BofA Eliminates Transfer Fees; CUs Expect To Retain Share
Bank of America's move to eliminate fees on money transfers to Mexico from the United States won't likely erode credit unions' share of the market, credit union officials said.
U.S. transmitters such as Western Union, MoneyGram International Inc., and Vigo Corp. will likely keep the chunk of the market because they don't require senders to open an account, said Pablo de Filippi, project manager of the International Remittance Network (Irnet) program at the World Council of Credit Unions.
The IRnet program, a partnership between credit unions and Vigo, started about three years ago but has yet to increase credit union's share of the market beyond approximately 1%, he said. While banks have a higher share at about 7%, de Filippi suggested they will not become dominant providers because, like BofA, they require an account
At credit unions "we want people to be members first, and then we provide the (money transfer) service. With immigrants it needs to be different. One needs to offer them the service they need now, and once we build up a relationship and they trust us, then they will become members," he said.
De Filippi said Hispanic immigrants and their families need to become more familiar with financial systems in the U.S. and in their countries for them to start relying on banks or credit unions instead of on money transfer companies. In Latin America, a "significant percentage" of the population doesn't have bank accounts, particularly those in low-income areas where most immigrants come from, he said. That learning process may take years, he said.
CUs Missing Out
Credit unions, like banks, also fail to attract the business because immigrants work long hours that often keep them busy during the regular business hours of most credit unions or banks.
"They look for a place that opens weekends or at night. Most of the money transfer companies' business goes on in the evening," he said.
According to data captured by the U.S. Census Bureau in 2000, out of the 281.4 million total U.S. population, 35.3 million were classified as Hispanic.
This category includes people from Mexico down to Argentina, including Central America. Mexico is the place of origin for 20.6 million Hispanics.
Some states have very high populations of Hispanic origin, such as Texas, where 6.7 million of the population, or 18.9% of the total, are Hispanic, compared with the 12.5% national average.
"Our volumes in Texas are low," said Linda Webb-Manon, spokesperson of the Texas CU League. Just about "50 to 55" credit unions out of 589 affiliated credit unions in Texas are doing the transfers. Combined, she said, there are about 260 money transfer transactions per month among Texas credit unions, while any non-credit union Vigo Corp. outlet will handle an average of 200 transactions per month. Charges for transfers to Mexico are $10 per $1,000.
Non-credit union Vigo Corp. outlets win the business by "setting up kiosks in Mexican markets and stores, moving inside communities" and becoming familiar, she said.
Like credit unions, banks such as BofA are failing to understand the market, Webb-Manon said.
One additional hurdle BofA will face is the banks' strategy to make an ATM card a prime piece of the relationship. "They are pushing the ATM card and assuming that in Mexico there is a well-developed ATM network when there isn't," she said.
"In a lot of rural areas there aren't ATMs. They can pour millions of dollars into advertisement in the U.S. but that won't help," because if there aren't ATMs available they can't use the service, she noted, adding that getting Hispanics to switch brands is difficult.
"Hispanic consumers are very loyal. When a product works for them, they will continue to use it. That doesn't mean that they won't change. We did a focus group targeting foreign-born immigrants and most said they use Western Union, but that they would change if there is a safe alternative. So it looks like the challenge for credit union is to educate people," she said.
She estimates credit unions have only about 2% of the market remittances to Latin America and banks just slightly more. Western Union dominates remittances from Texas with a 70% share, she said.
One Success Story
The $840-million, 150,000-member Arrowhead CU in San Bernardino, Calif. has managed to win part of the business through intensive efforts.
Maurice Calderon, Arrowhead's senior vice president for government affairs and community development, said that he is not concerned about BofA taking away volumes that have taken the credit union some three years to build up.
"It's not something you win overnight. It's not about money. Hispanics need to have the confidence that they can do it. They are very slow to trust," he said.
To build confidence the credit union publicizes the service through federal organizations.
Working with Caja Popular Mexicana, the biggest credit union in Mexico with 435 branches, will help keep that business, he said.
To win members "we'll give free-checking accounts with no minimum balance required," he said.
Charles Gabriel, manager of Arrowhead's branch at Mount Vernon, Calif., an area with a 69% Latino population, said that his branch is handling about 20 transfers per week with a volume that has been rising to "about $200 to $400 per transaction." Most senders, as well as branch employees, are from rural areas in central Mexico regions like Jalisco and Michoacan.
Mark Lowe, a spokesperson at California CU League, said that unlike credit unions, bank's checking accounts "tend to be more expensive" and this may discourage Hispanics from using BofA for transfers even if fees are eliminated, he said.
The World Council's de Filippi said that BofA's fee elimination announcement, even if it turns out to be ineffective, has generated for the bank strong publicity nationwide.
"This should be a wake-up call for credit unions," he said. "Maybe branches can open in late hours or a new branch in a Hispanic neighborhood" may be justified, he said.
In 2002, remittances from the United States to Mexico alone were $10 billion, according to the council.