Banks are gunning for a larger share of the $9.2 billion wired home annually by Mexican nationals in the U.S. But the Mexican government, with its own remittance plan, could be the dark horse in this race.Banks are gunning for a larger share of the $9.2 billion wired home annually by Mexican nationals in the U.S. But the Mexican government, with its own remittance plan, could be the dark horse in this race.
A new rival is joining the slugfest among U.S. institutions to capture a greater share of transfer fees on the $9.2 billion wired home annually by Mexican nationals in the U.S., as the Mexican government enters the fray with its own Internet bank.
Though the hyper-profitable foreign- exchange and transfer-fee market, estimated at between $1.8 billion and $900 million annually, is dominated by Western Union, three retail megabanks have been steadily gaining larger market share: Citigroup, Wells Fargo and Bank of America. Their latest weapon? Card-activated account access, which promises to make banks a major contender in the international- remittance marketplace.
That is if the Mexican government doesnt get there first. Banco del Ahorro Nacional Servicios Financieros, or Bansefi, is launching an Internet-based money-transfer system by mid-2003 aimed at reaching that nations 3.5 million poorest residents, one of Mexican President Vicente Foxs key campaign goals. Bansefis partners include North American credit unions and small Mexican banks serving huge rural populations, according to Raul Medina-Mora, managing director of the Mexico City office of Dublin-based Vision Consulting International, which is installing the banks Internet system.
Promising to halve fees charged by U.S. banksto only $5 on up to $1,000 transferredthe upstart Mexican bank is expected to cause a huge stir in the marketplace. Funds transferred via Bansefis system will be automatically routed into savings accounts at the banks 600 branches and 300 savings and loans, credit unions and cooperatives in Mexico. This is a win-win situation for everyone, points out Medina-Mora.
However, officials from all three banks are dismissive of Bansefis bank, saying it isnt a worthy foeyet. To capture a large share of the market, you need the infrastructure and capacity to serve both sides of the border, explains Luis Pena, director of the Hispanic Market Group at Citigroup. He dismisses the new entrant, saying,Initially, Bansefi will be only a niche player.
But U.S. banks have their eyes not on the competition, but on the prey. The remittance industry is big, big business in Americas Southwest. In 2001, Mexican nationalsmostly from this U.S. regionsent $9.2 billion to Mexico, according to the Inter-American Development Bank, the nations third-largest source of income after oil and tourism. And business promises to keep booming, as the Mexican population surges in the U.S. border states. The U.S. now claims 21 million of Mexican origin, of whom 7 million have Mexican citizenship and another 3 million are undocumented, groups that together boast a GDP of $410 billion.
Largely, this community is unbanked, which should not be confused with not having money, points out David Robertson, who publishes the Nilson Report, an Oxnard, CA-based report on the payments industry. Most of the dependence on Western Union and other money-transfer companies is because they dont trust banks because of their experience in their native country. But thats changing now, especially with the Mexican community growing and becoming second- and third-generation Americans. Banks are trying to tap into this growing middle class.
But with their vast international network of stores, Western Union and MoneyGram claim about 99 percent of the globes $48.7 billion retail money-transfer business. An estimated 10 percent to 20 percent of that sum is siphoned off in transfer fees and exchange-rate fees before reaching intended recipients, say sources. And now, Western Union has launched a pilot project of advanced teller machines that let consumers send or transfer funds through its company. No plans are set for ATMs to be rolled out in Mexico, according to officials.
Moreover, transfer rates remain highly competitive, with little wiggle room for price wars. For example, Western Union charges $10 to $15 to send up to $300 and five percent of sums of up to $5,000. Bank of America charges $10 for bank customers to send up to $500 and $15 for customers of other banks or credit card companies to send money to a Plus network ATM. Wells Fargo charges $10 for up to $1,000 a day for account holders to send money to one of Banamex Banks branches, where it can be withdrawn in person or via ATM. Citigroup charges a $15 transfer fee up to send up to $1,000 for account holders. And foreign-exchange fees can run up to one percent of the total transaction value.
But even a sliver of this big enchilada is good eatingand thats why these three banks are elbowing their way into this lucrative patchwork of money-transfer services in the six cities where 70 percent of Mexican-Americans are concentrated: Los Angeles, San Francisco, Chicago, Houston, San Antonio and Dallas. Since 2001, the three banksnone of whom would provide fee income or transaction volumehave been competing head to head with a wide variety of financial products more complicated and cheaper than simple wire-transfer services.
Wells Fargo was ahead of the curve in 1997 with the introduction of InterCuenta Express, an account-to account transfer service for Mexican nationals in Arizona, Texas and California, according to Jane Hennessy, svp and manager of the banks International Group. Account holders can transfer funds on-line or via telephone to partner Bancomer Bank in Mexico, where the designated account holder can withdraw it via the banks 1,600 branches or 3,700 ATMs. Its absolutely a growing market and these are very profitable products, she points out. In 1995, we were strictly a California bank, and now were all over the place. We continue to expand when we see opportunity, because the Hispanic population continues to grow in our footprint.
Since Wells first serve, the volleys from Citigroup and Bank of America have been intense and swift. In spring, BofA rolled out a service allowing customers to use telephones, the Internet and ATMs to transfer funds in its SafeSend program. Holders of checking accounts or credit cards can set up separate transfer accounts, with personal codes allowing access by ATM, phone or on-line.
Competition hit a high note this spring, by which time all three banks had agreed to accept the Mexican consular ID, known as the matricula consular, as a form of primary identification, negating banks obligation to certify a clients legal status. The cards cost $29, are good for five years and issued regardless of an applicants legal status. Wells, the first to begin accepting the card, has signed up more than 25,000 account holders since November.
Wells recently launched the pilot Dinero al Instante, which allows cash-to-cash transfers even if the person has no account at the bank, although ID verification is required with the matricular card. The bank is advertising the new program via radio, television and direct mail, as well as by hosting various outdoor events aimed at Hispanics.
Bank of America rolled out its own ATM remittance card program, SafeSend, in April in Phoenix and Dallas. The program allows those in the U.S. to send a safecard via DHL Worldwide Express to Mexico, where the friend or relative can use it to withdraw funds via 20,000 ATMs throughout Mexico. The $10 flat fee for account holder and $15 for non-account holders are paid by the sender. Weve had a 90 percent success rate in delivery in Mexico, says a press spokesman in response to a question about notoriously unreliable public mail service in Mexico. We did extensive customer research and this is how people wanted to receive it. The service has been so successful that BofA is expanding it to Los Angeles, San Diego, Las Vegas, Atlanta, San Antonio and El Paso. Northern California and possibly other Central and South American nations are expected to be added in January.
But its Citigroup that has placed the steepest bet on the teeming potential south of the border. In 2001, it purchased Banamex, one of Mexicos largest banks with 1,400 branches, a unit that has already contributed 7 percent of Citigroups net income in the first quarter of 2002. And after Citigroups finalizes its acquisition of California Federal Bank, which has branches in California and Nevada, it will become the weightiest contender in the remittance battle. Citigroup wants long-term relationships with customers who use different products, explains Pena. Why are we in the perfect place? We have a large presence in both countries, so we have no excuse for not capturing this market.
The bank launched two new products this summer. With much fanfair in July, its Grupo Financiero Banamex division pioneered bank accounts for Mexican workers who want to send specific remittance sums regularly back home, which Citigroup claims is the first financial product of its kind for both nations. The savings/checking/debt accounts are expected to be cheaper for Mexican workers than wire transfers or other remittance services to transfer funds back home. Workers can establish a specific sum that relatives south of the border may withdraw with a Banamex ATM card. The card, with a personal identification number, can be used to withdraw in Mexico funds that are deposited in the U.S. A fair exchange rate is charged to the sender to dispense the funds in pesos, but no ATM fees are charged. These features are a big hit with customers.
Also launched this summer was Citibanks Money Card Account, now in a pilot phase in New York, Chicago and Los Angeles. The account is linked to a designated U.S. Citibank bank account featuring an ATM card for the recipient in Mexico. The account is charged a $5 monthly maintenance fee and a $7.95 fee for each withdrawal transaction in Mexico, fees that are assessed to the U.S. account and not deducted from the recipients cash withdrawal. Most importantly, recipients are not required to have a bank account in Mexico to use the card.
Pena predicts Citibanks two new products will make it the predominant banking option for Mexicans. Its too early to draw conclusions, but were very enthusiastic about the program, says Pena, who claims Citigroup is the only bank that allows on-line transfer of funds abroad. Its most important attributes are safety, convenience and reliability. It tested very well in our focus groups.
Indeed, these card-activated products may be the saving grace for U.S. banks, according to Robertson, who estimates banks market share of the remittances at one step up from nothing. He says these products show the most promise in usurping Western Unions dominance of the remittance market. These programs still have to be proven, he says. But if banks are able to put a card into the hand of the recipient, thats the future of this industry. However banks cut it, though, capturing even a portion of Western Unions remittance business between Mexico and the U.S. will not be easy. But that doesnt mean Wells Fargo, Citibank and BofA arent eager for a go at it.
Part of the problem is one inherent to banking: brand. Robertson says no U.S. bank has yet sparked the kind of loyalty among Mexican-Americans or Mexican immigrants that would translate across the border, which is why he says Bansefis bank shows so much potential. What youll find is that the loyalty or perceived loyalty among Mexicans for a Mexican bank may be greater than the practicality of U.S. banks offering a better deal, he points out. But people get into patterns and its hard to change their behavior.
A senior equity analyst at Prudential Securities, Bryan C. Keane, agrees. If someone has been using Western Union to transfer money for years, its very hard to get them to switch to a bank, he says. Plus, the cost to convince people to switch to banks is so expensive. Banks know this better than anyone. Its a pain in the butt.
But it doesnt mean banks still wont try: Bank of America, for one, is quadrupling its advertising budget to $40 million this year, targeted mostly at Hispanics. But convincing this group to make a change will take more than a new campaign slogan. The remittance market is well-penetrated and the pricing is already pretty competitive, says Keane. Banks will still have a tough time convincing Mexicans, particularly undocumented ones, to open accounts. Many immigrants, and especially illegal immigrants, are afraid of walking into a bank and having to identify themselves. And that fear is unlikely to go away.
However the remittance tug-of-war plays out, Robertson says the stakes will only escalate for U.S. players in the next decade, as the number of transactions skyrockets 460% by 2010, and the value of those transfers surges by 610%. Roughly one-fifth of these sums will head south to Mexico. Even if banks keep only one percent of that total, its still a generous slice, he says. Though I guess in another decade, Western Union could be a bank.
