HSBC Bank has become the first bank in the United States to offer account holders free money transfers to anywhere in the world.
The free-transfer offer is the first to compete directly with the free money transfers Bank of America Corp. has started offering to Mexico.
The HSBC Holdings PLC unit is trying to gain share in the U.S. Hispanic market and Latin America. It introduced the Easy Send service in June and began aggressively marketing it to Hispanic consumers last week. (B of A expects to complete its rollout by yearend.)
Both B of A and HSBC require senders to have checking accounts at the bank. But HSBC, unlike B of A, also requires senders to maintain a balance of at least $1,500. Those who don't are charged an $8 fee each month.
Customers can transfer money from their HSBC checking account into a secondary account, which can be accessed outside the country through automated teller machine cards that the sender mails to the recipient.
Some analysts called the minimum balance requirement prohibitive. But Stephen Cohen, an HSBC spokesman, noted that even $8 is cheaper than the price of using traditional money transmitters such as Western Union Financial Services Inc. and MoneyGram International Inc.
Traditional remitters charge an average of $17.85 for every $200 sent, according to the Federal Reserve Bank of Boston.
"We had to ensure that we have some level of deposits in those accounts," Mr. Cohen said. "The transfer service is free, so our strategic outlook is to not lose money on the account."
When asked if the banks' services are pressuring Western Union's pricing, Victor Chayet, a spokesman for the First Data Corp. unit, said, "To consider any one lever to affect our pricing is not realizing how complex our pricing is."
Customers choose Western Union for "the speed and the convenience," he said. "While banks do have locations and market presence, 233,000 locations is a fairly strong presence."
Gwenn Bezard, a research director for the Boston market research firm Aite Group LLC, said banks that offer remittance services have been disappointed to find customers do not maintain significant deposits. HSBC is requiring a minimum "precisely because they are aware of the problem."
But HSBC will be forced to eliminate either the balance requirement or the penalty fees in the next 12 months to compete with B of A, Mr. Bezard predicted.
Dianne Wagner, a B of A spokeswoman, said it expected others to follow suit after it announced its plan to eliminate fees. "When we launched in January we said we welcomed other financial institutions to service the underserved."
Aside from Bank of America, analysts cite Wells Fargo & Co. and Wachovia Corp. as banking companies that have had some success in remittances.
Yet some say price - where banks clearly have the advantage - is not the way to win market share.
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said consumer preferences for remittance providers are driven by trust and convenience.
"Price is not necessarily the driver," he said. "I don't see … [HSBC] getting any more volume because of that" or "taking a lot of market share from existing players."
According to a report the Boston Fed released last month, customers wanting to send money abroad turn to traditional money transmitters because banks require an account, their hours are less convenient, and they have fewer distribution centers abroad.
Banks have only 5% to 15% of the $35 billion U.S. remittance market, according to the Fed report. Mr. Schatt said they should use money transfer services as a retention tool only.
He also suggested that banks open online banks devoted specifically to money transmission and related services.
"Internet penetration is huge," Mr. Schatt said. "There's an opportunity to cater a lot more to ethnic groups, and it would ease the convenience issue."
Mr. Cohen said HSBC sees "a certain amount of challenge in the business." Sending money through a bank rather than a traditional transmitter is "a change in the way people do this," he said. "It does require a lot of education, and it's going to be a process."
However, because of its international operations, HSBC is "better suited" to serve some immigrant populations than Wachovia, Wells, or B of A, Mr. Cohen said.
The British banking company has expanded in Latin America over the past few years. It has acquired two Mexican banks in recent years - Republic National Bank (now HSBC Bank Mexico) in 2000 and Grupo Financiero Bital in 2002 - and it is expanding in south Florida to cater to Latin American immigrants.
In the next few weeks HSBC, which also has a significant presence in Asia, plans to launch an Easy Send advertising campaign aimed at East Asian immigrants, Mr. Cohen said.
