Community banks have left the remittance business mostly to large banks and money-services businesses, but a Washington consumer finance company that largely targets Hispanics is trying to change that.
Microfinance International Corp., which provides remittance and check-cashing services and even makes small loans through nine storefronts, is marketing its Internet system for moving money abroad to community banks. At this point it is partnering with only two banks, but it says it is hoping to entice more to sign on with a pitch that emphasizes a growing network of foreign partners and the ability to flag suspicious transactions.
"The main reasons that banks cannot tap into the market is because of compliance and the lack of a network," said Atsumasa Tochisako, Microfinance's president.
Banks that are not offering remittance services are missing out on an opportunity to generate fee income and perhaps convert unbanked consumers into bank customers, Mr. Tochisako said.
The Inter-American Development Bank's Multilateral Investment Fund estimates that the amount of money immigrants from the Caribbean and Latin America sent to their home countries rose 14% last year from 2005, to $62.3 billion. It estimates that the number will grow to $72 billion this year and $100 billion by 2010.
Most of the remittances are handled by the likes of Western Union Co. and MoneyGram International Inc., as well as large banking companies such as Bank of America Corp. and Wells Fargo & Co., which have reciprocal relationships with banks in other countries that disburse the funds.
Mr. Tochisako said that Microfinance's goal is to make the remittance business attractive to community banks looking for ways to reach out to immigrants who live in the communities they serve.
"U.S. banks see the market is so large, but they don't know how to tap it. We have a solution," he said.
Microfinance opened its Alante Financial centers in mid-2004, mainly to provide remittance and check-cashing to the Salvadoran immigrant community in Washington. Since then it has opened storefronts in Virginia, Maryland, and Delaware.
One of the company's selling points to community banks is that it uses a network of microlenders in 90 foreign countries to disburse the funds, so banks do not have to find partners in those countries.
It uses the Federal Reserve Board's automated clearing house system and the Society for Worldwide Interbank Financial Telecommunication system to wire large batches of money to microlenders. The setup lets Microfinance control costs by moving large volumes of money at once.
Mr. Tochisako said the biggest concern for banks is running afoul of regulators that enforce anti-laundering laws. With that in mind, Microfinance developed a system that checks the Treasury Department's Office of Foreign Assets Control lists automatically for people who should not be allowed to transfer money.
"By using our automated system, they can get rid of headaches," he said.
A bank with four or five branches could get set up on Microfinance's system for around $4,000 to $5,000, depending on the level of customization. Those with 40 or 50 branches can get set up with the system, including employee training and marketing materials and advice, for around $10,000, Mr. Tochisako said. The bank, Microfinance, and the microlender in the home country share whatever fee the bank charges for the transaction.
The $24 million-asset Security One Bank of Baileys Crossroads, Va., began working with Microfinance in September. It has completed over 200 transactions using the system, sending over $185,000 to Bolivia, Colombia, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Peru.
Jorge Figueredo, the chief development officer for Security One, wrote in an e-mail to American Banker that it partnered with Microfinance because it wants to serve Hispanics. Security One charges a flat fee of $5 to send up to $2,500, so the service is not a direct moneymaker, he said, "but it is used as a value-added service to draw customers into the bank," Mr. Figueredo said.
The $6 billion-asset Provident Bankshares Corp. of Baltimore plans to offer remittances through Microfinance. Rick Sides, the product manager of Provident Bank of Maryland, said it had intended to begin sending remittances on a pilot basis at two branches last summer, but the employees who were trained on the system left. The company is in the process of scheduling new training.
Provident Bank, which has a branch network that stretches from Baltimore to Richmond, Va., wants to offer the service to the large population of Salvadorans in some of its markets, Mr. Sides said.
"As with most banks, we're looking for the customer we need to attract to reach our future potential," he said.
In Provident's case, the future is immigrant customers, because of the growth in the Latino population. Mr. Sides said his bank had considered offering accounts with an automated teller machine card that customers could send to someone in their home country, but it decided Microfinance's system was better, because it offered more coverage in rural areas.
