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 Business News | September 2006 
Banks Dabble in International Money Transfers
 Getahn Ward - The Tennessean
| | Mercedes Suarez counts money before making a money transfer at Cash 2000, a Western Union agent next door to her dry-cleaning business on Nolensville Road. Though her bank provides a similar service, Suarez said, she likes the convenience and perceived fewer hassles of using Western Union. (Larry Mccormack/The Tennessean) |
Every other month, Mercedes Suarez sends $500 to $1,000 to her brother in Mexico by paying a fee of $15 to $30 to the Western Union agent next door to her Nolensville Road dry-cleaning business.
The Bank of America branch a mile away charges customers a flat fee of $8 to send the same amounts of money.
For Suarez, her decision comes down to avoiding perceived hassles such as more identification required by banks, and her brother having a wider choice of convenience stores, furniture stores, banks and other agent locations in San Luis Potosi, Mexico, to pick up the cash. "I already have a preferred gold card," she said, referring to a Western Union customer loyalty program.
Suarez's preference reflects the challenge U.S. banks face in capturing a larger share of the remittance business, which for Mexico involves people working in the United States sending $20 billion a year back home.
"Most of the times, banks don't understand that customer segment," said Gwenn Bezard, research director at Aite Group, a Boston-based research firm. "They don't necessarily dedicate as much resources to build a robust product and to market it."
Historically, many U.S. banks have offered international wire transfer for fees between $20 and $40, but processing can take up to a week depending on the destination, and the service isn't always reliable. A few years ago, banks began rolling out new offerings to compete with companies such as Western Union, the industry leader with a 40 percent operating profit margin.
Bezard said banks often consider money transfer services as a way to open new checking accounts, but remittance giants such as Western Union and MoneyGram are focused on providing the service as a core business.
Some large banks have gotten wind that there's something wrong with strategies that require recipients to use debit cards to access money sent by relatives or that individuals on both ends of transactions have bank accounts.
Bank of America now offers its accountholders an authorization-code-based program instead of one that requires mailing a debit card that can be reloaded with money to the recipient in Mexico.
Minneapolis-based U.S. Bank nixed its ATM-based Secure Money Transfer program but is continuing its partnership with MoneyGram, which is available through its bank tellers and seeing more than 100 times daily volume of the bank's own program.
Under the system of Western Union and MoneyGram, the sender chooses a region of the country where the money will be sent and is given a "control" number. Through a telephone call, the sender gives the recipient that number, which is used to pick up the money at one of many agent locations.
In some parts of the world, a lack of ATMs and customer discomfort with using plastic debit cards or ATM cards was a barrier in the past, said Trent Spurgeon, vice president of product and segment management with U.S. Bank.
"In many parts of Mexico, specifically in the more rural, the percentage of the population that don't have bank accounts (is higher)," Spurgeon said.
To boost appeal of its revised offering, Bank of America said, it dropped a 3 percent foreign exchange fee, cut its transfer fee to $8 for sending up to $1,500, and expanded the number of pickup locations in Mexico to 4,500. Money sent is available to the recipient within two hours or the next business day. Plus, the recipient no longer has to wait up to two weeks to receive a card allowing access to the money.
Though some surveys have shown that money sent to Mexico regularly by relatives in the United States isn't always picked up quickly, a competitive advantage of services offered by the likes of Western Union is availability of the money within minutes.
Many recent immigrants like the convenience of relatives having quick access to the money they send even if it is not picked up right away, said Jose Gonzalez, executive director of Conexion Americas, a nonprofit agency that helps Hispanics assimilate.
Bankers must invest in education to woo such new arrivals, he said. "If the immigrant arrives and everybody in his or her network goes to the meat market to cash their checks and send the money through some of those other networks that typically are more expensive, that's what they'll do," Gonzalez said.
For some longer-term residents such as Suarez, using companies such as Western Union becomes a lifestyle or convenience choice. Besides sending money to her brother to help build a house, several times a year Suarez uses Western Union to pay instantly the $1,300 a month mortgage on her Nashville home.
Despite relatively lower costs of some bank offerings, some immigrants seek to avoid overdraft and other fees related to opening and having a bank account, said Bezard of Aite Group.
"You better have money in your account to make it work," he said. "When you live paycheck to paycheck, you just don't have money to put into your account. It's a cash flow issue."
For some undocumented immigrants with knowledge about banking, there's a perception that any dealings with banks may result in an even better paper trail for immigration authorities.
But the U.S. government through the Federal Reserve Bank is seeking to reduce costs of immigrants sending money home.
Last month, at a workshop in Nashville, the Federal Reserve Bank of Atlanta pitched bankers on a program called Directo a Mexico that has been picked up by two Tennessee banks.
Kingsport-based Bank of Tennessee charges a $6 fee; Bank of Bartlett near Memphis in a test is charging from $5 to $11.
Under the arrangement between the Fed and a Mexican bank, immigrants can help relatives in Mexico get a bank account to which money can be sent through the automated clearinghouse network for pickup by the next business day.
Some banks considering whether to offer any type of money transfer service must weigh the potential benefits of adding new Spanish-speaking customers against the risk of running afoul of regulations. Among them, the names of the sender and recipient must be checked against a list of terrorist suspects.
"All banks … may be being conservative and rather do a front-end test to make sure what we're doing fits the Bank Secrecy Act guidelines," said Bob Byrd, chief executive of Bank of Bartlett. "I anticipate we would find it's doable, and if there's any refinement that needs to occur, the Federal Reserve and other regulators will help us get those refinements in place." |
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