From the Front Lobby to the Back Office Building a Successful Remittance Program The Payments Institute Atlanta, GA July 30, 2008.

From the Front Lobby to the Back Office

Building a Successful Remittance Program

The Payments InstituteAtlanta, GA

July 30, 2008

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Agenda

Understanding the Global Remittance Market Remittances and Financial Institutions Is your Bank or Credit Union Immigrant

Friendly? Ensuring Success Take-Home Tips / Other Resources

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Remittances to Developing Countries - $301 billion USD

150 million immigrants worldwide sent US$301 billion in remittances in 2006

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World Migration and Remittance Facts

United States Top destination country for emigrants - 38.4 million Top remittance sending country - $42.2 billion USD Accounts for 1/3 of worldwide remittance flows

Top migration corridors involving US (*Top ten) Mexico* (10.3M); Philippines* (1.6M); Germany (1.4M);

India (1.1M); China (1.1M); Vietnam (1.1M); Canada (1M)

Top remittance receiving countries India ($27B); China ($25.7B); Mexico ($25B); Philippines

($17B)

Sources: World Bank (Migration data 2005; remittance data 2006); Citigroup

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Remittance Flows – Africa

Remittances to Africa totaled $38.9 billion in 2006 The top five recipient countries are Morocco,

Algeria, Nigeria, Egypt and Tunisia Migration is predominantly intra-regional with

significant international migration to former European colonial powers

The US is also a major migrant destination, with the majority coming from Nigeria and Ghana

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Remittance Flows – Asia Asia and Oceania receive $113.9 billion in

remittances annually, making it the largest regional recipient in the world

India, China and the Philippines are the top three recipients of remittances in the region

US to Asia remittances = $24B in 2006 Main destinations for migrants are the US, Russian

Federation, and New Zealand Significant intra-regional migration to Australia,

China, Japan and Singapore The US is among the main migrant destinations for

Filipinos in particular

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Remittance Flows – Latin America

Almost $68B in 2006 Mexico is the largest

recipient at $24.3B or 36% of all transfers to Latin America & Caribbean

US has historically been main destination for Latin American migrants

Increased migration to Europe (mainly Italy & Spain) and intra-regional migration is changing trend

Mexico $24.3 billion

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Focus on US-to-Mexico Remittances

2001 2002 2003 2004 2005 2006 20070

10

20

30

40

50

60

70

US$ billions Items, in millions

Item data is estimated based on average value of $350 per remittance

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What’s driving remittances?

Globalization and mobility of labor Transnational ties “Insurance” – In case of crop failure, natural

disaster, job loss of other family members, etc.

Holiday gifts (Mother’s Day) Ease of communications brings expectations

and a sense of obligation

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Who are the remitters?

According to a Pew Hispanic Center survey of Latino remitters: Nearly half of those born outside the US send

money regularly 43% do not have a bank account Average remitter spends 13 years in the US 63% watch TV, listen to radio predominately in

Spanish 3 out of 5 are male with an average age of 37 59% did not complete high school 57% make less than $30,000/year Most of those employed are unskilled laborers

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Sizing your Market

US Census Hispanic population data - http://www.census.gov/popest/datasets.html County-by-county look at Hispanic population Data does not show Mexican population alone,

but rather Hispanic population in general Migrant corridors

People from a certain community in the home country emigrate to a specific area in the US

Talk to embassies or consulates, churches and community organizations in your area

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Hispanic Population Projections

Hispanic population in US: 1970 - 2050 US Census data & projections*

9.614.6

22.4

35.3

47.8

59.7

73.0

87.7

102.6

24%

22%20%

18%

16%

13%

9%

6%

5%

0

20

40

60

80

100

120

1970 1980 1990 2000 2010* 2020* 2030* 2040* 2050*

Po

pu

lati

on

0%

5%

10%

15%

20%

25%

30%

Pe

rce

nt

Hispanic population (in millions) Percent Hispanic of total population

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Hispanic Market PotentialCensus Data Example – St. Louis County, MO

19,364 Hispanic residents in 2006 Nearly 2% of total population in 2006 34% of Hispanic population is age 20-39 68% is of working age (15-64) Hispanic population grew 30.5% from 2000-2006

Total population declined 1.6%.

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Hispanic Growth Compared to Total Growth

995,000

1,000,000

1,005,000

1,010,000

1,015,000

1,020,000

2000 2001 2002 2003 2004 2005 2006

Year

To

tal

po

pu

lati

on

14,000

15,000

16,000

17,000

18,000

19,000

20,000

His

pa

nic

po

pu

lati

on

Total pop Hisp pop

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Agenda

Understanding the Global Remittance Market Remittances and Financial Institutions Is your Bank or Credit Union Immigrant

Friendly? Ensuring Success Take-Home Tips / Other Resources

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Remitters as Financial Institution Customers - Challenges

Potential customers might be unbanked Lack of traditional documentation Special marketing and customer service needs

Language barrier Hours of operation don’t suit immigrant population’s needs

Money transfer businesses dominate remittance market Estimates of remittances sent through banks vary from 5%

to 19% of transfers

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Remitters as Financial Institution Customers - Opportunities

US Hispanic purchasing power - $870 billion in 2008; $1.3 trillion by 2015* Hispanic growth rate is three times the national rate

59% of Hispanic adults have a cell phone** Remitters need broad range of financial services

Building blocks for customer attainment, retention and cross-selling

Strong customer loyalty Possible Community Reinvestment Act (CRA) credit

for offering remittances

Sources: *www.yahoo.com (Research and Markets report); **Pew Internet and American Life Project

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Remittances 101 Types and features of remittance services

Cash-to-cash Predominant consumer preference More convenient but more costly

Account-to-account Supports financial inclusion on both ends of transaction Typically a lower-cost option than other types

Account-to-cash / Cash-to-account Flexible to accommodate lack of account on either side of the

transaction Web options

PayPal and Xoom ATM and prepaid cards

Flexible to accommodate greater access to financial services

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Remittances 101Key cost drivers

Upfront capital outlay – software, technology, implementation and customer service Build vs. buy

Marketing costs As brand gets established, marketing focus shifts from

customer acquisition to retention Loyalty and retention programs

Variable costs Transaction initiation, customer ID verification, distribution

costs, core FX costs Ongoing support costs

Technology, product enhancements, data center and program management

Source: Citigroup

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Remittances 101 Understanding fees & foreign exchange Pricing varies significantly by service, distribution

network, type of product and destination country Costs

Remittance fees for sending and possibly for paying out transfer Exchange rate spread

Difference between foreign exchange rate at which remittance provider buys currency and retail exchange rate applied to sender’s transaction

Can be a hidden fee to the receiver

Bank A Bank B Sending amount in USD $350 USD $350 USD Remittance fee to sender $10.00 $3.00

FX rate and spread 10.3945 minus 2% spread

of 0.2079 = 10.1866 10.3945 minus 0.25%

spread of 0.026 = 10.3685 Value of transaction to receiver in MXN

$3565.31 MXN $3628.98 MXN

Difference $63.67 MXN (Approx. $6 USD)

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Offer the Right Mix of Products and Services

Low-cost check cashing and money orders as transitional services

Accounts that do not require high opening balances or high fees

Low minimum balance savings options Credit-building products Remittances are a critical part of portfolio of

products See Appleseed study on Banking in a Global Market

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Compliance and Remittances Bank Secrecy Act

Prevents financial institutions from being used as intermediaries for criminal activity

Reporting and record-keeping requirements USA Patriot Act

Requires Customer Identification Program Section 326 lists forms of acceptable identification Supports FIs’ ability to offer account to non-US citizens

Office of Foreign Assets Control (OFAC) Requires that international items be screened against the

Specially Designated Nationals (SDN) List FIs must have a written procedure for complying with

OFAC regulations

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Agenda

Understanding the Global Remittance Market Remittances and Financial Institutions Is Your Bank or Credit Union Immigrant

Friendly? Ensuring Success Take-Home Tips / Other Resources

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Front Lobby Tips Adapt to serve unbanked and migrant consumers’

financial service needs Financial education is vital

Need to change customer behavior in two countries Reach out to immigrant communities to develop

new customer relationships Consider more convenient branch locations and hours

Offer more than one type of remittance product to meet the needs of all customers

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Back Office Tips

Determine necessary payment information to collect from customers in accordance with origination and compliance practices

If using ACH, verify that software accommodates cross-border ACH formats (SEC codes CBR/PBR) Be ready for new cross-border IAT format in

March 2009 Pre-fill origination forms for front lobby to

streamline required and repetitive information

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Integrating the Remittance Service to Your Environment

“Remittance corner” Separate space dedicated to remittance services No waiting in general teller line for remitters Efficient systems for repeat customers Placards advertising exchange rates

Signage directing customers Se habla español

Community outreach Make people aware of services offered

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Agenda

Understanding the Global Remittance Market Remittances and Financial Institutions Is your Bank or Credit Union Immigrant

Friendly? Ensuring Success Take-Home Tips / Other Resources

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Business Plan and Goal Setting

Remittances are an important component of overall business growth strategy

Determine your objective in offering remittances Transactional vs. relational

Be realistic about your goals Number of transactions, new accounts, loans, etc. Cross-selling, up-selling Generally not an overnight success

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Staffing / Staff Education

Foreign language-speaking staff Puts immigrant customers at ease Creates customer preference and loyalty

Educate all staff on service features and cultural differences

Offer employee incentives to increase remittance volumes

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Smart Marketing and Outreach Efforts Target marketing to the community

Foreign-language radio, television and publications important Participate in fairs, festivals, community events Utilize familiar customs, music, cuisine, etc. Promote special offerings for high-volume remittance times

Ex. Mother’s Day and religious holidays Partner with chambers of commerce and consulates Research migration corridors to connect both sides of

the transaction Financial education plays important role in success of

program Take advantage of existing materials such as FDIC Money

Smart in English and Spanish

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Agenda

Understanding the Global Remittance Market Remittances and Financial Institutions Is your bank or credit union immigrant

friendly? Ensuring Success Take-Home Tips / Other Resources

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Take-Home Tips

Remittances can be big business for FIs Do your homework and understand your market

Challenges exist, but opportunities abound Connect with the immigrant population Financial education is vital to success Offer targeted financial services Take advantage of available resources

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Contact Information

Elena Whisler

Federal Reserve Bank of Atlanta

404.498.7879

[email protected]

Appendix

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Other Resources

Appleseed’s report on Banking in a Global Market www.appleseeds.net

US Census Bureau – www.census.gov World Bank – www.worldbank.org International Fund for Agricultural Development

www.ifad.org/events/remittances/maps/brochure.pdf Inter-American Development Bank (IADB)

www.iadb.org/mif/remittances FedACH International exchange rates page http://

woodrow.mpls.frb.fed.us/fedachfx/index.cfm