Banks and Remittance Services

Characteristics of the Remittance Market And How Banks Can Best Approach It

Outline
 Introduction to Remittances  Opportunities  Challenges  Solutions

Introduction to Remittances
 Remittances are the traditional financial support for

families back in their home countries.
 This phenomenon is generated by a movement of labor

across borders that constitutes an international labor market in which

people move north by the MILLIONS

and money moves south by the BILLIONS..

Introduction to Remittances
 Billions in Flows - Hidden in Plain Sight

billion to Latin American in 2007  $250 billion worldwide (estimate)  Larger than foreign assistance and foreign investment to Latin America combined  Total to Latin America to reach $500 billion by 2010

 $60

Introduction to Remittances
 Almost unnoticed for decades
 Average

remittance is small in size  Senders typically reside outside the formal financial system
 Government

Officials Now Jumping into

the Game
 Urging

banks to enter the market  Raising compliance hurdles

Remittance Senders and Receivers
 Senders are Migrants Here to Earn Money
 Typically

low-income (60% earn $30,000 or

less)  Half are “Unbanked”  Faithful in their Remittance Habits
 Receivers are family members back home
 Heavily

dependent on these flows  Often live in rural areas far from formal financial institutions

Top 20 Remittance Receivers in 2006,
($ billion)
0
India China Mexico France Philippines Spain Belgium Germany United Kingdom Morocco Serbia Pakistan Brazil Bangladesh Egypt Portugal Vietnam Colombia United States Nigeria

5

10

15

20

25

Opportunities

Opportunities: Hispanic Market
 How big a market?  Purchasing Power?  Legal Status?

40 million Latinos $1 trillion in 2008 80% are legal residents

 Time in the US? Three-fourths in US more than 5 years  Remittance Senders?

13 million senders

Opportunities: Remittance Market is Changing
 Many new entrants over last decade.  Fees being driven down by:  New participant  New technology  Increased transparency  Regulatory intervention has changed the business.  MTOs face growing compliance headaches. (KYC, BSA, USA-Patriot)  Many MTOs lost their commercial bank accounts. (MTOs as high risk businesses)  The market is undergoing a shakeout and

consolidation period.

Opportunities: Field Wide Open for Banks?
 Remittances can be an anchor service to the

fastest growing retail banking segment in US -- Unbanked immigrants.

 Requires different ways of doing things.  Requires serious commitment.  And, compliance is a major concern.

Challenges

Specific Challenges for Banks
 Small

value, high volume international payments. bank infrastructure such as SWIFT is not practical and too inefficient. high compliance requirements. customers are accustomed to and expect personal attention. result in high per transaction costs.

 Existing

 Relatively

 Remittance  All

Challenges: Technology is Key
 Revenue -- Roughly 1% of transfer value  Technology becomes important to reduce

costs and fulfill compliance requirements.
 Remember

that remittance senders do

not usually use payment cards or ATMs.
 Tellers are necessary as the point of entry.
 Technology

again important to reduce

remittance processing time for tellers.

Challenges: The Ideal Business Cycle
What is the Ideal Business Cycle for Banks?
 New

customers come to the bank to they open checking accounts

send remittances;
 Eventually

and use ATM and payment cards to send money;
 Ultimately

they purchase other services.

Solutions

Solutions: Options for Banks?

Rely on card to card transfers.  Problem: remittance senders don't have bank accounts and have little incentive to go to a bank (recipients are also mostly unbanked). ACH extension provides great infrastructure where the remitter and recipient have bank accounts.  Problem: lacks an efficient system to administer transactions and carry out compliance checks. Summary: To effectively enter the market banks need a reliable and compliant system that allows cash payments in addition to ACH.

Solutions
 ARIAS is one such system.  ARIAS was developed by MicroFinance

International of Washington, DC to address the specific challenges faced by banks.

ARIAS Remittance Solution
What is ARIAS?  State of the art Internet-based remittance processing system
 Global distribution network to 85

countries.

ARIAS Remittance System
 Efficient:
  

Transactions – Less than a minute Transparent pricing – Keeps it simple for everyone Provides daily COB reports and settlement via ACH

 Low-cost to bank and customer:
  

Web-based – No investment in hardware or software User-friendly – Easy to train employees Low fee per transaction – Allows competitive pricing

 Handles the Compliance Issues:
 

KYC - All remitters registered & ID required as per bank policy Transactions Automatically Monitored:  System checks senders and recipients against OFAC SDN list  All transactions monitored for suspicious activity, SAR and CTR requirements

ARIAS Distribution Network
 Global reach: Latin America, Asia, Africa,

Europe and the Middle East  Convenient locations – even in remote and poor communities
 Convenient payment options:
 No account ever required  Choose cash pick-up, deposit

to account, home delivery or deposit to cell phone, (depending on the market preferences in each country) available immediately

 Funds

User Support
 Help Desk

user and technical assistance  Available 24/7  Multi-lingual  Marketing  Full-time multi-lingual marketing staff  Translation of text  Design materials  Promotional events

 Provide

Conclusion
By choosing a system which:

Makes transactions and compliance efficient, and that Includes a distribution network of convenient, professional paying locations,

Banks can offer an affordable and competitive money transfer product, earning additional fee income, and gaining access to new customers.

More Information?
For more information on the ARIAS, contact:
Heather Bach Vice President Business Development ARIAS Financial Solutions / MFIC 1325 Massachusetts Avenue, NW Suite 250 Washington, DC 20005 Tel: 202 737 5490 hbach@mfi-corp.com
www.ariasfs.com

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