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FINANCE:
Migrant Workers
Said to Gain as U.S. Money
Transfer Business Revamps
Ulysses de
la Torre
NEW YORK, (IPS) - The cost
of transferring money across
borders continues to fall,
giving millions of migrant
workers in the United States new
options for sending home
billions of dollars in earnings.
The entry of a variety of new
businesses providing money
transfer services -- commonly
referred to as ''remittances''
-- threatens to shake up an
industry long dominated by such
household names as Western Union
and Moneygram through a variety
of strategies involving
convenience, price, and product
tie-ins both here and in the
developing countries where the
migrant workers send money to
support family or friends.
Since December, two such
organisations have broken new
ground by offering remittances
for free, although on a limited
scale.
No Borders, Inc., a Nevada-based
provider of prepaid stored-value
cards, established partnerships
with microfinance institutions
in Mexico, El Salvador, and
Ecuador allowing migrant workers
in the United States one monthly
free remittance of up to 350
dollars. Bank of America
announced in January that its
account holders could send money
from Chicago to Mexico for free,
with plans to roll out the
initiative nationwide by the end
of the year.
Just above the zero-cost
threshold, various other
providers of prepaid
stored-value cards, which
function similarly to prepaid
debit cards, charge fees of 3-5
dollars to send up to 1,000
dollars, significantly
undercutting the average 14.99
dollars fee that Western Union
charges for a 300-dollar money
transfer from the United States
to Mexico.
Despite entering the market four
years ago, commercial banks only
command five percent of the
market but the real potential
lies in partnerships they can
form with card providers, from
well-known brands like Visa to
newer start-ups like No Borders.
This has prompted several Wall
Street analysts to downgrade
their outlook on First Data
Corp., the parent company of
market leader Western Union.
''We think it's going to be
difficult for First Data to
build out an even network under
the same formula they've used
historically,'' said Chris
Mammone, a Deutsche Bank analyst
covering the industry. ''They're
definitely going to gain
significant share because they
are who they are but it's not
going to be at nearly the
margins they've enjoyed
historically and the growth
probably will have a shorter
ramp, too.''
Mammone added that he expects
the U.S.-Mexico remittance
corridor to be the prototype for
the rest of Latin America as
well as for India and China, but
that competition will become
fiercer as technological
advances continue.
A February research report from
investment bank UBS went even
further in suggesting that
because existing use of credit
and debit cards in Europe and
Asia is much greater than in
Latin America, customers in
those regions should have a much
quicker learning curve in
adapting to card-based
technologies to send and receive
remittances.
''Banks in and of themselves are
probably not that big a threat.
Banks teaming up with their card
associations like Visa and
MasterCard to go after this
market would be a much more
serious threat to the First
Datas of the world,'' UBS
analyst Adam Frisch told IPS.
Apart from allowing senders and
recipients to share the same
balance, prepaid cards have a
much larger distribution
network: 22 million merchant
locations or 945,000 automated
teller machines (ATMs) linked to
Visa and similar numbers for
MasterCard. Western Union, by
comparison, only has 220,000
locations worldwide.
The UBS report also estimates
that of the approximately 150
billion dollars sent globally
last year, remittances channeled
through prepaid cards represent
a 16-20-billion-dollar revenue
opportunity worldwide for
receiving countries.
A separate report released by
Aite Group, a financial services
consulting firm, estimated that
there were 145,000 prepaid
money-transfer cards in the
United States last year, a
figure which it expected to grow
to 1.1 million in 2006.
Lilia Alvarado, vice-president
of Hispanic banking at
Chicago-based Harris Bank, said
Harris used to offer
stored-value cards but found
that they weren't popular among
customers.
''It's probably a lack of
marketing,'' she said. ''Once
people realise what the benefits
and features are, I'm sure it
will increase, but it's going to
take them a while to get them to
that comfort level and learning
curve.''
The extent to which a remittance
service becomes a commodity like
milk, coffee or tobacco lies at
the heart of how the industry
will shape up in years to come.
Several researchers and finance
professionals agreed that while
there is no unique skill
required to transfer money
across borders, what
differentiates one service from
another will increasingly be
determined by, as Alvarado put
it, how the service is portrayed
to customers.
One of the biggest obstacles
traditionally facing U.S. banks
in this market has been a
perception among migrant workers
that banks are crisis prone,
exclusively for the wealthy, or
both.
Sergio Bendixen, president of
Bendixen and Associates, a
Florida-based public opinion
polling firm specialising in
Latin American issues, said that
this perception is now waning.
Greater challenges include a
scarcity of Spanish-speakers in
non-urban bank branches,
inflexible minimum balance
requirements to open a bank
account, and persistent
documentation difficulties
despite increasing efforts to
expand acceptability of
identification alternatives such
as Mexico's matricula consular
identity card, Bendixen said.
Meanwhile, the fragmented market
of prepaid stored-value card
providers is increasing its
reach through targeted marketing
efforts. Amigo Money, a
competitor of No Borders, plans
on marketing its prepaid cards
to the Mexican population via
popular musicians and radio
stations, while No Borders is in
the process of organising
teleconferencing events in which
migrants can communicate with
their families back home.
The immediate effect such
strategies will have remains to
be seen, but the various
movements -- and the zero-cost
initiatives in particular --
have prompted a widespread
re-evaluation of the industry's
cost structure. Several people
interviewed voiced scepticism
about the sustainability of a
zero-cost model. Daniel Ayala,
Wells Fargo's senior
vice-president of cross border
payments, said he thought costs
are actually bound to increase
due to tighter disclosure
regulations.
While players and analysts
pondered what changes sweeping
the industry would mean for
them, one spoke about the
potential impact he saw for the
global fight against poverty.
Raul Hinojosa, president and
founder of No Borders, said his
company's model has at least as
much potential as increased
foreign aid in achieving the
Millennium Development Goals.
Launched in 2000, the U.N.
statement of ambitions commits
nations to halving world poverty
and hunger by 2015.
''What our product allows you to
do is attach this whole bottom
of the pyramid, the unbanked
population in the United States,
to the bottom of the pyramid
around the planet, and the key
thing is the microfinance
institutions,'' said Hinojosa,
referring to migrant workers in
the United States and their
counterparts, roadside vendors,
and others back home who lack
access to traditional banking
services.
He said his company's
partnerships with small-scale,
community-oriented lending
institutions in Mexico is aimed
at ''making sure that the
remittances go directly into the
microfinance institutions that
can then reinvest that money in
other families that don't have
access to capital.''
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