Despite a global decline in remittance volume, some bankers in the field are hoping for more competition — from their own kind.
"It's a key opportunity for the industry that some banks have not realized," Daniel Ayala, the senior vice president for global remittance services at Wells Fargo & Co., said in an interview last week. "The more banks that participate in the space, the more a consumer is going to think about going to a bank, not a remittance company," to send money.
James P. Maloney, the chairman of the $79 million-asset Mitchell Bank in Milwaukee, agreed that increased remittance activity could help all bankers, at least when it comes to marketing.
"One of the biggest challenges that we as a bank have is that people who are remitting money and have been doing it for years don't think of us as a provider of that service," Mr. Maloney said. For consumers who look first for the more convenient locations and hours offered by money transmitters, "cost isn't really a consideration, and that's what we can compete on."
It may seem counterintuitive for executives to encourage banks to enter remittances when the overall available business is shrinking. Mr. Ayala and Mr. Maloney spoke a few days after Mexico's central bank reported an unprecedented decline in remittances from the United States. Volume dropped 3.6% last year, to $25.2 billion — the first decline since 1995, when the central bank began its tracking. The drop-off was larger than expected, and the central bank said it expects the decline to continue this year.
Wells is bucking that trend for now. Mr. Ayala said last week that the $1.3 trillion-asset San Francisco company's remittance volume rose 112% last year from the previous year. (He would not disclose volume totals.)
But he acknowledged that Wells is not completely insulated from the broader trends. "We've definitely seen a slowdown in frequency and value, but we've seen an increase in number of customers," Mr. Ayala said. "They're shopping around for a better value."
Citigroup Inc. also welcomes more bank participation in remittances. In an e-mailed response to American Banker questions, Sandra Reilly, its director of microfinance products and services, said: "The more banks who enter this space, the more traditional bank focus will be on it — which has to be good for the industry and for meeting the challenges of the unbanked and underserved. … We encourage other banks to understand that these products and services are both good revenue opportunities and a gateway for obtaining new clientele."
Wells, Citi, and Mitchell Bank have tried to capitalize on the increased price-shopping by testing ways to make their prices more transparent. The tests are the subject of a report scheduled for release today by the Washington nonprofit Appleseed.
The nonprofit sponsored a study of posted pre-transaction price disclosures that would give customers more up-front information about the terms of the transaction, including how much money would be received at the other end. Typically, senders must ask for the amount that will be deducted for fees or fluctuations in exchange rates, or are informed after the fact.
During the tests, conducted from July 2007 to January of last year, the three banking companies, as well as two money-services businesses Viamericas Corp. and GroupEx Financial Corp., posted daily disclosures of their remittance prices and fees at 14 locations. Appleseed said the results demonstrated high consumer demand for such disclosures; only about 37% of the 742 customers who responded to an Appleseed survey checked the disclosures, but 86% of those who did said they wanted to see such disclosures posted at every location. "We can make a business case for promoting transparency. It did promote customer satisfaction," said Betsy Cavendish, Appleseed's executive director.
Bankers in the remittance business see it as a way to garner customers among immigrants who lack traditional banking relationships. On average, remittance customers use eight Wells products, Mr. Ayala said, or 2.27 more than the average for the entire customer base, "and the attrition is a better rate than the traditional attrition that we see" with overall customers.
Gwenn Bezard, a research director at Aite Group LLC who has spoken to Appleseed about the report, said it identified a strategy that would appeal to consumers but may be difficult for banks to adopt in the current environment. "Clearly it would require some changes to the technology, to the way that they process transactions, and some training for the call-center people," he said. "It would require quite a bit of work on the part of banks," which "have so much on their plates right now."
Those full plates may also create a barrier for entering the remittance market, a business that generally contributes to long-term relationship-building more than short-term earnings. "We're not trying to make money on it," Mr. Maloney said. "We're trying to bring unbanked people into the bank."
Mitchell has continued posting the pre-transaction disclosures on a daily basis. "The feedback that we've gotten from our customers indicates that they really appreciate it." In the long run, the business "allows us to compete with MoneyGram and Western Union based on price," Mr. Maloney said. It's "the only way a bank can compete with more convenient money transmitters."
To win more business, banks may also have to overcome the concern, particularly among illegal immigrants, that becoming a bank customer could attract the attention of authorities. Mr. Maloney said he is aware of that concern and trying to overcome it, by mimicking the identification requirements of remittance companies or check cashers.
"There still is a perception that banks have in the past required more identification than other providers," he said. "It's not true, but the perception is still there."
Wells, which discloses its remittance prices to anyone who calls a toll-free number or asks one of its tellers for the current rate, is looking for ways to implement the Appleseed-sanctioned disclosures. But Mr. Ayala said that for the moment, the disclosures are no longer being posted in its branches.
"Obviously, having a piece of paper float around is not the most efficient way to do it," he said. As rates fluctuate, "how do you update it throughout the day?"
Instead, "the solution has to involve technology, it has to be cost-effective, and it has to be real-time," Mr. Ayala said. Electronic displays, for example, are too expensive: "Any investment that you would make today in almost any industry, you have to have an incremental view and oversight. There are more competing priorities."
Despite the desire for more banks to enter the remittance market, nonbank providers are "not the enemy," Mr. Ayala said. "Don't get me wrong. They've been there when banks were not focused" on the business.
