Tapping Into Money Wiring

When Bank of America Corp. announced a couple of weeks ago that it was expanding more aggressively into the business of helping Mexican immigrants send money back to their homeland, you might have thought that a money-transfer company such as Sigue Corp. would become alarmed.

As Sigue Vice President Manuel Diaz sees it, though, it’s the big bank that should worry.

Although Bank of America agreed to buy 25% of Mexican banking giant Grupo Financiero Santander Serfin -- whose 926 branches will dramatically expand its money-transfer opportunities to Mexico -- San Fernando-based Sigue believes that it holds a huge advantage: a pervasive presence.

Its thousands of agents are at groceries, flower shops, shoe stores and electronics outlets on both sides of the border, ready to handle the paperwork -- and take a commission -- on a crush of cross-border transactions each day.

“Santander can’t cover every corner of Mexico,” Diaz said. “We deliver where others can’t.”

Although Bank of America, Wells Fargo & Co., Citigroup Inc. and 100 or so other banks are betting they can make inroads in the lucrative remittance trade, they face a slew of established rivals -- from tiny storefront operations to mid-size companies such as Sigue, to First Data Corp.’s Western Union Financial Services Inc. and Viad Corp.’s MoneyGram Payment Systems Inc.

“There are very significant barriers for the banks,” said Roberto Suro, director of the Pew Hispanic Center, a Washington research group.

Indeed, though traditional money-wiring shops often charge more than the $10 per transfer service promoted by the banks, many Latino immigrants view them as convenient and nonthreatening. Money-transfer customers also are put off by bank fees for such things as overuse of automated teller machines and failure to maintain minimum balances, according to a Pew study released last month.

Hoping to overcome the obstacles, executives at Charlotte, N.C.-based Bank of America have been talking up their plans to serve the 21 million U.S. residents of Mexican ancestry -- a vast, fast-growing and largely untapped community.

The largest retail bank in California and the nation, Bank of America started a money-transfer service last spring that allows Latinos to load cash into ATMs in this country so their family members or friends can withdraw it from ATMs in Mexico. Now, its decision to acquire a $1.6-billion stake in Santander Serfin, Mexico’s third-largest financial institution, has intensified the battle for cross-border banking business.

San Francisco-based Wells Fargo started a bank-to-bank transfer program in 1995 and began publicizing it heavily in 2001. New York-based Citigroup has its own ATM transfer service and last year bought Grupo Financiero Banamex-Accival, parent of Mexico’s largest bank.

The banks hope to provide a range of services to Latinos, but it’s easy to see why they want to start with fund transfers: Immigrants send more than $23 billion annually to Latin America and the Caribbean.

Banco de Mexico says money transfers to Mexico hit $10 billion this year, up from $6.5 billion in 2000. But UCLA political economist Raul Hinojosa estimates an additional $3 billion in cash was sent but went unrecorded by the central bank.

All told, emigres have sent $80 billion back to Mexico in the last 20 years, virtually none of it through mainstream banks, said Hinojosa, calling it an enormous lost opportunity.

Analysts say the bank competition, along with class-action lawsuits accusing the major wire operations of concealing large foreign-exchange fees, has helped cut the cost of sending funds to Latin America, which five years ago averaged 20% of the amount transferred.

Today, the total fees for handling and foreign exchange run about 7% and appear headed lower, said Manuel Orozco, a Nicaraguan-born political scientist who studies money transfers for Washington-based think tank Inter-American Dialog.

But the banks have captured less than 2% of the market from the traditional wire operations, Orozco noted. He says their share will grow by about 1 percentage point a year to perhaps 8% in five years.

One reason for the small market penetration is that banks generally have targeted “acculturated” Latinos -- those who are established enough in the United States to need savings and checking accounts, credit cards and home loans.

Customers of Wells Fargo’s Intercuenta Express, which charges $10 to transfer funds from U.S. accounts to those at Mexico’s Grupo Financiero Bancomer, on average use six Wells Fargo services. That’s slightly more than the typical Wells Fargo customer and cause for celebration at a bank that prides itself on “cross-selling.”

As for Bank of America, it requires customers of its ATM-based money-transfer service to have a credit card or bank account. It costs $10 to send money to Mexico if the account is with the bank; $15 if it is not.

Eusebio Rivera, head of Bank of America’s Latino initiatives, said 37% of the new customers attracted by fund transfers eventually open accounts at his bank, which can then market them other services. He also pointed out that Latinos are the fastest-growing group for homeownership in this country.

“It’s about a lot more than just remittances,” Rivera said.

Given the fierce competition in the money-transfer business, it better be.

For its part, market leader Western Union continues to expand, with international transactions up 33% in the third quarter, spokeswoman Wendy Carver-Herbert said. As for the U.S. banks, she said their plans to convert immigrant wire-service clients into mainstream consumers of financial services would not happen overnight.

“It has yet to be seen whether banks have the patience for that strategy to work,” she said. “In the meantime, we’re sticking to our knitting.”

In addition to valuable locations, wire houses have another edge in gaining the trust of an immigrant client base: the customers’ beliefs that they can’t open a bank account because they are undocumented or that such a paper trail will lead to deportation. Although banks are trying to assuage those fears by accepting Mexican consular IDs, old habits die hard.

There is considerable “distrust to overcome,” said John Kraft, an analyst with Portland-based D.A. Davidson who tracks the stock of Western Union’s parent company, First Data. “This business has been very slow to change. It doesn’t look like new technologies or competition from banks will make a big impact anytime soon.”

Leaving the office of OrderExpress, one of more than a dozen wire-transfer agents clustered within a few blocks of South Broadway in downtown Los Angeles, a woman who would give only her first name, Concepcion, explained why she steers clear of banks.

For starters, she said, the banks she has checked out give lousy exchange rates, meaning that fewer of the dollars she earns cleaning houses around Los Angeles would make it to relatives in Mexico City and Chiapas. Banks also don’t keep the convenient hours that she finds at the kiosks on Broadway.

But the principal reason for staying away from the banks, she says, is that she is an illegal immigrant and leery of forking over too much personal information to a big institution.

“I don’t have papers,” she said. Besides, she added, “I can get what I need” at a money-transfer outlet.