Mexican immigrants working in the United States send at least $20 billion annually to family members in their home country. The bulk of these transactions (called "remittances") are made through storefront money-transfer services, which, on average, charge the sender about $10 in fees for a $300 transfer.
Recently, the Federal Reserve Banks and Banco de México, the central bank of Mexico, introduced Directo a México (Direct to Mexico), a service banks can use to send customers' funds from the United States to Mexico more quickly and economically. Banks that use the service can offer remittances for less than $5 a transaction.
As Federal Reserve Chairman (formerly Fed Governor) Ben Bernanke said in 2004, mainstream financial institutions that provide remittance services have a potentially effective method of attracting unbanked immigrants to other services, such as direct deposit services, savings accounts and consumer loans.
Targeting remittance services to consumers who need them can be difficult because as many as half the Mexicans in the United States do not regularly use a bank for remittances or any other service, according to Larry Schultz, vice president in the Federal Reserve's Retail Payments Office.
Directo a México helps banks reach these consumers and overcome other barriers. The service that supports Directo a México, FedACH International Mexico Service, is priced so that U.S. banks can offer it at competitive rates. ACH is a low-cost payments channel and is already in place in almost every financial institution in the United States. For this reason, there are no setup costs for most banks that choose to offer the program. ACH also uses standardized formats that make it possible for the payments to be channeled to Mexico in an automated fashion and delivered electronically to bank accounts there.
Financial institutions also receive a Directo a México promotional tool kit that is customizable. It includes Spanish-language templates for color brochures and posters, lobby/tent cards, statement inserts, foreign exchange information and text for a radio spot. The program's Spanish-language promotional templates help small and medium-sized financial institutions produce professional materials with minimal investment. The materials feature the consumer benefits that the banks can provide using the remittance program: security, speed, low cost and conveniences.
Remittances present a strong market opportunity for financial institutions, but the decision to enter this line of business is up to each bank and is subject to the same due diligence as any new product. Before offering Directo a México, Elizabeth McQuerry, assistant vice president with the Federal Reserve Retail Payments Office, suggests that banks consider compliance issues, such as account opening requirements and ceilings for payment amounts. Offering remittance services, such as Directo a México, may help financial institutions meet their Community Reinvestment Act requirements since they are providing a low-cost financial product to immigrants traditionally not using mainstream financial services and products.
More information on Directo a México is available at: www.frbservices.org/Retail/intfedach.html.