Tuesday, June 08, 2004 $38 Billion per Year Sent "Home" by Immigrants | News for Dallas, Texas | Business

Costs of sending cash faulted

Study says cuts in commissions could help struggling countries

11:33 PM CDT on Monday, June 7, 2004

By DIANNE SOLÍS / The Dallas Morning News

On the eve of the opening of the Group of Eight summit of the world's most industrialized countries, a new study suggests that one of the world's greatest poverty-fighting tools could be sharpened further if commissions are lowered on the costs to immigrants of sending money back to their homelands.

Immigrants sent back about $38 billion last year from the United States, and about a third of that went to Mexico.

Costs for sending the money have fallen from about 15 percent in the late 1990s to 7 percent or 8 percent today, Manuel Orozco, a Georgetown University researcher, said Monday upon the release of a report for the Pew Hispanic Center.

Slight decline

But despite innovation and the efforts by commercial banks and credit unions, Dr. Orozco said, "in the last three years the decline has been slight." In fact, banks and credit unions have captured only about 3 percent of the market, according to the report, which surveyed nearly 90 money transmitters, banks and credit unions.

The biggest players remain Western Union, part of Denver-based First Data Corp., and MoneyGram, part of Phoenix-based Viad Corp. The report takes up the charge of lowering commissions and putting more cash in cash-poor economies.

G-8 Summit

The G-8 Summit in Sea Island, Ga., opens under heavy security today, underscoring the topic that will probably dominate: terrorism. Nevertheless, World Bank staffers have prepared background material to bolster a declaration on the money transfer issue.

And at the Summit of the Americas in Monterrey, Mexico, in January, a declaration was issued calling for commissions to be sliced in half by 2008.

So how much lower can commissions go before businesses pull out of the market?

"It can go significantly below where it is now," says Dilip Ratha, a senior economist at the World Bank who prepared the background materials. "The true cost of sending money should be below $1 per transaction."

Many countries, he said, still charge hefty commissions. Europe, for example, is particularly problematic. The cost to send 40 Euros can be 8.50 Euros, or 21 percent, Mr. Ratha said. Venezuela, he noted, is one country where immigrants lose cash to gaping currency fluctuations.

The Mexican market was once well-known for money transmitters who would siphon off large amounts by giving the immigrant an unfavorable exchange rate on the transaction, on top of a high commission. Mexico is now one of the cheapest places to send money, the World Bank economist noted.

Mexico and India are the world's top two recipients of immigrant money, according to official counts by the central banks, Mr. Ratha said.

Actual costs

Others involved in the industry note that the cost of sending money electronically is quite low for a bank, a credit union or a wire-transfer company.

But problems could occur as each intermediary tries to take a slice of the commission. The market, and the unending thirst for fresh immigrant labor, have captured the attention of Wells Fargo, Bank of America, Wal-Mart and 7-Eleven.

But with up to four intermediaries in two countries and the costs of marketing, "the margins of profit could quickly disappear," said Isaac Lasky, a marketing consultant in Dallas who formerly worked for MoneyGram. "I am not sure that pushing it down further will help as it might make it unprofitable," he said.

The Pew report notes that the market share held by Western Union in most countries has gradually declined to below 20 percent. However, the volume handled hasn't significantly fallen.

Development experts have been eager to get immigrants into traditional banks and credit unions, as a host of services will become cheaper for them, or become open to them for the first time, such as mortgages. The Pew report notes that those who do not have bank accounts will go to a bank to cash checks but will leave with the cash rather than depositing it.

Successful tactics

Roberto Suro, director of the Pew Hispanic Center, noted that traditional financial institutions that have been most successful in the immigrant communities are those that simply locate in the neighborhood. And the use of the matricula consular – an identification card issued by the Mexican consulates – has aided greatly in getting people to use banks, Mr. Orozco said.

There have been other efforts to keep more cash in the hands of immigrants who created it. Under a Texas law, passed last September, consumers are entitled to a receipt that clearly spells out the fees, the exchange rate and the amount to be paid in foreign currency. If the money transmitter does not toe the line, Texas can fine the company up to $1,000 per violation.


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