Banks are stepping up efforts to increase their share of the global remittance market, either alone or by partnering with other companies.
The financial cooperative Swift has opened its global network to remittance traffic, a move it hopes will encourage more banks to develop international transfer services.
And Wells Fargo & Co. has extended its own remittance service, permitting customers to initiate transfers through its online banking site.
Swift began handling remittances this month through its SwiftNet Remit service, and this week released a set of standardized contracts and guidelines designed to make is easier for banks to establish remittance relationships with each other.
Michael Knorr, a managing director in Citigroup Inc.'s global transaction services unit, said Swift's efforts could help banks "get back in the game to compete more effectively with … nonbank providers."
As one of the world's most global banks, Citi already uses its own network to offer remittance services to more than 100 countries through its QuikRemit Service.
Citi also participated in the Swift remittance effort, and Knorr said that Swift's service would help Citi continue to expand.
"SwiftNet Remit will allow us to add other distribution capabilities," Knorr said. "Instead of redoing this from scratch when we want to enter new markets, we have a good baseline to build from."
Michael Whyte, Swift's senior market manager for banks and low-value payments infrastructures, said banks have been challenged in the past in trying to develop remittance relationships with correspondents in distant parts of the globe.
Most such relationships require participants to develop proprietary agreements, and involve customized technical integrations between the individual banks' systems, Whyte said. Forcing banks to repeat the process with every new partner is a waste of effort, he said. "You're not achieving the economies of scale you would expect by reusing" the contracts and standardized systems.
The SwiftNet infrastructure, which is widely used around the world, can address the connectivity question, he said. Executives of Swift, formally the Society for Worldwide Interbank Financial Telecommunication, plan to promote the remittance service next week at the group's annual Sibos conference, in Hong Kong.
And to make the business side of the equation easier, Swift has spent much of the past two years working with an advisory council to establish a set of standardized guidelines and contract templates that are consistent with both the business practices and the technical issues.
Though individual banks must still forge their own partnerships with counterparts in other countries, Whyte said the standardized paperwork will "make it significantly easier and faster for them to come to a business agreement."
He acknowledged that person-to-person payments are something of a departure for the SwiftNet system, which is used primarily for real-time, high-value wire transfers.
But while the cash value of remittance transactions may be lower, it is still important to the consumers sending money, he said. "They have very high service expectations. This service has high value to them," he said.
Whyte said that the money transfer companies Western Union Co. and MoneyGram International Inc. account for about 20% of the world's remittance market, and bank-based networks have 30%. The rest is split among a multitude of smaller competitors.
The United States has more than 70 major money transfer operators, for example, and in the United Kingdom, there are more than 4,000 money transfer entities outside the regulatory umbrella of the Financial Services Authority, he said. "The remittance market is hugely fragmented."
Twelve banks are already testing SwiftNet Remit, and Whyte said 19 more are gearing up to use the service. Participants have said that using SwiftNet Remit has cut users' costs by 80%, including legal fees, compared with setting up one-off arrangements with counterparts, and setting up the connections typically takes about two months, a third of the time it often takes for banks to connect to each other on their own.
Other financial companies are trying to ramp up their remittance efforts.
Daniel Ayala, the head of Wells Fargo Global Remittance Services, said that offering remittance services has proven an important way to attract deposit customers, and the new online service, announced Wednesday, is aimed at increasing usage. Wells Fargo, of San Francisco, is not involved in the Swift effort.
"We're not in this business for the remittance alone. We're in this business for the relationship," Ayala said. "That's the real value, the deposit base that this brings in and the opportunity to cross-sell that drives a lot of this business."
Wells has allied itself with well-known remittance correspondents, including ICICI in India and BBVA Bancomer in Mexico, Ayala said. "They are in the same business we're in, the relationship business. They are converting those customers into bank account customers."
Wells also has priced its service aggressively. Remittances to Mexico cost $5 for noncustomers, but can be $2.50 or even free, depending on the nature of relationships, or the number of accounts, that a customer has with the bank, he said.
Ayala said that immigrants are becoming more aware of banks as providers of remittance services.
"Consumers had programmed themselves to go to nonbank service providers. In many ways, that has changed," he said. "The more banks that are in this business, the better it is for everybody in the banking industry that wants to be in this space."
The service is also a valuable way to build loyalty for a potentially valuable customer segment, Ayala said.
"One of the most important transactions they perform month in and month out, or week in and week out, is sending money back home to their family overseas," he said. "It's not just another bill payment. It's a very important transaction."
Gwenn Bezard, a research director at the research and advisory firm Aite Group LLC of Boston, said Wells' online remittance service offers business advantages over those operated by independent money transmitters because the senders are already bank customers, and must authenticate themselves to access online banking, reducing fraud risk.
But the new service also signals how cautious banks have been in addressing the opportunity in remittance, Bezard said. "Wells Fargo has been at the forefront of the remittance industry for more than 10 years, and only in 2009 are they integrating the remittance service into their online channel."
For most banks, it would make more sense to ally with a money transfer provider, rather than building its own network as Wells Fargo has or by participating in Swift's remittance initiative, Bezard said.
Already this year, U.S. Bancorp of Minneapolis, Fifth Third Bancorp of Cincinnati and the core-processing vendor Fidelity National Information Services Inc. of Jacksonville have signed agreements with Western Union for remittances, he noted. "There is a lot more to building a remittance service than linking up with another bank."
