Growing competition among companies that offer remittance transfers to Latin America has helped lower transaction costs for migrants living in the United States, according to a new study by the Inter-American Dialogue.
The report, which graded 39 remittance service providers operating in more than a dozen Latin American and Caribbean countries, showed the average cost of sending money abroad is currently 5 percent of the total amount remitted, down from 6 percent two years ago. “That for us is an important finding and a very positive one,” said Manuel Orozco, director of the Dialogue’s Remittances and Development Program and a co-author of the paper, during an event June 18 to mark the report’s release.
Another of the study’s key findings was that the remittance companies with the highest score—based on product offering, cost, distribution network and customer satisfaction—weren’t the industry’s most-established players or ones with the largest market share.
Instead, the top performers, which include Xoom, Wells Fargo, Vigo and Viamericas, are companies that offer some type of innovation, either through the Internet, wire transfers or a large network, Orozco said. He added that the “usual suspects”—Western Union and Moneygram—have been forced to improve their services in order to keep up with the competition.
Industry representatives welcomed the study’s findings, saying it illustrated the maturity of the remittances market and the benefits of competition. “I think [one of] the most important lessons … is the fact that the industry has done its homework,” said Sergio Ruiz, chief executive of Uruguay-based More Money Transfers, citing lower prices, better product offerings and alternative methods of payment. He added that there is still plenty of room for improvement, especially when it comes to standardizing government regulations across different countries in the region.
Viamericas CEO Paul Dwyer said the industry’s success in lowering prices shows it doesn’t need any further regulation, and he criticized a provision in the U.S. financial reform bill that would impose new transparency requirements on remittance companies, requiring them to post exchange rates several times a day. The measure was included in a bill that passed the Senate last month, and lawmakers are currently working on a compromise of the House and Senate versions.
Dwyer said lawmakers should “back off a little bit” and not add operating costs to a business that’s doing well. He added that the best way for regulators to lower costs for customers would be to make it easier for remittance providers to open a bank account. Many banks are hesitant to offer accounts to remittance companies out of fear their accounts will be used to launder money.
Regulators are also concerned that unlicensed money transfer networks could be used to fund illicit activities such as terrorism, according to Scott Rembrandt, a policy advisor at the U.S. Department of the Treasury. During the question and answer session, Rembrandt suggested unlicensed money transmitting might have helped send funds to the alleged Times Square bomber. He said the government is “very interested” in finding ways to bring unlicensed firms into the formal sector.
Orozco said that in a highly formalized market such as the U.S-Latin America corridor, only a small portion of remittance companies—maybe five out of 100—fail to comply with the appropriate regulations. He said state and federal regulators should focus greater attention on remittance agents, who operate independently of the companies, and step up on-site screening and data collection. “Regulators need to go out in the street and understand how the market works,” Orozco said.
The roundtable luncheon also included comments from Andrea Fernández of More Money Transfers and Paloma Monroy, advisor to the World Bank's Remittance Pricing Database.
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