Thursday, June 17, 2004 / Industries / Financial services / Industries / Financial services

Mexican wave of remittances for US banks
By John Authers
Published: June 18 2004 5:00 | Last Updated: June 18 2004 5:00

US banks have been step-ping up attempts to win a share of the fast-growing business in remittances that migrant workers send home, following evidence that they still have only about 3 per cent of the market.

Remittances to Mexico reached $13.8bn last year in 41.3m transactions according to Bank of Mexico figures, a 35.2 per cent increase on the $9.8bn sent south by Mexican migrants in 2002. This growth appears to be continuing this year, with $3.34bn remitted during the first quarter, an increase of 21.8 per cent over the first quarter of 2003.

However, a report published by Manuel Orozco of Georgetown University last week showed that banks last year only accounted for about 3 per cent of the market in remitting to Mexico, which continued to be dominated by small exchange bureaux, and wire services such as Western Union and MoneyGram.

According to Mr Orozco, the four largest US banks in the remittance field - Citibank, Bank of America, Wells Fargo and Harris Bank - carry out fewer than 100,000 transactions each month, or not much more than a million a year, between them.

Last week, Wells Fargo of the US launched a joint venture with HSBC Mexico in an attempt to improve its share of the business. Wells Fargo, which has a strong base in several areas with heavy concentrations of Mexican migrant workers, said that the ability to use HSBC's Mexican branches and ATMs would allow clients to remit money to more than 3,000 bank branches and 8,200 ATMs throughout Mexico.

Wells Fargo was one of the first banks to enter the market two years ago when it started to accept identification cards issued by Mexican consulates, or the matricula consular. These cards are available to undocumented migrants, and make it possible for them to open bank accounts for the first time. Wells Fargo says it has more than 400,000 clients who opened their accounts using the consular cards.

"No bank has as many agents as Western Union and people will still go to Western Union because of their large distribution network," said Daniel Ayala, senior vice-president of cross-border payments at Wells Fargo, attempting to explain the banks' continuing low market share. "I think it is a question of customer choice. If a customer has a need to send a one-time money transfer, they will most likely go to a remittance company," but migrants who are sending money home every month may "start looking for a bank or card-driven solution that is not so expensive".

Other banking officials suggested that undocumented migrants still tend to prefer the anonymity of a remittance house, and are nervous about giving all of their details to a bank.

Price could also be an issue. Banks claim to offer a cheaper alternative, but Mr Orozco found they were still not significantly undercutting the charges levied by wire transfer services. His study concluded that the average charge for a remittance of $400 is 4.4 per cent, down from 6.3 per cent three years ago. Bank charges are only slightly below that average, at 4.1 per cent.

Citigroup, which bought Banamex of Mexico in 2001, announced this week the launch of a new bi-national credit card that will for the first time allow families on both sides of the border to access the same line of credit. The new card will be an addition to Citibank's other remittance services, including US bank accounts that can be accessed from Mexican ATMs.

Bank of America, which took a stake in Santander Serfin of Mexico in late 2002, has a similar ATM-based card called the "Tarjeta de Transferencias SafeSend". US banks are trying to lure Mexican immigrants into the banking system, because there is widespread distrust of banks in Mexico and throughout the region. Currently, only two out of ten people in Latin America have bank accounts compared with four out of ten Latin American immigrants in the US. "There is a lot of scepticism in Mexico and Central America because of the history we've had," suggested Francisco Perales vice-president of hispanic markets at Citigroup. "The banks were controlled by the oligarchy" and perceived to be available only to the elite.

Manuel Medina Mora, president of the Mexican Bankers' Association and chief executive of Banamex, announced an extensive new programme to introduce electronic payment systems and debit cards to Mexico. According to the banking association, debit cards account for only 12 per cent of transactions in Mexico, while in the US 75 per cent of all transactions are paid with credit or debit cards instead of cash. Additional reporting by Mica Rosenberg


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