No Borders Inc., a 6-month-old money transmitter, has devised a system that it says banks can use to gain share in the multibillion-dollar remittance market.
The Los Angeles company calls the system for transferring money from the United States to Mexico and El Salvador the cheapest remittance option that does not require a bank account. (Bank of America Corp. said in January that this year it will drop all fees for money transfers to Mexico using its SafeSend prepaid cards, provided the sender has an account with it.)
Customers can load funds on to a card at one of the 250 No Borders agent locations in the United States. The funds can then be wired abroad through a closed-loop system and loaded on to the recipient's prepaid card at agent locations. The recipient cards are usually obtained from a bank or credit union.
No Borders customers can also transfer funds from their closed-loop cards to an optional open-system card, and vice versa, at no cost. The open-system cards, which carry the Visa and MasterCard logos, can be used to make purchases or withdrawals and can be loaded using cash or paychecks. The open-system cards are issued by BankFirst Corp. of Winter Garden, Fla.
Raul Hinojosa, No Borders' president and chairman, said its remittance fees are at least 50% lower than those of other transmitters. The average Western Union Financial Services Inc. sender fee for a $300 transfer to Mexico is about $15; No Borders charges $3.
No Borders is in discussions with a number of large U.S. banks about licensing the card system and is already providing it to other money transmitters, Mr. Hinojosa said. He would not name them.
Aside from the lower cost, No Borders says it has cultural street smarts in its favor. Banks have not yet understood the nature of the remittance industry, Mr. Hinojosa said.
"The vast majority of remittances are being done through agent networks for a reason," he said. "Not only because banks have not reached out to this population, but also because senders trust those agent networks more."
Gwenn Bezard, a research director at Aite Group LLC of Boston, said banks have shown an overall lack of commitment in the remittance market.
They "have not built the relationships with partners abroad needed to work through the operational issues" that come with sending money, Mr. Bezard said.
No Borders says it can bridge that gap and build on the trust immigrants have developed in traditional money transmitters such as Western Union (a subsidiary of First Data Corp.) and MoneyGram International Inc.
"We want to mimic the current experience customers know" when sending money, "but encourage them to do it with a card," Mr. Hinojosa said.
The company has even hired anthropologists to ensure it does the right thing by the immigrant community, he said.
No Borders also does cash-to-cash wire transfers but is encouraging customers to send money using prepaid cards only.
Much of the unbanked population already uses prepaid cards to pay telephone and utility bills, Mr. Bezard said.
"The money transfer card is a very small product," he said. "Banks are conceptually very interested in it, but are they willing to spend millions of dollars on it? Probably not."
Mr. Hinojosa said a card-to-card remittance system could help developing countries strengthen their financial systems if their banks and credit unions reinvest the revenue from money transfers. "It could be the creation of entire financial infrastructure that will long outlast remittances."
His company plans to start a stored-value card remittance program for Ecuador in April. It will allow customers to send one free remittance per month of up to $350 if the recipient of the funds has an account with Ecuador's Banco Solidario SA.
Last fall No Borders went public by acquiring the shell of American Eagle Manufacturing from Bad Toys Holding, which kept the manufacturer's assets.
In the next 12 months the company plans to open No Borders locations, mostly in New York, specifically for those who send money to the Dominican Republic, and it says it is working on card systems for transferring money to nearly every other Latin American country. It plans to have at least 1,000 U.S. agents by yearend, Mr. Hinojosa said.
Also by then, he said, the company plans to offer technology allowing money to be wired abroad using cell phones.
No Borders faces heavy competition, particularly from banks like B of A that are trying to edge their way into the market and from larger money transmitters such as Western Union and MoneyGram.
"The prepaid products are going to grow rapidly, but they are growing from a low base - they are growing from basically zero," Mr. Bezard said. "Cash-to-cash transfers are likely to dominate for now."
No Borders says it is not worried, since it plans to sell its system to many of its rivals eventually.
"The only way competitive pressure can be met is by using our technology, and we're certainly open to talking to banks, remittance companies, and credit unions about getting that technology to them," Mr. Hinojosa said.
