Remittance firms sue Westpac as banks shun money transfer firms

An Australian court case is set to throw a spotlight on a steady retreat by Western banks out of the US$435 billion global remittance business, a trend that threatens to erode the livelihoods of hundreds of millions of the world's poor.

Almost 20 remittance firms sued Australia's second biggest lender, Westpac Banking Corp, this month to prevent the lender from becoming the last of the country's major banks to quit the business, arguing that this would cripple them.

They want more time to find an alternative bank before Westpac shuts their accounts. At a hearing on Friday, a court provided a temporary reprieve by asking Westpac to postpone closing the accounts until December 22, when a full hearing of the matter is scheduled.

Westpac, however, argued in court that the matter is beyond their control as it cannot guarantee making payments on behalf of remitters as a correspondent bank overseas may refuse to accept the transaction.

Australia's banking lobby says rising regulatory compliance costs make it difficult for banks to support remittance firms, which help foreign workers from developing countries send money home.

That trend risks undermining a plan by the Group of 20 leading economies to cut the cost of remittances to around 5 per cent of the value of each transaction, down from the current 8 per cent estimated by the World Bank. The remittance firms argue that without access to the global banking system, the costs of transferring money become substantially higher.