Banks have tried a number of ways to win remittance business, including low prices, but in the last four years money transmitters have actually gained market share.
Now, Bank of America Corp. has taken the price competition to the extreme by dropping all fees for money transfers between the United States and Mexico.
On Thursday the Charlotte company eliminated the 3% foreign exchange fee for all customers who use its SafeSend service, as well as the $10 transfer fee for those in the Chicago area.
Transfer fees for customers in other cities were reduced to $8 for up to $1,500 sent, and they will be eliminated in the second half, B of A said.
The remittance market is growing rapidly, but banks have failed to wrest share from money transfer giants. The top four U.S. transmitters - First Data Corp.'s Western Union, MoneyGram International Inc., Vigo Corp., and DolEx - increased their global share to 18% last year, from 12% in 2000, according to Aite Group LLC, a Boston research firm. The four handled 40% of outbound remittances from the United States last year.
Marcos Rosenberg, a senior vice president at B of A, said its strategy is to use the remittance business to attract bank accounts. "A typical money transmitter is not in it for the relationship."
Only B of A checking customers can use SafeSend to send money, he said. "We're trying to bring in the unbanked." Recipients of the transfers do not need bank accounts.
B of A says that last year it opened over 1 million checking accounts for Hispanic customers.
Andrew Jeffrey an analyst at Needham & Co. in New York, said SafeSend is "a completely different business model" than the one used by traditional money transmitters. "Western Union is a street-corner-by-street-corner model, and B of A is trying to change consumers' behavior."
When B of A introduced free online bill payment in 2002, it forced the rest of the market to follow suit.
"We're following the exact same strategy that we followed with online bill pay," said Eduardo Vergara, another B of A senior vice president. "Will other banks be able to do the same? We hope so, but we were the first."
Another difference between SafeSend and traditional money transfer services: SafeSend does not use a wire. It uses cards that are loaded at agent locations and shipped to the recipients, who use them to make purchases or to withdraw cash at automated teller machines.
The number of SafeSend accounts opened last year increased 1,000% from the previous year, Mr. Rosenberg said. When the remaining fees are eliminated, customers using SafeSend rather than traditional wire transfers will save an average of about $20 a transaction, he said.
In a report released this week, Aite said the value of remittances sent worldwide last year rose 40% from 2000, to $231 billion. Aite expects that figure to reach $289 billion by 2007.
Patty Philipps, a spokeswoman for MoneyGram, said that it is not concerned by B of A's move and that it would retain a competitive edge, because it has a more extensive network.
The remittance market is "not just about sending money," she said. "It's also about where the receiver can pick up the money - it's about the network. We have the network."
Danielle Pereira, a Western Union spokeswoman, said that in recent years it has cut prices for transfers to Mexico "in light of competition" and introduced next- and same-day service.
She called B of A's plan to entice customers into taking bank accounts "a bit different from your traditional money transfer service."
But Western Union, with its 45,000 agent locations in the United States and 6,000 in Mexico, offers convenience, Ms. Pereira said.
During First Data's fourth-quarter earnings call Thursday, Christina Gold, the president of Western Union, said it can combat competitive threats around the world by adjust pricing quickly. "We can literally change pricing at a moment's notice."
Despite increased competition over the past five years, Western Union managed to gain share, she said.
Mr. Jeffrey agreed that Western Union "continues to take market share" away from other companies, even though its pricing has been and will continue to be under pressure. "Price is not what drives volume for the most part," he said. "It's brand."
But Mr. Vergara said banks will start expanding their market share "at the expense of the more traditional senders."
B of A plans to expand SafeSend to other developing countries next year, he said.
