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 Business News | October 2006 
New Ways of Exporting Money
 Yvette Armendariz - azcentral.com
| | Mexican financial companies are estimating as much as $22 billion in remittances from expatriates this year. |
Every three months, Gabriela Escalante makes a trip to her neighborhood carneceria to wire $200 to $300 to her grandmother in Puebla, Mexico.
The cash is a commitment that her family, who immigrated to Arizona when she was 10, makes to ensure abuelita has enough money to pay for utilities, food and clothes. Escalante's grandmother, in her late 60s, doesn't earn an income of her own.
Escalante, a bookkeeper for a Phoenix accounting firm, is also aware and pleased that more choices are popping up for sending money back to Mexico.
The latest, introduced Tuesday, is a debit card tied to MasterCard that family members can load with a maximum $2,500 a week or $9,999 a month. Relatives abroad then can use the card at retailers that accept MasterCard.
The options are popping up because of the growth of the remittance market, which has expanded from $8.9 billion in 2001 to $20 billion last year. Mexican financial companies are estimating as much as $22 billion in remittances from expatriates this year.
The added choices have pushed down costs for users to less than $10 per transaction. In some cases, sending money abroad can be free.
"Banks and financial institutions have realized the great market potential of remittances and have done a great deal to attract such business," said Roberto Coronado, an assistant economist with the Federal Reserve Bank's Dallas district branch office in El Paso.
Loui Olivas, an Arizona State University professor who studies Hispanic consumers, added, "There are billions to be made!"
Denver-based First Data Corp., parent of Western Union, has seen profits from its wire-transfer services grow to $1.39 billion last year. Increasingly, banks are introducing money-transfer services.
In September, Bank of America rolled out nationally its SafeSend remittance program, which had been a pilot for a few years. Wells Fargo has expanded its longtime InterCuenta Express remittance services to include not only Mexico but also El Salvador, Guatemala, India and the Philippines.
Both offer a free remittance product with certain accounts.
Western Union, however, remains the dominant player. Banks are thought to have less than 10 percent of business, said Daniel Ayala, senior vice president for Global Remittance Services at Wells Fargo.
Olivas, assistant vice president for academic affairs and associate professor of management at ASU's W.P. Carey School of Business, suspects banks held back on efforts to go after the immigrant market until recently, even though a market has been growing for years, because the idea seemed too cutting edge years ago.
"High profit margins and technology have now made traditional banks hungry for the business," he said.
Another plus for those sending remittances is an ID card system issued by the Mexican Consulate, known as the matricula consular. Banks have taken to the card as a way to provide identification needed to open an account, which in turn helped banks create customers for their remittance products.
Other companies have taken to "stored value cards" as an introduction to banking for immigrants. The holders can deposit money into them and can be used like a debit card for purchases.
One company, Stored Value Cards Inc. out of California, is taking that concept a step further. The company Tuesday introduced the Futura Maestro Prepaid Debit Card, issued by MetaBank under license from MasterCard International. MetaBank has branches in South Dakota and Iowa.
The card is being introduced in Phoenix and Tucson because of the number of Latino immigrants in the market.
"There's no product like Futura," said Chief Executive Officer Al Golden before a Spanish-language news conference.
Stored Value Cards was incorporated last fall, but the company's history with financial products began about three years ago when WMO Global Inc. formed. That company then merged into Stored Value, Golden said.
Futura comes with the option of one or two cards. One card is kept by the user in the United States. The optional second card can be sent to someone abroad.
The focus Tuesday was sending money to Mexico, but local distributor Diego Padilla Ramos said the card could be used anywhere globally.
The card allows users to have paychecks or other money deposited into the debit card for a $9.95 monthly fee. The card can be used to transfer funds to a second card, which costs $2.95 a month, plus a 50-cent fee for PIN purchases.
The product is touted as safer than money transfers because the receiver isn't leaving a store or bank with a large amount of cash, making them a target for theft. The PIN helps protect the money from unauthorized use.
Right now, cards can be picked up at Dos Hermanos at 29th Avenue and Van Buren Street in Phoenix, but efforts are under way to add the cards at other retailers, including grocery stores, convenience stores, carnecerias and other businesses that cater to Latinos, Padilla Ramos said.
Escalante said she's unlikely to use the Futura card because her grandmother prefers having cash in hand.
"With older people, the mentality is cash only," she said.
Sending money
An electronic money transfer is more expensive than a bank-to-bank transfer but doesn't require an ID.
How it works:
Senders take money to an agent affiliated with Western Union or another network. There, an agent takes the cash and deducts fees based on the amount, the exchange rate and the speed of service. The recipient in another country then can pick up the cash (minus the fees) at any agent's office there.
How it makes money:
Western Union and its competitors make money from three sources: the transfer fee, a surcharge for exchanging the money from one currency to another, and by earning bank interest during the hours or days that it takes the recipient to pick up the money. The transfer fee is split with the two agents involved in the transaction.
How much it costs:
The cost to send $300 from Los Angeles to Mexico on March 27:
* Western Union (instant transfer), $17.50.
* Western Union (next day), $12.50.
* Ria Envia, $14.09.
* Order Express, $9.40.
* MoneyGram, $9.15.
Source: PROFECO, Mexico's consumer protection agency, which tracks the costs |
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