Remittances

The Basic Idea:

Provide an affordable alternative to high cost money transfer operators (MTOs) for immigrants living in the U.S. to remit much needed funds to their family and friends abroad.

How it works:

• For most immigrants the traditional method of sending money to their friends and family is through Western Union or other high cost money transfer operators (MTOs), but new options are emerging to reduce the cost of these transactions to the remitter, including access to a simple bank account and access to pre-paid cards.

• Larger international banks may permit the remitter and a joint account holder in the country of origin to simply have access to the same account – but this depends on the remitter having a bank account, and most do not.

• Prepaid cards have emerged as a product to serve underbanked consumers – many of whom are immigrants. Many prepaid card providers are starting to add remittance features to their prepaid cards to allow customers to send funds to friends and family abroad.

• There are a variety of models for incorporating cards into remittances, including:
  • Card-to-cash: the recipient of funds has the ability to access transferred funds directly in cash. This model is difficult because of the frequent lack of a reliable disbursement network in receiving counties.
  • Dual-card: Two cards are issued with access to the same account – where the recipient can access full amount of funds in account. A variation of this model uses a sub-account where two cards are issued and primary cardholder can transfer funds to sub-account accessible to recipient cardholder.
  • Recipient-only card: Sender purchases a prepaid debit card in the U.S. which is sent directly to recipient or issued in the recipient’s county. The sender can reload funds onto the card.

• Customers load funds onto these cards through the card issuer’s reloading network which tends to include a combination of online, phone and retail locations and allows for reloading through cash payment or a transfer of funds using a bank account, credit or debit card, or sometimes a PayPal account.

• Some companies are payroll card issuers, adding the option of transferring the funds that have been deposited onto the payroll cards by an employer.

• Remitters who become bank or credit union account holders have access to wider array of financial products and services that facilitate savings and asset development.

Who Does It?

• Banks and credit unions
• Partnership between community-based organizations and a bank, credit union or check-cashing company

Pros

• Remittance transfers can serve as a gateway for immigrants – many of whom are unbanked and rely on payday lenders, check cashers and wire transfer companies – to enter the financial mainstream, giving them access to affordable bank accounts and other traditional financial services.
• Through remittance transfers, immigrants avoid the fees and hidden costs of wire transfer companies – which often charge high transaction fees.
• Community organizations can help facilitate trust-building between immigrants and banks.
• Bank account-based remittance products are typically less expensive than those offered by money transfer operators.

Cons

• Many banks and credit unions still do not offer a remittance product, and there is a lack of consumer protections and clear industry standards.
• Most mainstream financial institutions maintain identification requirements that bar many immigrants from accessing their services – whereas wire transfer services do not require Social Security numbers or identification for transactions under $1,000.
• Money transfer organizations have many sites around the world, making it difficult to compete, especially since many remittances are sent to areas with little or no banking infrastructure.
• People trust the way they have been transferring funds for years – even immigrant families with bank accounts are unlikely to use banks to send money abroad.
• Issuing a card to a recipient abroad raises a number operational and regulatory challenges – not only does the card needs to be reliably delivered, but the recipient abroad might not be familiar with card-based programs.
• Low English language proficiency among some immigrants can also be a barrier.  Many money transfer operators have staff members that speak the language of their immigrant customers.
• Unless there is an existing prepaid card structure, there may be significant operational challenges – especially for smaller banks and credit unions that lack scale and resources.

Simplicity Index

Save money, build trust. Families save on transfer fees and can begin to become more comfortable with using American financial institutions.

Quilt It

Keep It, Grow It – Remittances  help unbanked immigrant families avoid expensive hidden fees, allowing them to keep more of what they earn and grow what they keep.

Examples

The Latino Community Credit Union is the first federally insured financial institution to focus on low- and moderate-income Latinos. LCCU offers a number of alternative financial services, including remittances, in addition to bank accounts, ATM cards, and loans. LCCU sends money to more than 30 countries and to locations in the U.S. at a low-cost. http://www.latinoccu.org

Action Resources

The National Council of La Raza (NCLR) has a number of relevant resources which provide guidance for immigrants in financial areas such as check cashing, remittances, and money orders.  http://www.nclr.org/index.php/issues_and_programs/community_and_family_wealth/banking_financial.

Information Resources

Orozco, Manuel. “Making the Most of Family Remittances – Second Report of the Inter-American Dialogue Task Force on Remittances,” Inter-American Dialogue with support from the Inter-American Development Bank and the Annie E. Casey Foundation, May 2007. http://www.thedialogue.org/PublicationFiles/family_remittances.pdf

Orozco, Manuel; Jacob, Katy and Jennifer Tescher.  “Card-Based Remittances: A Closer Look at Supply and Demand,” The Center for Financial Services Innovation and Annie E. Casey Foundation – A report on the emergence of prepaid card-based remittances as solution for international money transfers.  https://www.fdic.gov/about/comein/handout2.pdf

Paulson, Anna et al.  “Financial Access for Immigrants: Lessons from Diverse Perspectives,” Federal Reserve Bank of Chicago & The Brookings Institution, May 2006.  http://www.chicagofed.org/digital_assets/others/region/financial_access_for_immigrants/lessons_from_diverse_perspectives.pdf