How President Trump's immigration policies could affect remittances

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Remittances have increased in recent years, creating more opportunities for credit unions to provide this service.

Helping members send money to loved ones is another way for credit unions to add to fee income, but current immigration policy and rhetoric from President Trump may eventually have chilling effects on the remittance business.

“There’s been an increase in remittances,” said Víctor Miguel Corro, CEO at the consulting firm Coopera. “What we have seen is that many immigrants are using remittances to send money back to their country of origin and in terms of CUs, we’ve seen an interest in digitizing that product as well.”

Remittances sent worldwide totaled $689 billion in 2018, up almost 9% from a year earlier, according to data from the World Bank. About $550 billion of that was sent to low- and middle-income countries.

Remittances have grown for 36 consecutive months since April 2016, according to BBVA Research. Within the last three years the biggest remittance peaks were recorded in November 2016 – when Trump was elected as president – in addition to October 2017 and June 2018.

Still, credit unions make up just a small portion of the overall remittances market. Many financial institutions are wary of getting into the remittance business given the regulatory requirements, such as anti-money-laundering and know-your-customer regulations.

Credit unions conducted 0.2% of remittance transfers in 2017, according a recent report from the Consumer Financial Protection Bureau. About 1,440 credit unions, or roughly a quarter of the industry, provided remittances in 2017, according to the CFPB data. These institutions make money by charging a fee for each transaction.

More of these transactions are happening digitally as credit unions look to partner with fintech companies that allow consumers to complete transfers on mobile devices, Corro said. For instance, Xoom, a remittance provider owned by PayPal, allows money transfer services in the United States and Canada to over 130 countries worldwide. Sending a digital remittance takes less than five minutes, 27 minutes shorter than completing a remittance in person, according to Xoom.

Eighty percent of Xoom’s transactions are originated on a mobile platform, said Julian King, general manager of Xoom.

Right now the situation of migrant detention camps scattered across the U.S.-Mexico border is not affecting the remittance business, experts said.

In general, remittances are originated from those who have lived in the U.S. for a while. Once they become established and can cover their own household expenses they may start sending funds to family back home, King said.

“So while we certainly empathize with the current situation that we see at the border, it’s not something that is directly relevant to the running of the [remittance] business,” King said.

Credit union members may also be turning to other services to get money to loved ones. Maria Martinez, president and CEO of Border Federal Credit Union in Del Rio, Texas, notes that remittances aren’t frequently used at her credit union compared to other services.

The $159 million-asset credit union is about 10 minutes from the U.S.-Mexico border. Because of that, members can easily travel back and forth between the two countries.

“When it comes to immigration, what gets used a lot is ATM and debit cards because a lot of relatives can open an account with us, they can issue a debit or ATM card and instead of them going across or sending a wire, they give one of these cards to a relative,” Martinez explained.

Border FCU owns a dozen ATMs, which have seen an uptick in usage as members are withdrawing more cash. The credit union generates around $7 million per month from the ATMs, up from $5.5 million per month a couple of years ago, according to Martinez.

“Many people withdraw the maximum per day, so we’re thinking a lot of what’s being withdrawn is being used for relatives,” Martinez explained.

Though remittances have ticked up over the last few years, Trump’s rhetoric could eventually harm the business, said Pablo DeFilippi, senior vice president of membership and network engagement at Inclusiv. There is a fear of U.S. immigration services rounding up those who are in the country without authorization.

“[W]hat that does is that people don't go to work, and if you don't go to work, you don't generate money and therefore you can't send money back home, so it creates this pressure for immigrants where they are not showing up to work,” he said.

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