LatinFinance - November/December 2014 - 35

tances a riskier and more costly business
for banks.
Last July, HSBC resolved to pay a $1.9
billion fine to the US government for failing
to adequately check billions in wire transfers and currency purchases in Mexico.
HSBC scrapped remittance services to Latin
America in 2013, and Bank of America also
did away with its low-cost SafeSend product. JPMorgan Chase ended its Rapid Cash
program last year, arguing it was too difficult and costly to monitor who was sending
money to whom.
U.S. Bank has followed a slightly different
route, last year choosing instead to partner
more closely with a dedicated operator,
Western Union, for transfers made through
its mobile banking application.
Other banks have grown so scared
of regulations they have occasionally
restricted wholesale banking services to
money transfer companies and their small
bank agents overseas, says Manuel Orozco,
a senior fellow and remittance expert at the
Inter-American Dialogue.
"Banks have even closed some accounts
fearing third party liability," says Orozco.
"To a large extent, banks have become a
stumbling block."
Open borders
The business of remittances is a three-step
process. First comes the intake, where a
bank or money transfer company takes
cash from the sender. The second step,
moving the remittance to the international
destination, is dominated by the banking
industry.
The third and final phase is the payout
of the cash to the end customer, which is
done by small banks, as well as companies
like MoneyGram, and increasingly by
non-financial businesses like Wal-Mart, and
currency exchange stores.
For years, large banks have dipped into
the remittance intake and delivery business
hoping to tap an under-banked customer
base. But their market share has typically
been and remains less than 3% of the remittance business, according to Inter-American Dialogue data.
The vast majority of remittance senders
and recipients lack bank accounts, and they
have little experience with financial institutions. In the case of Viamericas, a largely
Latin America-focused company that offers
online remittance services, roughly 75%
of its customers are unbanked or underbanked, according to co-founder and chief
executive, Paul Dwyer.

The big challenge for many money
transfer businesses is how to deal with
customers without a bank account, he says.
"There is a segment of people that want
to remain in the [cash] transaction space,"
Dwyer says.
That is where technology plays a part.
It is hard and costly for US banks to have
a presence in faraway places, but increasingly anyone with online access or a smartphone can send or receive money. For
companies like MoneyGram this has meant
focusing more on web-based services,
while keeping a closer eye on a growing
number of transactions that can become
subject of government scrutiny.
Juan Agualimpia, chief marketing officer for MoneyGram says roughly 8% of
the company's business now comes from
web-based, self-service customers, and he
expects that business to grow to as much as
20% by 2017.
To keep up with anti-fraud provisions,
MoneyGram has invested $120 million
during the last five years to develop the
systems needed to tighten supervision.
At times, MoneyGram has also helped its
small payout agents when they have problems opening or maintaining their bank
accounts due to regulatory red tape.
"The majority of our customers, or
99.9% of them, use our services for legitimate reasons," says Agualimpia.
For firms like MoneyGram, exiting the
remittances business is not an option. But
with many US banks leaving, Wells Fargo
is increasingly rare in maintaining a fully
proprietary remittance service. The bank's
ExpressSend service, a product Wells
Fargo developed during the last five years,
specializes in sending remittances to 14
countries, but most of the volume goes to
Mexico.
Daniel Ayala, head of Wells Fargo's
remittance business, admits that increased
regulation is costly for banks but the institution finds reward through better customer
loyalty.
"The key for us is to manage the compliance waters effectively," says Ayala. Still,
increasing regulation may eventually push
up costs for remittance senders, despite
higher competition in the industry, he says.
Dwyer from Viamerica's agrees that regulatory hypervigilance will eventually boil
down to higher costs for everyone. "If the
money transfer business were to shut off,
people would have to resort to moving cash
across the border, but the specter of a complete closing is unrealistic," says Dwyer. LF

Continued from page 34
world," Renjifo says.
In Colombia and elsewhere, banks have
managed to use cellphones to bring in new
customers and expand their own business
beyond traditional banking to a market
formerly occupied by alternative, cash-only
providers. But it's not just the banks that are
taking the initiative.
Tigo Money, for example, is a cellphonebased money-transfer service in six Central
and South American countries. Its functions are more basic than those of the
Colombian leaders, and unlike Ahorro a la
JORGE RUIZ, CITI

"HAVING HUNDREDS
OR THOUSANDS OF
BRANCHES IS NOT
NECESSARILY A GOOD
INVESTMENT TODAY"
Mano and Daviplata, Tigo Money is not run
by a bank, but a communications provider.
América Móvil has also launched a mobile
money scheme called Transfer in tandem
with banks in Colombia, Mexico and Brazil.
In a way, schemes like Tigo Money have
reversed the approach. While the banks
used mobile as a tool to increase the number of their account holders, the operator
uses banking as a way to win subscribers
and expand into the financial business.
Whether that approach can work for more
sophisticated transactions as well, meanwhile, is up for debate.
"This is a very regulated business,"
warns Jorge Ruiz, Citi's head of business
development and digital banking for Latin
America.
Money laundering safeguards in particular mean that outsiders will have a hard
time challenging "strong and solid [financial] institutions," he adds.
Instead, Ruiz argues, network operators and developers should seek mutually
beneficial partnerships with banks. "Every
industry has its place in an ecosystem," he
says.
What all players agree on, however, is
that no-one can turn their back on mobile these days. "Nobody wants to go to
a branch and make a payment for your electricity bill," Ruiz says. "Having hundreds or
thousands of branches is not necessarily a
good investment today." LF
November/December 2014 - L ATINFINA NCE.COM 35

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