the comments regarding the 180 Million in outbound remittances. People are saying that this is money taken directly out off Cayman’s economy and sent to support other countries economies at the expense of Cayman while there’s no benefit to Cayman for them being here.

    Follow the stories, read the comments and you’ll get a good understanding of what the people think as well as the enlightenment you requested from the Compass.

    The general perspective from what I see is that Caymanians, feel that expats are charity cases that only take opportunities and revenue away from Caymanians and are only drain on Cayman. Liabilities not assets.