New Study Reveals Challenges in Money Transfer Industry

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:

  • Since the late 1990s the cost of sending a $200 remittance to Mexico has fallen by half from about 15 percent of the amount sent to 7.32 percent in early 2004. However, most of the reduction took place at the beginning of this time span. By 2001 the cost stood at 8.07% and the declines have been minor since then. Meanwhile, the amount of money sent to Mexico has increased dramatically from $9.2 billion in 2001 to $13.2 billion in 2003, a growth of 43 percent.     
  • With increased competition new products have come on the market that offer lower prices for senders who transmit larger amounts. The cost of sending the amount of an average remittance to Mexico, now nearing $400, has come down somewhat more quickly in recent years, from 6.29 percent of the amount sent in 2001 to 4.4 percent in 2004.     
  • Using this measure of costs—the price of the average amount sent—banks and credit unions do not offer a significant advantage to the consumer in the U.S.-Mexico remittance market. The cost of sending an average remittance by banks is 4.1 percent which is only slightly below the average for the entire marketplace which is 4.4 percent.     
  • Despite substantial marketing campaigns and very large investments over the past three years, U.S. banks have only captured a small fraction of the remittance transfer market. The four largest banks in this field—Citibank, Wells Fargo, Harris Bank and Bank of America—conduct less than 100,000 remittance transactions a month. The vast majority goes to Mexico. In 2003, an estimated 40 million remittance transactions carried money from the United States to Mexico, which means the banks have captured about three percent of that market.     
  • Marketing campaigns designed to encourage Latino immigrants to open accounts with banks and credit unions, often with remittance services as an enticement, have had somewhat more success. About 400,000 new accounts have been opened as a result of these efforts. That is about 5 percent of the estimated eight million Hispanic immigrants who currently do not have bank accounts.

The Pew Hispanic Center (, a non-partisan research organization, is a project of the USC Annenberg School for Communication and is supported by The Pew Charitable Trusts.