The Market for Money Transfers: Ranking of Remittance Service Providers in Latin America and the Caribbean
By Manuel Orozco
October 24, 2012
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This document presents a scorecard of the trends in market competition among remittance service providers (RSPs), focusing on ten United States to Latin America and Caribbean country corridors. These corridors represent a 75% share of the $65 billion market. We analyze data collected on a range of twelve indicators, examining factors that are relevant to the money transfer industry. These indicators include product offerings, country coverage, transfer costs, and payment networks.The results indicate that competition continues concentrate on a few money transfers companies. Results also indicate decreasing costs, whereby most RSPs converge near average fees or foreign exchange margins.
These companies no longer focus on cash-to-cash transfers as their main product offering; instead, many have diversified their services. Moreover, these remittance service providers partner with nearly 7,000 institutions operating through over 200,000 payout locations, 140,000 of which are in Mexico. The preferred payout agents are banks, whereas microfinance institutions continue to play a minimal role. Presence in rural areas is also significant.
The significance of these findings points to some relevant issues. First, there is growing competition: over 70% of payment locations are now controlled by ten international companies, whereas the remaining RSPs are smaller players that operate in three countries or fewer. These leading companies are increasingly sharing the same payers in each country, offering similar pricing and penetration of rural areas. Second, average transaction costs continue to be just over 5% and have remained in that range for the past four years. Third, the number of services provided by RSPs has expanded significantly, allowing consumers to take advantage of new sending methods. Similarly, the number of payout locations and payers has also expanded. This expansion, however, is most pronounced in Mexico. This is in large part due to the new role of bank corresponding institutions in Mexico.