On the eve of the annual summit meeting of the world's leading industrialized nations, the Pew Hispanic Center today released a detailed evaluation of how much it costs for immigrants to send money back home to their families in Latin America.
The study, The Remittance Marketplace: Prices, Policy and Financial Institutions, revealed that although the cost of transferring money has dropped since the late 1990s, the rate of decline has slowed markedly in the past three years. The slowing has come despite rapidly growing volume and increased competition in the marketplace. This suggests that further price reductions might be difficult to achieve under current market conditions.
The report also showed that a substantial number of banks and credit unions in the United States have launched major initiatives in remittance services over the past three years. However, they have captured only a small fraction of the market which continues to be dominated by wire transfer firms. In the U.S.-Mexico channel, which has been the target of most of the effort, American financial institutions account for no more than three percent of the remittance traffic. Currently, with the exception of debit card withdrawals, the cost of sending the average remittance from the United States to Mexico is about the same whether it is sent via a bank or a wire transfer firm.
A growing number of countries, including the United States, have committed themselves to facilitating remittance transfers by immigrants who send money back to their home countries. On the agenda for tomorrow's G-8 Summit in Sea Island, Georgia, is an initiative to reduce the costs of transfers and efforts to promote a greater role by banks and other financial institutions in an industry currently dominated by wire transfer agencies such as Western Union.
The Pew Hispanic Center commissioned a detailed assessment of the marketplace for remittance transfer services by Manuel Orozco, a senior researcher at Georgetown University's Institute for the Study of International Migration, to better understand the challenges involved in assisting immigrants who send money to their family and friends back home.
The transfer of money from immigrants in the United States to Latin America is considered a powerful means of fighting poverty in these countries. It has become an important issue for the Bush administration, for other wealthy nations and for the governments of the receiving nations.
The Pew Hispanic Center's findings are based on the most extensive examination of the U.S. remittance transfer industry ever conducted. No government agencies or industry associations systematically collect data on the costs of transfer services, market shares or the types of products on the market. As a result, data had to be developed for this study by soliciting information from a wide array of individual companies.
Cost information was developed from a pool of 84 firms offering remittance transfer services, representing the most active firms in the market as well as some recent entrants. In addition, executives at 14 banks and eight credit unions were interviewed in depth about efforts to offer a broader array of financial services, such as savings and checking accounts, to remittance senders.
Some of the major findings of the study include:
The Pew Hispanic Center (www.pewhispanic.org), a non-partisan research organization, is a project of the USC Annenberg School for Communication and is supported by The Pew Charitable Trusts.