Competing for Remittances

USA (By Joseph Mann, Sun-Sentinel) December 19, 2004 - Susana Parra, an Ecuadoran who lives in Oakland Park, sends money home to her family in Guayaquil every two weeks to help pay for groceries and other living expenses.

Parra, who earns money by cleaning homes, previously used Western Union to send funds by wire, but switched to a competing, lower-cost service, DolEx Dollar Express, that makes payments to her mother and her nephew via a bank.

"I changed because Western Union is very expensive," Parra said. "Now I pay $3 or $5 for sending $100, depending on which bank I use. And the service is very good. If I send money by 8 or 9 in the morning, it's there by 1 in the afternoon." Western Union's online calculator said it would cost $15 to send $100 to Ecuador.

Parra is one of millions of Latin American and Caribbean immigrants, both legal and illegal, in the United States who regularly send money to family and friends in their home countries.

These consumer-to-consumer remittances will total about $30 billion this year, according to a report by the Inter-American Development Bank's Multilateral Investment Fund and the Pew Hispanic Center. Florida's burgeoning Hispanic population alone will account for an estimated $2.5 billion.

The personal remittance market is dominated by Western Union, the largest division of Greenwood Village, Colo.-based First Data Corp., which last year had revenues of $8.4 billion, mostly from transfers. But more and more companies, including other transfer agencies like DolEx and Money Gram, banks and online firms are fighting for a piece of this highly profitable business, which generates a fee for each transfer.

Even though competitors don't have a system of agents as large as Western Union's, they are attracting customers by offering lower rates. At a Western Union outlet in Fort Lauderdale, for example, it costs $15 to send $100 to Mexico or Venezuela. At a Money Gram outlet a few blocks away, the fee is $9.99 for Mexico and $8 for Venezuela. In both cases, the companies say, the money arrives at an agent in Latin America within a few hours or less.

Fees vary according to how much money is being sent, how fast it must arrive, the destination and market size.

Typically, a transfer company asks the sender, who usually pays cash, for the name and address of the recipient. Payment can be made at an authorized agent in the foreign country, which could be a foreign exchange house, a bank or other business.

To collect, the recipient must show a valid identification card and provide a code word or number, which is usually sent by telephone. There are limits on transfer amounts to avoid illegal operations, such as exporting the proceeds of narcotics sales.

Niche players

Money transfer companies appeal to many immigrants, especially new arrivals who do not have bank accounts in the United States, since cash can be sent quickly to many locations. Moreover, those receiving money often do not have an account in their home country.

"There is a lot of new competition, a lot of niche players who have come in to serve this market," said Cathy Rebuffoni, communications manager for Travelers Express, which owns Money Gram, the second country's second-largest money transfer company.

Minneapolis based Travelers Express, which started out as a money-order firm in 1940, acquired Money Gram in 1998. "It's our growth engine," Rebuffoni said.

To reach immigrants, DolEx and Money Gram have opened outlets in food stores, laundries and other small businesses throughout communities where Hispanics live. A tiny market on Dixie Highway in Oakland Park, for example, has a Money Gram service that does a brisk business sending cash to Mexico and Central America.

In Doral, a small, independent company, Efectivo Money Transfer Corp., makes most of its transfers to Colombia and Central America. Western Union sells transfers at check cashing agencies, Publix supermarkets, corner stores and other locations.

Debit card push

Banks are interested in attracting immigrants, who are often reluctant to open bank accounts, since they see today's migrant farmer as tomorrow's mortgage customer. Fidelity Federal Bank & Trust Co. of West Palm Beach, whose 43 branches cover an area heavily populated with migrant farm workers from Mexico and Central America, is developing its own debit card program for use overseas, said Elena Contreras, vice president in charge of Hispanic community business relations.

Under this program, which would be affiliated with Visa or another network, employers can deposit a worker's pay into a "smart card" account linked to a debit card. The employee, who would not need to have a checking account with the bank, can use the card at stores and ATMs in the United States. Cards can also be sent to family members in other countries to obtain cash from an affiliated ATM.

Fidelity currently is rolling out a program with debit cards issued by Paychex Inc., a payroll services company, for employees of its corporate clients. Employees can have their pay credited to a Paychex card, which can be used here and internationally as a type of debit card through an affiliated ATM network.

"When migrant workers gets a paycheck, they don't have bank accounts and have to pay a fee to cash the check," Contreras said. "Many farm workers who carry cash have been robbed. A smart card is convenient and safe, since they have the cash available."

New products

Big banks, which have transferred funds by wire and draft for decades, are also adding new products to appeal to a broader immigrant market.

Bank of America, with 5,700 offices and 16,000 ATMs nationwide, launched its SafeSend transfer card program in 2002 to attract transfer business from Mexican immigrants who don't have an account at the bank. A sender can phone, go online or visit a branch office to order a debit card that can be used at about 26,000 affiliated ATMs and 120,000 merchants throughout Mexico. The card is sent to the recipient by courier, and money can be added from the U.S. side at any time.

A small company in San Francisco that started offering an exclusively online transfer service for Latin America is focusing on Latins who own computers or who have access to them through friends, jobs or community centers and stores.

"We found that the Hispanic population in the U.S. is more computer literate than the general population," said Jonas Halpren, marketing manager for Xoom Corp., which was set up in 2001 to send transfers to the Dominican Republic. The company decided to start with the Dominican Republic, Halpern said, "because it was a strong remittance market and wasn't being served very well."

Since then, Xoom, which now reaches 14 countries, including eight in Latin America and the Caribbean, has slowly been building its overseas network. Xoom partners with local foreign exchange agencies and banks, Halpern said.

To order by Xoom, which now has 30 employees in the United States, customers go to the company's Web site, fill out a form and pay using an electronic check, debit card, credit card or PayPal.

Xoom's fees are lower then Western Union, but its coverage is much smaller and its standard service may take one to two days. The fee to send $100 to Jamaica, for example, is $8, to Argentina and Brazil, $7.60, and to the Dominican Republic, $8.38. The fees for Xoom's alternate eCheck service, which requires up to five days to complete the transfer, are even lower.

"Western Union used to be the only game in town, but Money Gram and other services are taking away their market," said Ricardo Pereira, owner of America Servi Express, a money transfer and payment center in Fort Lauderdale that offers transfers via Money Gram and Vigo. "Clients compare prices and are looking for the best rates."