The Remittance Landscape

Canada and the United States

1

Remittance
The transfer of money, most commonly, by a foreign worker to his/her home country.

2

According the the World Bank, global remittance flows amounted to $305 billion USD in 2008. [map shows 2006 figures –
when the total number was $300 billion USD]

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Remittances Have A Huge Impact On Developing Countries and the Global Economy

Amount of money that flows through remittances is massive. The World Bank estimates global remittances totaled $397 billion in 2008 ($305 billion of this going to developing countries).

The money sent home by migrants is the second largest financial in-flow to many developing countries, exceeding international aid.

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Many Developing Countries Are Dependent On Remittances
Highest Total Remittances Received Top Three Countries (2001)
Philippines (total remittances accounted for 8.9% of GDP)  India (total remittances accounted for 2.0% of GDP)  Mexico (total remittances accounted for 1.6% of GDP)

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Many Developing Countries Are Dependent On Remittances
Latin America and the Caribbean received a total of over 66.5 billion USD in 2007 (75% of this money from senders in the US), accounting for more than 10% of GDP and exceeding the dollar flows of the largest export product in almost every country in the region. Remittances to Somalia represent 25-40% of the total gross national product.

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Countries Most Dependent on Remittances
(based on remittance contribution to GDP – higher than 7.5%) [2006]
g Eritrea
Tajikistan Laos Cape Verde Kyrgystan Grenada West Bank/Gaza Guyana Afghanistan St. Vincent Liberia Lebanon Lesotho Honduras Burundi 37.9% 36.7% 34.5% 34.2% 31.4% 31.2% 30.2% 30.1% 26.9% 26.4% 25.8% 25.2% 24.1% 24.8% 22.8% Suriname Haiti Comoros Georgia Jordan Armenia St. Kitts Jamaica El Salvador Fiji Gambia E. Timor Uzbekistan Nicaragua Nepal Bangladesh Sri Lanka 21.2% 21.1% 21.1% 20.2% 18.9% 18.5% 18.5% 18.3% 18.2% 18.2% 17.0% 17.1% 17.0% 14.9% 14.1% 13.1% 12.7% Philippines Mali Sierra Leone Belize Vietnam Morocco St. Lucia Guatemala Dominican Republic Barbados Azerbaijan Bolivia Guinea Burkina Faso Ecuador Cambodia 12.5% 12.5% 11.5% 11.4% 11.2% 10.7% 10.4% 10.1% 9.8% 9.4% 9.3% 8.7% 8.6% 8.2% 7.8% 7.8%

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Not Just Money Flowing Out: Remittances Also Benefit Developed Countries
g

Revenue is generated for developed country economies by businesses involved in money transfer. Canada and the United States need immigrant labor. The opportunity for remittances is a major draw for immigrants.

 

The dependency relationships sustained by immigrants through remittances create telecommunications, travel and other revenue that are financially important to their host countries.

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Who Sends Remittances?

Immigrants from developing countries. Newer immigrants vs. those who have been settled in Canada or the US for years.

g

Immigrants from countries that export large numbers of lowskilled migrants Temporary migrants more and heavier users than permanent immigrants.

These statements present only a partial profile. We were not able to find much demographic material on overall remittance senders.
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Major Remittance Sending Countries
g

United States  Canada  United Kingdom  Germany  Switzerland  Saudi Arabia  Spain  France

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Major Remittance Receiving Countries
g

Mexico  China  India  Philippines  Latin American and Caribbean countries  Pakistan  Bangladesh  Moldova  Bosnia

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How Remittances Are Transferred from Canada and the United States
FORMAL

g

INFORMAL

Money transfer agencies Banks Postal service money orders and money transfer services Cell Phone companies Online money transfer
(PayPal, Ikobo, Moneybookers, etc.)

Money hand delivered Informal value transfer systems (halawahs, hundi,
fei chi'en, phoe kuan)

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Remittances = Money Transfer Services
Money transfer agencies still dominate the formal remittance market, although they have been losing share in recent years to banks and other remittance methods (cell phone remittance in the Philippines, for example).*
g

*Some countries (ex: Somalia and Cuba) use informal remittance channels almost exclusively.

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Overall Remittance Market Dominators – Canada and the United States
Banks and credit unions represent a small fraction of the remittance market in the US and Canada. Both market leaders are pure money transfer agents.
g g

Western Union/Vigo  MoneyGram

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Remittance Senders Choose Money Transfer Services (MTSs) over Banks

If not using informal methods, reasons immigrants choose money transfer services over banks: MTSs are fast – Bank wire transfer can Remittance sender and/or receiver are take up to a week to clear. without bank accounts MTSs offer wider distribution networks or have a near monopoly in receiving country g Fears around undocumented immigration status keep some immigrants away from banks Banks are not prevalent in the immigrant's home country Sender feels unable to meet ID requirements for a bank account Higher bank remittance fees (whether this is the case depends on the country in question) Cultural or religious discomfort with formal financial institutions Language barriers

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Banks Push Into Remittance Market More and More
Traditionally banks did not see remittance transfer as worth their efforts but now that the market is massive, US banks have been taking steps to attract remittance business: Banks in the US have made it easier for immigrants to open a bank account by accepting alternative and foreign forms of ID (ex: IRS Individual Taxpayer ID Number in lieu of Social Security Number, Mexican Matricula Consular card) Expanding their presence/services in other countries, so that they can provide the distribution networks that immigrants want. g Adding foreign banks to their networks. When Citibank bought Mexican banks Banamex and Serfin it then offered a transnational credit card that allowed for money to be sent between Mexico and the US easily. Making pricing more attractive (at US banks) to remittance senders.

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Financial Barriers to Entry For Banks

The need to build or buy into distribution networks in other countries.

Current wire transfer procedures are more teller-intensive than some other tasks (paperwork must be filled out) while banks have been focusing on cutting costs by reducing teller services and paperwork.
 

g

Many markets already well covered by Western Union and/or Moneygram – so banks would have to find a way to break in and compete.

Need to completely overhaul their current wire transfer services (small, unadvertised parts of their businesses) to become remittance tools.

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Cultural Barriers to Entry For Banks

Remittances are sent by low-income people who banks do not see as their target customers.

Bank may have little experience dealing with the languages and cultures of the customers who would send remittances and these kinds of “foreign” customers may be outside of their ideal target.
 

g

Remittances are often sent to developing countries and rural areas while many banks are more interested in positioning themselves in lucrative, urban markets in affluent countries.
  

Banks have traditionally focused their energies on large transactions – so would have to change their thinking to focus on smaller transactions.

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Major Players (Banks) in Remittance Market - Canada
Bank of Nova Scotia/Scotiabank  Canadian Imperial Bank of Commerce (CIBC)  Bank of Montreal (BMO)  Toronto Dominion Bank (TD Bank)  Royal Bank of Canada (RBC)  ICICI Bank [Industrial Credit and Investment

g

Corporation of India - Indian bank]
Note that none of the Canadian banks have a specialized remittance product. Remittances that flow through these banks do so through their regular wire transfer services.

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Major Players (Banks) in Remittance Market – United States
g

Citibank  Wells Fargo  Harris Bank  Bank of America  Mitchell Bank (Milwaukee)

These US banks all have specialized remittance products in addition to their regular wire transfer services.

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Factors That Impact What Senders Pay
g

Available options/competition. Prices are higher when there is little competition.  Users' awareness of options.  Conditions in the sending and receiving countries (ex.

Banks will not be an option in rural areas of many developing countries; banks are not as prevalent as money transfer stores in many N. American urban neighborhoods)

Costs associated with the services  Greed

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Key Features Senders Pay For
Money transfer service g customers ostensibly pay for... Speed: Instantaneous transmission of funds. Wide distribution networks: ”Send to anyone, anywhere.” Convenience: Multiple locations in many localities; Pay higher fees for extra conveniences like telephone money transfers and payment by credit card. Safe transfer of money: Electronic transfer over a secure network means there isn't the risk of sending cash.

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Money Transfer Fees
Money Transfer Services

g

Bank Wire Transfer Wire Transfer Fee – Usually a flat rate;sometimes dependent on your method of payment (ex: from checking account vs. cash), the payment destination or the amount of money being sent. Currency exchange rate – Set by the bank, usually has little relationship to the real currency exchange rate. Banks profit from the difference between the rate they charge and the actual rate.

Transfer Fee – Usually a flat rate;sometimes dependent on your method of payment (ex: cash vs. credit card), the payment destination or the amount of money being sent Currency exchange rate – Set by the transfer service, usually has little relationship to the real currency exchange rate. Companies profit from the difference between the rate they charge and the actual rate. Additional fees [not as common] – Some services charge an additional fee for certain kinds of transactions (payment by credit card) or for delivery to foreign bank accounts.

Additional fees – Most banks charge extra fees (variously called “communications fees” “service charges” or “commissions for inperson wire transfer. Usually a percentage of the amount being sent.

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Bank Wire Transfer Pricing - Canada
(International transfer of money only)g

Highest Wire Transfer Fees CIBC ($30 + “cable” fees)  RBC (In-branch fee is $35 + $10-15 “communications” fee.)  HSBC ($30 online; $25 in-branch +.15% of amount being

sent or between $10-$150)

Lowest Wire Transfer Fees TD Bank ($10 flat fee)  RBC ($13 flat online fee)

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Major Money Transfer Service Pricing
g

Western Union* (Canada – transfer fees between

$10-27 CDN depending on method; US - between $12-25 USD depending on method)  Moneygram* (Canada – transfer fees between $8-10 CDN; US – between $8-10 USD.)  Paypal (No transaction fee for personal accounts. Paypal levies a 2.5% currency conversion fee and charges a fee to make withdrawal from a non-US bank possible.
* Company set exchange rate also applies.

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Niche Money Transfer Service Pricing
g

Outside of Western Union and Moneygram, there are a number of smaller money transfer providers who concentrate on specific remittance channels. Since they must compete with the giants, they often offer consumers better pricing.

Senvia (Covers Jamaica, Trinidad, India and Guyana. US

and Canada: Fees start at $5/cash transaction. Credit/debit card transactions charged additional 2.5% of the transaction.)  Remit2India (Canada – transfer fee is $15 CDN; US fee is $3 USD.)

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Bank Wire Transfer Pricing – Major U.S. Banks
g Citibank – Regular wire transfer fees high at $30.00 online and $40.00 inperson, but have special, low-priced remittance product (Citibank Global). Prices are lowest for Mexico and India (no transfer fee]), the Philippines and Poland ($5 transfer fee); a $10 transfer fee applies for other countries.
Wells Fargo – Regular wire transfer fee is a flat $30.00, but the bank has a special, low-priced remittance product (Wells Fargo Express Send) that it is using to drive bank account creation. Express Send applies to Mexico, El Salvador, Guatemala, the Philippines, India, China and Vietnam. Transfer fees range from $5-10. Bank of America – Regular outgoing wire transfer fees at $45/transaction in USD and $35/transaction in foreign currency. Bank of America has a special remittance product (SafeSend) for Mexico. There are no transfer fees and offers same day sending and receiving. Must have a Bank of America checking account to access SafeSend.
Note: All of these programs require recipients to go to particular banks/branches to pick up money.

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Conclusions
g
OVERALL There are a number of available remittance sending options outside of Western Union, MoneyGram and the banks and a range of different pricing. Western Union and MoneyGram continue to dominate the market because they offer speed, convenience and huge distribution networks. They also have positioned their services to win immigrant customers (locations in immigrant neighborhoods, bilingual employees, few formal requirements for use, etc).

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Conclusions
United States g Most immigrants use informal money transfer or money transfer services. Many more remittance options are available in the US than in Canada (specialized transnational credit and debit cards, specialized bank services, etc). US banks have developed specialized remittance products with lower pricing than their wire transfer services to tap the remittance market. The banks have designated remittance users as target customers and taken steps to remove obstacles to their use of the bank. US banks have bought foreign banks or formed partnerships with them in order to enter the remittance market.

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Conclusions
Canada

g

Most immigrants use informal money transfer or money transfer services to remit money to their home countries. Western Union and MoneyGram dominate. Canadian banks, so far, have not created specialized remittance products. They continue to offer largely unpublicized, traditional (expensive) wire transfer services as their only international money transfer product. Aside from price, there are several obstacles to convenient use of bank services for remittances. Entering the remittance market full-scale, as US banks have done, would require an investment on the part of the banks in marketing, distribution networks, procedural and cultural changes, etc.

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