Banks have had an eye on the global money transfer/remittance business for a long time, and a new report from Aite Group (Boston) supports the idea that there are opportunities for banks to get a piece of the multibillion-dollar industry. However, the success with which they do so will depend on the strategy they employ both from an operational and technological standpoint, Aite says.
According to the report, "Competing in Money Transfers," by 2010, global workers' remittances will total $456 billion, up from $369 billion in 2007. However, the space still remains the domain of the money transmitters, such as Western Union (Englewood, Colo.) and MoneyGram (Minneapolis), the top two transmitters; their 2006 market share reached 13.8 percent and 3.2 percent, respectively.
Still, Gwenn Bézard, a research director with Aite, says banks still have a chance to make a mark in this business. But, Bézard warns, banks should proceed with caution. "The profitability of these ventures is somewhat limited," he explains. "Remittances is not a customer-acquisition tool. It's much better for customer retention, deepening existing relationships with customers."
As such, Bézard says, it makes more sense for banks to partner with a money transmitter rather than go it alone. "For most banks, partnering is the way to go. Not many of them have the resources to create this as a stand-alone business."
The lack of an international bank-owned network to bridge sending and receiving banks could be holding banks back, Bézard adds. According to the report, Western Union's marketing and technology infrastructure remains far superior to the capabilities of bank networks such as SWIFT, Visa and MasterCard with regard to addressing remitters' specific needs. For example, Bézard states, "You see a lot of cash-to-cash transfers in the remittance business. Therefore, [a bank] would have to maintain a receipt network." Money transmitters also have access to a vast number of convenient send/receive locations with extended hours that banks can't easily recreate.
Jeffery Comi, product manager for KeyBank's (Cleveland; $92 billion in assets) payroll card product, PayWorks, agrees that teaming up with transmitters makes sense. "Banks are far better off partnering with a money remittance business," Comi says. "These businesses are certainly the product experts and have the pay-out location infrastructure in place to support the product. With a vast number of distribution points, the money remitter is able to reach a much wider audience as compared to the traditional wire transfer product."
According to Aite's Bézard, banks would be smart to integrate such a remittance offering with their online banking platforms. "Provide payments and money transfers online," he says. "The opportunity for banks is in integrating this service with their online banking product."