Banks take note as expats send $300bn home
Friday, August 26, 2005
When Ram Panday wants to send money back to Kathmandu, he never uses a bank. ?Too expensive, too complicated, too open,? says the Nepali T-shirt maker.
Instead he hands a bundle of notes across a grubby desk in Bangkok’s lively Watergate garment district. A few hours later a similar sized wad is delivered to his family home.
The estimated 180m expatriates in the world send home $300bn (?244bn) a year, half through informal or unmonitored channels, according to payments experts. International bankers, faced with declining wholesale margins, are keen to win a bigger share of this growing business, one they often scorned in the past.
But even as western regulators try to flush out informal payment networks that might hide terrorist financing, banks are aware they could yet be outflanked by new, more nimble money transfer operators.
?This is the final call for banks to get their act together before communications companies and retailers really jump in,? says Thanit Sirichote, senior vice-president for payment services at Bangkok Bank.
John Taylor, the US under-secretary of Treasury for international affairs, noted recently that it would cost him 30 cents to send $150 from Washington to a friend in California using online banking. If the friend moved to Peru, it would cost $30.
Foreign transfers through antiquated correspondent bank networks can cost in extreme cases up to40 per cent of the cash sent and take 10 days, according to a survey by the UK Department of International Development.
Wire agencies like Western Union, founded in 1851, take 45 per cent of monitored outbound transfers from the US and 12 per cent of global payments. Western Union is not cheap a 10 per cent charge is not unusual but it has more global outlets than McDonald’s, Wal-Mart and Starbucks combined. Customers appreciate its simplicity, speed and certainty. Its net profit margins have been around 30 per cent in recent years.
?Sending money home is a very emotional thing. Our busiest day is Mother’s Day. A sender knows that almost the instant he hands cash over, a precise sum of money is ready for his family at the other end,? says David Schlapbach, an official with Western Union.
Banks have stumbled with some new services and products. Many online, phone or card-based remittance tools have been tricky for end receivers, says Dan Schatt of Celent Communications, a California-based consultancy. Bank of America is thought to have 4m Hispanic customers in the US, yet 2m of them send cash home via Western Union or Vigo.
?The banks’ marketing has been poor. The right products at the wrong time in the wrong place. But they’re learning. Banks and non-banks are going to come up with stuff that will dramatically shift the landscape,? says Mr Schatt.
ICICI, India’s second biggest bank, has captured almost 20 per cent of its remittance market by serving the needs of the Indian diaspora. ?Most of our transfers are online because our expatriates are quite sophisticated . . . everyone feels comfortable,? says Manish Misra, head of global remittances for ICICI Bank.
The industry consensus is that more banks will, like ICICI, offer a cheap remittance service to win customers. ICICI sidesteps its lack of a foreign branch network by linking with partners like Wells Fargo in the US and Lloyds TSB in the UK.
While banks are trying to exploit other payment corridors, such as Mexico-USA and Saudi Arabia-Philippines, non-bank providers are more imaginative.
Smart Communications, a Philippine cellphone operator, has started the world’s first payment system by text message. When a husband gives cash to an agent in Hong Kong, his wife receives a cellphone message in the Philippines saying her account has been credited. She can immediately withdraw the cash from the local McDonald’s, and it is cheaper than the underground network.
Industry experts are waiting for other cellphone companies, supermarket chains and finance houses to offer remittance deals. ?Ironically, high-tech products can be perfect for people without bank accounts. The local grocery store will do,? says Mr Schatt.
Western Union’s rivals claim the giant is awkwardly placed to fight newcomers with its own cards or internet products. These would undercut its agent network.
But might banks be left similarly flat-footed? Only by neglect, says Akash Rathke, Asia-Pacific head of global payments at Citigroup.
?There is a thick layer of jam there. Theoretically, no new entrant should beat a bank. So it’s a strategic decision: Do you want it or not??