Money-Funnel Companies Are Now Cashing In : Fund transfers: Other big names have joined Western Union in the business of money transmission.
The bills crunch with the satisfying newness of uncirculated currency.
As Luis Carlos Ortiz counts out the $1,200 that he sends to his family in Colombia every month or so, he smiles in the knowledge that he has done well since he left home five years ago.
“I buy and sell things--
self-employed,” he says with a shrug, handing the money to a transfer agent who will see it safely on its way.
The money Ortiz sends makes life a little easier for his 12 brothers and his parents. Ortiz turns pensive as he thinks of it.
“Of course,” he says, pausing to study the purple leather of his bomber jacket, “of course they depend on me.”
It is because of people like Luis Carlos Ortiz--and because of the lives they left behind--that the business of money transmission is flourishing, especially in Southern California, the most ethnically diverse region of this most ethnically diverse state in the nation.
Once the industry belonged to Western Union, which pioneered the wiring of money to the American West more than 100 years ago, and to thousands of small, independent operators.
But lately, other big names have been attracted by the financial needs of a growing immigrant market. And California, like other states with large immigrant populations, has been working to increase regulation of an industry that for years has operated in a shadowy world of hard cash and fragile dreams.
American Express entered the business in 1988, quickly growing to become the second-largest player in most U.S. markets. In just three years, the number of foreign countries it reaches has jumped to 58 from 12. And Bank of America recently unveiled DineroSeguro (Safe Money), its own money-transmission service.
The funds-transfer business “has grown tremendously as more workers come to the United States and want to send money back home,” says Elaine Bolle, vice president of marketing for Western Union Financial Services.
Of the slightly more than $3 billion in Western Union funds transfers worldwide, about $500 million moves between the United States and Mexico, she says. Nearly half of that amount comes from California, almost one third--roughly $150 million--from the Los Angeles area.
The firm also does a large business wiring money to Korea and the Philippines and, increasingly, other parts of Asia as well as Central and South America.
Many of these destinations are also served by small local companies that frequently combine funds-transfer with other businesses--among them grocery stores, check-cashing operations and the casas de cambio that exchange money.
In busy Latino shopping areas--notably Broadway in downtown Los Angeles--a raft of businesses advertise Envie Dinero Rapido (Send Money Quickly) or Giros a Mexico, Centro y Sudamerica (Money Orders to Mexico, Central and South America).
The motivation is simple: In many parts of the world, the postal system is the least reliable form of communication.
To send money out of the country from a money transmitter’s office, the consumer fills out a form and pays with cash or--less often--a credit card. The fees vary, sometimes totaling as much as 20% or 30% of the amount wired.
Western Union and American Express charges are based on a sliding scale that increases in dollars but declines as a percentage of the amount transmitted.
For example, Western Union charges $34 to send $500 to Mexico; American Express charges $30 for next-day and remote-location service. To send $750, Western Union charges $42, while American Express charges $45.
Increasingly, small, independent operators try to charge fees that are comparable or even a little lower to compete with the big names in the business.
The average customer of Western Union or American Express wires about $300 per transaction and uses the service four to six times a year, the companies say.
“Sometimes there are users that do it . . . almost religiously--maybe monthly or biweekly,” says Isaac Lasky, vice president of American Express MoneyGram International, based in Englewood, Colo.
At the receiving end in the foreign country, the money frequently ends up at a bank, a telegraph office or some other third-party agent, which then notifies the recipient. American Express also uses its worldwide network of offices to receive funds.
Although some companies boast that the funds arrive at their destination within minutes, the firms frequently run into difficulties in notifying the recipient in countries where communications systems are unreliable. As a result, it generally takes two to four days for the money to make it to its final destination.
Figures on the extent of the cash-transmission business are hard to come by, because there is no central agency that monitors the business.
El Collegio de la Frontera Norte, a Tijuana think tank that specializes in immigration, estimates that $3 billion was sent by immigrants to Mexico last year, an 8% increase from the year before.
The estimate--based on interviews with immigrants poised to cross at illegal points of entry into the United States--represents a sharp increase in the normally incremental growth in money transmission, says Jorge Bustamante, president of the institution funded by the Mexican government.
“The greatest growth came as people were legalized as residents” in the late 1980s under the Immigration Reform Act, which allowed some undocumented immigrants living in the United States to apply for amnesty, Bustamante says. As legal residents, “they were able to secure better jobs, and that has been reflected in the remittances.”
While the business can be a good one for the big players, a small operator must work hard to survive, says Luis Angel Ocon, who runs Ocon, Jaen & Ocon on Alvarado Street near MacArthur Park, in the heart of a thriving Central American community.
Ocon is an agent for American Express MoneyGram, which supports the business with signs, advertising, telephone subsidies and paperwork.
“The money that is being sent doesn’t pay for the bills in this office,” Ocon says. “Anybody who does money transfers must pair that with other services.”
American Express pays Ocon a 20% commission for his pains. But on a typical $300 money transfer, that amounts to only $3 of the $15 fee.
To make ends meet, Ocon also is a notary public, does income taxes, contracts with a travel agent specializing in trips to Central America, acts as a freight forwarder for merchandise destined for various Central American countries and even runs a courier service that hand-carries goods via airplane to Nicaragua, his native country.
At least once a month, a relative--or a relative of a relative--lugs several 50-pound suitcases to the airport and boards a flight for Nicaragua. The goods--primarily personal items such as clothing, toys, vitamins and health products that have been meticulously counted and documented at Ocon’s office--are seen through customs and left with a distributor in Nicaragua for final delivery.
“In Nicaragua, there’s a big need for all kinds of personal and hygiene products,” Ocon says as he carefully counts through stacks of socks and underwear that two women are shipping back to relatives for $5.99 a pound. “Most of the things are pretty basic for us--we could go out and buy them at a Pic ‘N’ Save or a five-and-dime. But in Nicaragua, the economy has been ruined by one government or another.”
A similar business once flourished in Orange County’s Little Saigon. Despite a trade embargo with Vietnam, pharmacists did a booming business shipping packages and money to the homeland. Some of it was within the constraints of the embargo; some was not.
But in the last year or so, Vietnam has opened up, inviting former residents home to visit. That has put a big dent in the package business, says Chuoc Vo-Ta, executive director of the Vietnamese Chamber of Commerce in Orange County.
Such immigrant-focused businesses spring up faster than authorities can regulate them. And the potential for businesses that handle large volumes of cash--including money transmitters, check cashers and currency-exchange houses--to act as money launderers for drug and other illegal operations is high, law enforcement officials say.
Yet beyond stipulating that large amounts of U.S. currency may not be shipped out of the country, there is little federal regulation of money transmission.
A patchwork of states has started to regulate the transmission companies: setting capital requirements, making the firms post bonds and periodically examining the books. California, New York, Texas, Michigan and Pennsylvania all have passed laws in recent years to control the firms.
Still, illegal operations spring up all the time, says Arlene Rutherford, deputy in charge of special licenses for the California Banking Department.
To the people who regularly visit money transmitters, price and speed are not trivial matters. But security is the most important thing.
“Most of these people are minimum-wages type of people, and they are putting on the line a week’s work,” Ocon says.
The money must arrive safely, because it is counted on by extended families of parents, brothers, sisters, aunt, uncles, cousins and close friends.
Elsa Quijada and her four brothers and three sisters work long hours to support their families in Los Angeles and to save enough to send money home to their parents and a brother with three children in Guatemala.
“Every two months we send money,” says the soft-spoken 24-year-old, herself the mother of a infant girl. “They need the money. It’s very hard in Guatemala. It’s hard to live.”