Fed to Cut the Cost of U.S.-Mexico Transfers

From Bloomberg News

The Federal Reserve next month will lower the cost to U.S. banks of sending funds to Mexico, making it easier for the institutions to handle more of the billions of dollars that immigrants send home to relatives each year.

The changes will let U.S. banks move money across the border through the Fed's system of clearing batches of electronic payments at about the same cost as transfers within the U.S. Banks without subsidiaries in Mexico will benefit most.

The service may help banks compete against wire-transfer services such as First Data Corp.'s Western Union, which charges $9.99 for sending $300 or less overnight from Washington to Mexico. Immigrants are forecast to send $14.5 billion to Mexico this year, exceeding revenue from tourism and foreign direct investment, the Inter-American Development Bank says.

"What we're trying to do is have more of the banking system enter this market," said Pedro de Vasconcelos, coordinator for the unit of the development bank that oversees immigrants' money transfers, or remittances. The bank supports the Fed's move as a way to bring more money to Mexico by reducing fees from the current average of 7% to 10%, he said.

The expansion of the automated clearinghouse also could help other banks compete with Citigroup Inc. and Wells Fargo & Co., which already have stakes in Mexican banks and are able to transfer funds to Mexico internally.

The automated clearinghouse mechanism, also used for direct deposit of paychecks and consumer payments such as mortgages, would make it easier for a larger number of U.S. banks to handle remittances, said Bert Ely, president of Ely & Co., a banking industry consulting firm in Alexandria, Va.

"The accusation is that the transfer fees have been really outrageously high," Ely said. "The whole idea is to increase competition."

The system is scheduled to take effect Dec. 9, Fed spokesman Andrew Williams said. Mexican banks eligible to receive the low-cost transfers include units of Banco Bilbao Vizcaya Argentaria, Banco Santander Central Hispano and Bank of America Corp.

A limited number of U.S. financial institutions will participate in an initial phase that will last as long as a year, after which all U.S. banks will be eligible for the service, according to Fed documents, which didn't specify which banks would participate.

The Fed's Williams declined to comment on the details of the fees. De Vasconcelos placed the actual cost of the transfer at one-fourth of 1 cent and said banks probably would charge other banks about 67 cents plus 1% above the exchange rate for the transaction. Savings from the lower costs are supposed to be passed on to consumers, De Vasconcelos said.

Wendy Carver-Herbert, a spokeswoman for Western Union Financial Services Inc., said it was too soon to tell what effect the service would have on Western Union's business.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World