Fees Cut Deeply in Immigrant Funds

Halving fees immigrants pay to send money to relatives in Mexico, El Salvador and other Latin American countries would pump about $1.5 billion in extra cash into the region, a study released Sunday showed.

The Inter-American Development Bank, which commissioned the study, says getting more immigrants to use traditional banking institutions rather than transfer services such as First Data Corp.’s Western Union Financial Services Inc. and Viad Corp.’s MoneyGram Payment Systems Inc., would unleash more money for Latin American development.

“Only banks, credit unions and regulated micro-finance institutions in recipient countries can leverage the economic impact of remittances,” the IDB said.

About 5% of the U.S. population was born in Latin America. Along with immigrants from the region in Japan, Spain and other countries, they sent about $23.1 billion to relatives in their countries of origin, according to the IDB.

It costs about $3 billion to get this money to its destination because many immigrants lack bank accounts, as do many of their home-country relatives.

That means wire transfer companies such as Western Union and MoneyGram Systems, which charge more than banks to wire money abroad, get a bigger share of the business.

Cutting service fees would mean an extra $98.6 million for El Salvador, $90.4 million in the Dominican Republic and $48 million for Jamaica, according to the report.

“We welcome the competition,” said Wendy Carver-Herbert, a Western Union spokeswoman. “Competition benefits consumers and makes us a better competitor.”

Western Union last year began allowing customers to pay $9.99 to send as much as $300 to Mexico, compared with $14.99 to wire money within minutes, Carver-Herbert said. Western Union sets its own exchange rate, which can translate into an additional fee.

Viad declined to comment.

Mexicans remitted about $9.3 billion in 2001. The U.S. Treasury Department is discussing with Mexican officials ways to reduce payments on those transactions.

Seven out of 10 Latin American immigrants living in the U.S. send money home, with those earning $20,000 or less more likely to do so than workers earning incomes in excess of $40,000, the IDB found.

About 30% of these immigrants use Western Union to send money to their relatives and 11% use MoneyGram, while only 20% use banks or credit unions, according to an IDB survey conducted by Bendixen & Associates.

Fifty-six percent of the poll’s respondents said that just the fees they pay in the U.S. for MoneyGram and Western Union totaled $10 to $30. Only 25% of respondents said that fees paid to banks for remittances were in that range.

Bendixen conducted the survey by telephone and said its findings had a margin of error of 3 percentage points. Only 56% of the immigrants polled said they have bank accounts in the U.S.