Banks are late to the remittance party

Migrants remit $375 billion of cash across borders each year, but banks only touch 10% of wire transfer trade. Plans are afoot to improve this market share.
The numbers are breathtaking. There are more than 200 million migrant workers in the world and two-thirds of these people regularly send money home to relatives. That money is received by families that have at least four family members and that means, when you do the calculation, that one in eight people on the globe are direct or indirect consumers of remittance services. Many of these people are based in Asia.

ItÆs an opportunity that hasnÆt been missed by companies like Western Union and MoneyGram, two of the biggest providers of money transfer services, money orders, and bill payment services to consumers. Western Union makes $3 billion annually from these services.

Traditional banks, however, have long since ignored the business, touching only 10% of all wire transfers. They have stuck instead to high value payments and the cross border payment needs of corporates rather than migrant workers. ôFor many years we have told these people that we didnÆt want them as customers,ö says Sandra Reilly, director of CitigroupÆs microfinance group, addressing a focus session at Sibos 2006. ôBanks are only now waking up to the fact that this can be a new and very valuable product.ö

The business hasnÆt skipped the attention of global bodies like the World Bank and the Bank for International Settlements. In a world where standardisation and good governance are common buzzwords, these organisations have published a set of general principles to regulate international remittance services. The initial principles were published in March this year and a final document will be published in January 2007 following a consultation period.

The principles cover transparency and consumer protection, payment system infrastructure, laws and regulations, market structure and competition, and governance and risk management.

Commenting on the current market structure and level of competition, Massimo Cirasino of the World Bank, says the playing field in remittances isnÆt level because of the different regulations governing different institutions. ôSome of the non-bank players donÆt have to comply with the same regulations that bank players do,ö he says. ôBy the same token, these non-bank players donÆt have access to the same payment infrastructure that banks can tap into.ö He says a more level playing field is needed to ensure more efficient, cheaper services for end users.

IndiaÆs ICICI Bank is a new entrant in the remittance game. Manish Misra, the bankÆs joint general manager and head of global remittances, says ICICI made the decision to enter the market four years ago. ôSince then our volumes have grown by a compound annual growth rate of 274%. Our experience shows that remittances should be a core component of any retail banking strategy,ö he says. ôBanks are in a perfect position to provide these services because they have the branches, the correspondent banking relationships, the back office processing staff and the technology.ö Misra says the product is a very sticky one and leads to other business such as foreign exchange, float and liquidity products.

Following the session, attendees were polled on their opinions about remittances. 36% of the banks in audience said they would like to use migrant remittances as a customer acquisition tool but more than a third of attendees said the high processing cost of cross border consumer payments was a significant barrier to entry. Asked what they needed to do most to achieve their remittance business goals, 33% said design a single scalable platform to make it happen. 79% then said this could be achieved if banks co-operated together.
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