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The Remittance Landscape Canada and the United States

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Remittance

The transfer of money, most

commonly, by a foreign worker to

his/her home country.

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According the the World Bank, global remittance flows

amounted to $305 billion USD in 2008. [map shows 2006 figures –

when the total number was $300 billion USD]

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Remittances Have A Huge Impact On Developing

Countries and the Global Economy

Amount of money that flows through remittances is

massive.

The World Bank estimates global remittances totaled $397

billion in 2008 ($305 billion of this going to developing

countries).

The money sent home by migrants is the second largest

financial in-flow to many developing countries, exceeding

international aid.

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Many Developing Countries Are

Dependent On Remittances

Highest Total Remittances Received

Top Three Countries (2001)

Philippines (total remittances accounted for 8.9% of GDP) India (total remittances accounted for 2.0% of GDP) Mexico (total remittances accounted for 1.6% of GDP)

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Many Developing Countries Are

Dependent On Remittances

Latin America and the Caribbean received a total of over 66.5

billion USD in 2007 (75% of this money from senders in the

US), accounting for more than 10% of GDP and exceeding the

dollar flows of the largest export product in almost every

country in the region.

Remittances to Somalia represent 25-40% of the total gross

national product.

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Countries Most Dependent on Remittances (based on remittance contribution to GDP – higher than

7.5%) [2006]g Eritrea 37.9%

Tajikistan 36.7%

Laos 34.5%

Cape Verde 34.2%

Kyrgystan 31.4%

Grenada 31.2%

West Bank/Gaza 30.2%

Guyana 30.1%

Afghanistan 26.9%

St. Vincent 26.4%

Liberia 25.8%

Lebanon 25.2%

Lesotho 24.1%

Honduras 24.8%

Burundi 22.8%

Suriname 21.2%

Haiti 21.1%

Comoros 21.1%

Georgia 20.2%

Jordan 18.9%

Armenia 18.5%

St. Kitts 18.5%

Jamaica 18.3%

El Salvador 18.2%

Fiji 18.2%

Gambia 17.0%

E. Timor 17.1%

Uzbekistan 17.0%

Nicaragua 14.9%

Nepal 14.1%

Bangladesh 13.1%

Sri Lanka 12.7%

Philippines 12.5%

Mali 12.5%

Sierra Leone 11.5%

Belize 11.4%

Vietnam 11.2%

Morocco 10.7%

St. Lucia 10.4%

Guatemala 10.1%

Dominican Republic 9.8%

Barbados 9.4%

Azerbaijan 9.3%

Bolivia 8.7%

Guinea 8.6%

Burkina Faso 8.2%

Ecuador 7.8%

Cambodia 7.8%

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Not Just Money Flowing Out:

Remittances Also Benefit Developed

Countriesg

Revenue is generated for developed country economies by businesses

involved in money transfer.

Canada and the United States need immigrant labor. The opportunity for

remittances is a major draw for immigrants.

The dependency relationships sustained by immigrants through

remittances create telecommunications, travel and other revenue that

are financially important to their host countries.

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Who Sends Remittances?g

● Immigrants from

developing

countries.

● Newer

immigrants vs.

those who have

been settled in

Canada or the US

for years.

● Immigrants from

countries that export

large numbers of low-

skilled migrants

● Temporary migrants

more and heavier users

than permanent

immigrants.

These statements present only a partial profile. We were not able to

find much demographic material on overall remittance senders.

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Major Remittance Sending Countriesg

United States Canada United Kingdom Germany Switzerland Saudi Arabia Spain France

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Major Remittance Receiving Countriesg

Mexico China India Philippines Latin American and

Caribbean countries Pakistan Bangladesh Moldova Bosnia

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How Remittances Are Transferred from

Canada and the United Statesg

● Money transfer agencies

● Banks

● Postal service money orders

and money transfer services

● Cell Phone companies

● Online money transfer (PayPal, Ikobo, Moneybookers,

etc.)

● Money hand delivered

● Informal value transfer

systems (halawahs, hundi,

fei chi'en, phoe kuan)

FORMAL INFORMAL

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Money transfer agencies still dominate the formal

remittance market, although they have been losing

share in recent years to banks and other remittance

methods (cell phone remittance in the Philippines, for

example).*g

*Some countries (ex: Somalia and Cuba) use

informal remittance channels almost exclusively.

Remittances = Money Transfer Services

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Overall Remittance Market

Dominators – Canada and the United

Statesg

Western Union/Vigo MoneyGram

Banks and credit unions represent a small fraction of the

remittance market in the US and Canada.

Both market leaders are pure money transfer agents.g

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If not using informal methods, reasons immigrants choose money transfer services

over banks:

g

Remittance Senders Choose Money

Transfer Services (MTSs) over Banks

MTSs are fast – Bank wire transfer can

take up to a week to clear.

MTSs offer wider distribution networks

or have a near monopoly in receiving

country

Fears around undocumented

immigration status keep some

immigrants away from banks

Banks are not prevalent in the

immigrant's home country

Remittance sender and/or receiver are

without bank accounts

Sender feels unable to meet ID

requirements for a bank account

Higher bank remittance fees (whether this

is the case depends on the country in

question)

Cultural or religious discomfort with

formal financial institutions

Language barriers

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Traditionally banks did not see remittance transfer as worth their efforts but now that

the market is massive, US banks have been taking steps to attract remittance business:

g

Banks Push Into Remittance Market More

and More

Banks in the US have made it easier for immigrants to open a bank account by

accepting alternative and foreign forms of ID (ex: IRS Individual Taxpayer ID

Number in lieu of Social Security Number, Mexican Matricula Consular card)

Expanding their presence/services in other countries, so that they can provide the

distribution networks that immigrants want.

Adding foreign banks to their networks. When Citibank bought Mexican banks

Banamex and Serfin it then offered a transnational credit card that allowed for money

to be sent between Mexico and the US easily.

Making pricing more attractive (at US banks) to remittance senders.

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g

Financial Barriers to Entry For BanksThe need to build or buy into distribution networks in other countries.

Current wire transfer procedures are more teller-intensive than some

other tasks (paperwork must be filled out) while banks have been focusing on

cutting costs by reducing teller services and paperwork.

Many markets already well covered by Western Union and/or Moneygram

– so banks would have to find a way to break in and compete.

Need to completely overhaul their current wire transfer services (small,

unadvertised parts of their businesses) to become remittance tools.

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g

Cultural Barriers to Entry For Banks Remittances are sent by low-income people who banks do not see

as their target customers.

Bank may have little experience dealing with the languages and

cultures of the customers who would send remittances and these

kinds of “foreign” customers may be outside of their ideal target.

Remittances are often sent to developing countries and rural areas

while many banks are more interested in positioning themselves in

lucrative, urban markets in affluent countries.

Banks have traditionally focused their energies on large

transactions – so would have to change their thinking to focus on

smaller transactions.

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Major Players (Banks) in Remittance

Market - Canadag

Bank of Nova Scotia/Scotiabank Canadian Imperial Bank of

Commerce (CIBC) Bank of Montreal (BMO) Toronto Dominion Bank (TD Bank) Royal Bank of Canada (RBC) ICICI Bank [Industrial Credit and Investment

Corporation of India - Indian bank]

Note that none of the Canadian banks have a specialized

remittance product. Remittances that flow through these banks

do so through their regular wire transfer services.

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Major Players (Banks) in Remittance

Market – United Statesg

Citibank Wells Fargo Harris Bank Bank of America Mitchell Bank (Milwaukee)

These US banks all have specialized remittance

products in addition to their regular wire transfer

services.

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Factors That Impact What Senders Payg

Available options/competition. Prices are higher when

there is little competition. Users' awareness of options. Conditions in the sending and receiving countries (ex.

Banks will not be an option in rural areas of many developing countries;

banks are not as prevalent as money transfer stores in many N. American

urban neighborhoods)

Costs associated with the services Greed

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Key Features Senders Pay ForgMoney transfer service customers ostensibly pay for...

Speed: Instantaneous transmission of funds.

Wide distribution networks: ”Send to anyone,

anywhere.”

Convenience: Multiple locations in many localities; Pay

higher fees for extra conveniences like telephone money

transfers and payment by credit card.

Safe transfer of money: Electronic transfer over a

secure network means there isn't the risk of sending

cash.

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Money Transfer FeesgMoney Transfer Services

Transfer Fee – Usually a flat

rate;sometimes dependent on your

method of payment (ex: cash vs.

credit card), the payment destination

or the amount of money being sent

Currency exchange rate – Set by the

transfer service, usually has little

relationship to the real currency

exchange rate. Companies profit from

the difference between the rate they

charge and the actual rate.

Additional fees [not as common] –

Some services charge an additional

fee for certain kinds of transactions

(payment by credit card) or for

delivery to foreign bank accounts.

Bank Wire Transfer

Wire Transfer Fee – Usually a flat

rate;sometimes dependent on your method

of payment (ex: from checking account vs.

cash), the payment destination or the

amount of money being sent.

Currency exchange rate – Set by the bank,

usually has little relationship to the real

currency exchange rate. Banks profit from

the difference between the rate they charge

and the actual rate.

Additional fees – Most banks charge extra

fees (variously called “communications fees”

“service charges” or “commissions for in-

person wire transfer. Usually a percentage of

the amount being sent.

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Bank Wire Transfer Pricing - Canada(International transfer of money only)g

Highest Wire Transfer Fees

CIBC ($30 + “cable” fees) RBC (In-branch fee is $35 + $10-15 “communications” fee.) HSBC ($30 online; $25 in-branch +.15% of amount being

sent or between $10-$150)

Lowest Wire Transfer Fees

TD Bank ($10 flat fee) RBC ($13 flat online fee)

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Major Money Transfer Service Pricing g

Western Union* (Canada – transfer fees between

$10-27 CDN depending on method; US - between $12-25

USD depending on method) Moneygram* (Canada – transfer fees between $8-10

CDN; US – between $8-10 USD.) Paypal (No transaction fee for personal accounts. Paypal

levies a 2.5% currency conversion fee and charges a fee to

make withdrawal from a non-US bank possible.

* Company set exchange rate also applies.

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Niche Money Transfer Service Pricing g

Senvia (Covers Jamaica, Trinidad, India and Guyana. US

and Canada: Fees start at $5/cash transaction. Credit/debit

card transactions charged additional 2.5% of the

transaction.) Remit2India (Canada – transfer fee is $15 CDN; US fee is

$3 USD.)

Outside of Western Union and Moneygram, there are a number

of smaller money transfer providers who concentrate on specific

remittance channels. Since they must compete with the giants,

they often offer consumers better pricing.

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Bank Wire Transfer Pricing –

Major U.S. BanksgCitibank – Regular wire transfer fees high at $30.00 online and $40.00 in-

person, but have special, low-priced remittance product (Citibank Global).

Prices are lowest for Mexico and India (no transfer fee]), the Philippines and

Poland ($5 transfer fee); a $10 transfer fee applies for other countries.

Wells Fargo – Regular wire transfer fee is a flat $30.00, but the bank has a

special, low-priced remittance product (Wells Fargo Express Send) that it is

using to drive bank account creation. Express Send applies to Mexico, El

Salvador, Guatemala, the Philippines, India, China and Vietnam. Transfer

fees range from $5-10.

Bank of America – Regular outgoing wire transfer fees at $45/transaction in

USD and $35/transaction in foreign currency. Bank of America has a special

remittance product (SafeSend) for Mexico. There are no transfer fees and

offers same day sending and receiving. Must have a Bank of America

checking account to access SafeSend.

Note: All of these programs require recipients to go to particular banks/branches to pick up money.

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Conclusionsg

OVERALL

There are a number of available remittance sending options outside of

Western Union, MoneyGram and the banks and a range of different pricing.

Western Union and MoneyGram continue to dominate the market because

they offer speed, convenience and huge distribution networks. They also

have positioned their services to win immigrant customers (locations in

immigrant neighborhoods, bilingual employees, few formal requirements

for use, etc).

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ConclusionsgUnited States

Most immigrants use informal money transfer or money transfer

services. Many more remittance options are available in the US than

in Canada (specialized transnational credit and debit cards,

specialized bank services, etc).

US banks have developed specialized remittance products with

lower pricing than their wire transfer services to tap the remittance

market.

The banks have designated remittance users as target customers

and taken steps to remove obstacles to their use of the bank.

US banks have bought foreign banks or formed partnerships with

them in order to enter the remittance market.

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ConclusionsgCanada

Most immigrants use informal money transfer or money transfer services to

remit money to their home countries. Western Union and MoneyGram

dominate.

Canadian banks, so far, have not created specialized remittance products.

They continue to offer largely unpublicized, traditional (expensive) wire

transfer services as their only international money transfer product.

Aside from price, there are several obstacles to convenient use of bank

services for remittances.

Entering the remittance market full-scale, as US banks have done, would

require an investment on the part of the banks in marketing, distribution

networks, procedural and cultural changes, etc.