Excellence in Research: The impact of online comparison websites on the remittance industry

Spelman College, Atlanta GA

Investigators

Abstract

This proposed research project will use experimental methods and surveys to investigate the effects of on-line comparison shopping on choice of companies and fees charged for migrants sending money to their home countries. Even though migrant remittances serve as an important source of financial flows to the developing world, hence a major source of economic growth and global development, the cost of remittances tend to be very high averaging about 8% of the amount transmitted. It is hypothesized that on-line comparison shopping will allow consumers to choose companies that provide lower cost with better services and as a result, prices for these services are likely to fall. While this is a possibility, there is limited empirical evidence of this issue mainly because of lack of data. The proposed research will combine economic theory, structural modelling, field experiments, and survey data to investigate these issues. The PIs will survey 400 migrants from different countries who use these on-line comparison shopping websites to determine what impacts on-line comparison shopping have on choice of company and the impact of these comparisons on the cost of sending money. The results of this research will have important impacts on the cost of sending migrant remittances, possibly increase the volume and the number of market participants, as well as significantly contribute to global development. The results will also establish the US as the global leader in migrants' transfer markets. This proposed research project will use a variety of methods to study the causal impacts of on-line comparison shopping for migrant remittance services on the choice of companies by migrants and the cost of such services. This study will be one of the first to attempt a rigorous assessment of the causal impact of comparison websites on both the demand and supply sides of the industry by combining (1) theory, (2) field experiments, (3) survey data, (4) structural modeling, and (5) policy evaluations. The PIs seek to extend research on the impacts of information and communication technologies on consumer behavior to an unexplored market---the remittance industry. By surveying a sample of 400 migrants at multiple points in time and exposing them to randomized information treatments, the PIs will identify the causal impact of "price comparison" on migrant choices. The PIs will then use a structural model to conduct counterfactual policy evaluations to assess the potential supply-side impacts as well as welfare effects of these on-line comparison shopping experiments. The findings of this research will inform the policy debate surrounding ways to reduce cost in the migrant remittance industry. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.