Remittances to and from Latin America is a strong market with established players. But, writes Robin Arnfield, opportunities are there for banks due to the growing numbers of Latin American residents that have US bank accounts coupled with moves being made by the Fed to widen the payments corridor.
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Although cash-based money transfer operators (MTOs) like Western Union control the
US-to-Latin America remittance corridor, there are still major opportunities emerging for banks and other payments players.
The World Bank estimates that $58.1bn was remitted to Latin America and the Caribbean (LAC) in 2010, down from $64.6bn in 2008. Mexico had the largest share, with $22.6bn of remittances in 2010, followed by Brazil and Guatemala, both with $4.3bn.
According to the Inter-American Dialogue, a US-based think-tank (Scorecard in the Market for Money Transfers: Trends in Competition in Latin America and the Caribbean), Western Union had 30% of the market for US remittances to LAC in 2010, followed by MoneyGram with 10% and two other MTOs, Ria and Vigo, both with eight%. Xoom, an online remittance service, had three%.
The Inter-American Dialogue says that nearly 90% of Hispanic migrants use MTOs to send money from the US while three percent use banks, two percent use the web, and the rest use informal methods such as sending cash via travellers to their home country.
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By GlobalDataMTOs provide remittances in the form of cash-pay-in and cash pay-out at agent locations, although some also allow consumers to use payment cards to make transfers, for example by phoning call centres.
A survey by the Inter-American Dialogue in 2010 found that Hispanic migrants are amenable to switching from the traditional agent-based remittance model to technology-based methods of sending money home.
"Migrants who already use the internet, cellphone applications, and debit or credit cards are especially interested in switching their sending practices," says the Inter-American Dialogue report Is there a match among migrants, remittances and technology?
"However, migrants access to technological devices is limited and tech-based transfer services currently offered in the US are not available to most migrants. Moreover, because tech-based transfer services require advanced skills in technology interfacing, they generally dont respond to migrant needs."
Opportunities for banks
In its survey, the Inter-American Dialogue noted a steady increase in the numbers of Hispanic migrants holding US bank accounts since 2005.
The percentage of Mexican migrants with a US bank account rose from 30% in 2005 to 50% in 2010, while Colombian migrants with US bank accounts rose from 60% to 95% in the same period.
"Banks have a big opportunity to offer cross-border remittances from the US and to carve out a chunk of business currently handled by the MTOs," says Marilyn Parker, senior vice-president at US consultancy Speer & Associates. "There are also major opportunities for Latin American banks on the receiver side."
Parker says that by offering electronic remittance services banks will not just create new revenue streams but are also likely to win new customers.
"People coming into branches to send or receive remittances may not be customers, and may even be unbanked," she says. "So banks can sell these people bank accounts and payment cards."
Elizabeth McQuerry, assistant vice-president for Federal Reserve Retail Payments Office at the Federal Reserve Bank of Atlanta, says the Fed is working to educate US banks and credit unions about the benefits of offering electronic remittances.
"The Federal Reserve is developing efficient ways for US banks and credit unions to offer remittances to Latin America via our account-to-receiver service," she says. "The pricing will be competitive compared to incumbent MTOs."
The account-to-receiver service, which was launched in 2010, enables a US financial institution to send remittances to an unbanked recipient in Latin America through the Federal Reserves ACH (automated clearing house) system in the US and its cross-border FedGlobal ACH network.
Transfers to Mexico are routed via the Banco de México (Mexican Central Bank) ACH system. For transfers to 11 other Latin American countries, including Panama, Brazil and Argentina, the Federal Reserve uses Washington DC-based Microfinance International Corps (MFIC) Arias remittance platform.
"Were integrating remittances into our ACH system so that FIs dont need to use a different system (such as developing links with correspondent banks) and instead can send funds through the Federal Reserve," McQuerry says.
"This is an interesting time as remittance flows have been down but are now stabilising, so banks are beginning to think about new services such as remittances.
"We are getting more calls from banks about offering remittances than we did before."
"The volume of cross-border ACH transfers were handling is still very low, but 20 banks in the US have indicated they would like to sign up for our service," says Yasuko Fumuro, vice-president for public relations at MFIC.
"The banks need to make some minor changes to their systems so they can use Arias. We will be doing joint marketing with the Federal Reserve to promote cross-border ACH remittances."
"The Federal Reserve is building a cross-border remittance culture among US banks," says McQuerry.
"But we recognise that investing in the necessary technology and marketing for remittances is risky as customers may not be interested. Also, not every bank and credit union is going to be interested in offering remittances."
McQuerry says it is not necessarily proven that Mexico will be the biggest corridor for FedGlobal ACH remittances.
"There are lots of options for sending money to Mexico so the US-Mexico remittance market is already competitive," she says.
"But there are Latin American countries such as Colombia where there are fewer options because only the big MTOs offer remittances there. Banks will likely target remittance destinations that are less congested then Mexico."
Visa and MasterCard
Card schemes Visa and MasterCard are very keen to leverage their international networks to generate revenues from remittances.
"In LAC we are building out the MasterCard MoneySend infrastructure, initially in Mexico and the Caribbean," says Brian DuCharme, MasterCards vice-president and business leader for MoneySend Americas. MoneySend enables MasterCard cardholders to send money over the MasterCard network via cellphone or PC to another MasterCard.
"Weve had a US-to-Mexico MoneySend pilot running since late 2010 involving three prepaid card issuers: US-based Bancorp Bank; Monex, a Mexican issuer of reloadable prepaid cards; and Unisap, a federation of Mexican credit unions," DuCharme says.
"The Mexican trials initial phase involved prepaid cards but the next phase will also involve transfers from US debit cards to Mexican debit cards. We dont have any MoneySend pilots in the Caribbean yet but were planning to target the Dominican Republic and Puerto Rico first."
In May 2010, Visa partnered with Bancomer Transfer Services (BTS), a subsidiary of Mexicos BBVA Bancomer, to launch a money transfer service from BTS branches in the US to destinations in Latin America and Asia.
Visa money transfers initiated at a BTS location are processed through VisaNet. Recipients who need to be Visa cardholders are not required to go to a physical location to receive the money and funds are transferred to eligible Visa debit/credit/prepaid cards.
The BTS offering is one of 50 Visa money transfer services in 18 different countries, says Brayan Peralta, head of remittance products at Visa LAC.
In May 2010, Visa announced a partnership with MoneyGram, under which senders can deposit cash at MoneyGrams US offices which is then remitted to a Visa credit/debit/prepaid card in the destination country over VisaNet.
Having piloted the cash-to-card service in Guatemala with Banco Industrial, Visa and MoneyGram entered the lucrative US-to-Mexico market in February 2011.
"The Visa-MoneyGram service is now live to Mexico and Guatemala," says Peralta.
Dan OMalley, MoneyGrams executive vice-president of Americas, says: "While many people will prefer to pick up their cash at an agents office, there are recipients who will prefer to have their money deposited direct to cards. The Visa deal enables us to reach a new customer segment."
Peralta says Visas business model is to work with all the major players in remittances, such as Western Union or Xoom, as well as smaller players such as Nexxo Financial and banks in Latin America.
Since 2002, Visa has offered the Visa Giro (transfer) prepaid card for unbanked consumers in Latin America.
"Visa Giro doesnt use VisaNet nor does Visa get involved with the loading onto the card, which is why were now focused on new services that get remittances flowing through our network," says Peralta.
"A consumer is sent cash from abroad and goes to a bank branch where the cash is loaded onto a Visa Giro card. For subsequent transfers, the loading happens automatically and the recipient does not need to visit the bank branch.
"A beneficiary card offers clear benefits to the recipient as it is more secure than picking up cash."
Visa Giro is available in 12 countries including Mexico, the Dominican Republic, Peru and El Salvador. Partner banks include HSBC Mexico, BBVA Bancomer, Banamex, Guatemalas Banco Industrial, Brazils Caixa Economica Federal, Perus Banco de Crédito and El Salvadors Banco Cuscatlán.
Xoom
San Francisco, California-based Xoom offers a website (xoom.com) where US residents can remit money abroad using payment cards or via ACH transfers from bank accounts. Recipients can pick up their cash at an agent or have the funds deposited direct to their bank account.
"Xoom partners with most of the leading banks in Latin America, for example Mexicos BBVA Bancomer and Banamex, Citigroup in Central America and Brazils Itaú Unibanco," says Julian King, Xooms vice-president of marketing and corporate development.
"Also, in addition to partnerships with big banks, we have another layer of smaller banks in individual Latin American countries with whom we have alliances."
King says Xoom is seeing demand from Latin American banks and also from customers in the region for direct deposits to bank accounts.
"Contrary to what you might think, there are a lot of Latin American consumers who want to receive remittances in their bank accounts," he says.
"There tends to be a high level of bancarisation among remittance recipients due to the fact that these people now have a reason to open a bank account."
Xoom also offers cash payouts in Latin America and the Caribbean.
"We have a network of 13,500 agents in Mexico where recipients can pick up cash, such as local pharmacies and Elektra and Soriana retail stores, and we have 941 agents in Colombia and 1,360 in Guatemala," King says.
"Xoom will offer any disbursement method that clients want transfers to cash, bank accounts, mobile phones, or payment cards but currently we dont see much demand for transfers direct to cards or cell phones in Latin America."
hyperWALLET Systems
Vancouver, Canada-based hyperWALLET Systems provides business-to-business remittances to Mexico and Brazil in addition to person-to-person remittances to Mexico over its web-based hyperWALLET Global Money Transfer Services platform. Jonathan Kutner, hyperWALLETs general counsel, says the platform offers direct-to-bank remittances and mobile phone airtime top-ups and loads.
Account-to-account transfers cost C$7 ($7.10) but hyperWALLET does not offer cash-pickup in Latin America, he says.
Underlying hyperWALLETs remittance service is a network of correspondent banks in 45 countries with which the firm holds local currency accounts.
"In any one country we only need to have one bank account and then we use the local ACH system in that country to move money to our customers accounts," Kutner says.
To help it process Mexican transactions, hyperWALLET has a wholly-owned local subsidiary, hyperWALLET Systems Mexico.
Kutner says hyperWALLET is considering expanding into other countries in Latin America and is also investigating the possibility of offering transfers to recipients mobile phone accounts in Latin America. These transfers could then be used to top up the recipients airtime or be paid into a mobile wallet, for cashing out at a retail location.
In September 2010, hyperWALLET said it planned to offer prepaid cards in Mexico in partnership with local programme managers, to which its international corporate clients could remit funds such as commissions and rebates. hyperWALLET also wants to offer prepaid cards in Mexico in partnership with government agencies.
Anabel Perez, CEO of Latin American prepaid card firm NovoPayment, says general-purpose reloadable (GPR) prepaid cards will play a big role on the recipient side of the LAC remittance business.
"There is a strong opportunity for remittances to prepaid cards in Latin America once Visa or MasterCard-branded GPR programmes take hold in the region," she says. "An established GPR programme with broad acceptance and physical points of reload is an excellent proposition for MTOs for remittance delivery."
Nexxo Financial
San Bruno, California-based Nexxo Financial provides self-service kiosks at which consumers can remit money to Latin America. Located in supermarkets, petrol stations and convenience stores, Nexxo Cajeros (kiosks) are small, ATM-style machines that allow senders to use a touch-screen to conduct money transfer transactions by following the prompts and placing the cash they want to send into the kiosk.
In addition to its own-branded kiosks, Nexxo also has partnerships with several US financial kiosk operators who offer its money transfer service. Tio Networks, for example, has added Nexxo-based money transfers to the self-serve bill payments kiosks that it operates in the US.
According to the Aite Group report Money Transfers: The Tipping Point, Nexxo has built a network of 27,000 receive locations in Latin America and has installed 150 Cajero Nexxo kiosks in the US. Nexxo also provides money transfer services at 500 third-party kiosks. Its partners include BBVA Bancomer, HSBC, Banorte, and retailers Famsa and Soriana.
Neovia Financial
UK-based Neovia Financial, which acquired Canadas Optimal Payments in January 2011, offers Neteller-branded e-wallet payment accounts combined with MasterCard payment cards.
A Neovia spokesperson says that in Latin America consumers use the Neteller system for consumer-to-consumer transfers as well as for e-payments to online merchants. The Neteller Net+-branded MasterCards can be used for point-of-sale purchases and for ATM withdrawals.
Latin America consumers can deposit to their Neteller accounts via Visa or MasterCard; bank wires; and local deposit services such as Argentinas Cobro Express and BAPRO Pagos, Mexicos Oxxo, BBVA Bancomer and Banamex, and DineroMail, a cross-border service.
"All Netellers 17 supported currencies are available to Latin American consumers, the most frequently chosen in the region being USD and MXN," the spokesperson says.
"The biggest transaction volume country in Latin America for Neteller is Brazil but Argentina is showing the largest growth in the region."
