Visa Solicits Migrants In Bid for Bigger Slice Of Money Transfers
By JOEL MILLMAN in Quito, ECUADOR; ROBIN SIDEL in New York; and CARLTA VITZTHUM in Barcelona, Spain
Staff Reporters of THE WALL STREET JOURNAL
December 27, 2004; Page C1
Eager to accelerate the growing trend away from the use of cash and checks, Visa International Inc. is pushing plastic in Latin America.
Visa, which is comprised of thousands of banks that issue credit and debit cards, has launched an aggressive campaign to capture a bigger piece of the $40 billion in remittance payments migrant workers annually send to their families in Latin America. The program uses debit cards and automated teller machines to reach workers without bank accounts who send and receive money between Latin America, and the U.S. and Europe.
Visa and the banks are pitching their money-transfer business as an alternative to expensive traditional methods. The banks are charging as little as $8 to send money from Europe to Latin America through the Visa system, representing a fraction of what Latino migrants often pay at Western Union, a unit of First Data Corp., Greenwood, Colo., and other wire-transfer services.
"It's all very new and moving very rapidly," says Jose Maria Ayuso, executive vice president for Visa's operations in Latin America and the Caribbean.
The potential for card-based money transfers is enormous. Cash pickup at an office or bank branch accounts for 86% of all U.S. transactions to Latin America and the Caribbean, according to a study issued in June by the Pew Hispanic Center. ATM, debit or so-called smart cards accounted for a mere 1% of the market.
Visa's efforts to offer-cut rate remittance services to migrants in Europe includes banks such as Ecuador's Banco Bolivariano, Colombia's Caja Social, Peru's Banco de Credito del Peru and Spain's La Caixa savings bank. La Caixa markets services through a Web site at which migrants can download forms for working papers and get information on schools, banks and taxes.
Visa has been in the remittance business in the U.S. since 2001 and last year began issuing cards for transferring money from migrant workers in the U.S. to Mexico, a $14 billion a year market. U.S. banks such as Citigroup Inc. of New York and Bank of America Corp., Charlotte, N.C., also are offering remittance services via bank cards for migrants.
Currently, migrants in the U.S. and Europe use a hodgepodge of outlets to send money home, including wire-transfer services that operate out of storefronts in Latino neighborhoods. Fees run as high as $40 a transfer. In Latin America, family members pick up the wired cash at neighborhood stores.
Many migrants don't have experience using checking accounts or credit cards. (Others, who are in the country illegally, worry that the banks could alert authorities.) Migrants who do have bank accounts often ask for duplicate ATM cards and send one of the cards home to their families. But the relatives back home sometimes drain funds from the accounts faster than the overseas earners replenish them. One result: the U.S. breadwinners end up bouncing checks and incurring delinquency fees.
The Visa system operates differently. Migrants sign up for so-called smart cards -- whether or not they have bank accounts. They can then deposit cash on the card at any ATM and designate how much is accessible by relatives abroad. The relatives can pick up the money at local ATMs. The banks involved in the system charge as little as $8 a transfer, although ATM fees for withdrawals back home can drive up the costs.
Radio ads launched this Christmas season by Banco Bolivariano in Ecuador promote Visa's cachet. "Now I can go into any store I want. Just like modern people," giggles the voice of an elderly cardholder boasting that her son now sends his remittances home to her via the bank's new Visa card. Banco Bolivariano says it has registered nearly 10,000 users of Visa cards since launching the program in September.
Banks that offer money transfer also may find migrants turn to them for traditional banking services. Bank regulators at the Office of the Comptroller of the Currency found that remittance products generated about 400,000 new accounts for the largest banks that offered money-transfer abilities over an 18-month period ending in March, 2004. The same holds true overseas.
With the heightened competition for the remittance business, Visa estimates that the average fee for a money transfer between the U.S. and Latin America is now about 10% of the total remittance, about half the size of the fee in 2001. José Massuh, who operates his family's rope- and twine-weaving business in Guayaquil, Ecuador, has become a Visa enthusiast. His father runs a branch office in Miami and used to use Western Union to send the home office as much as $2,000 a month. Now the family uses a Visa debit card issued by Banco Bolivariano. "Before the amount [sent to Ecuador] didn't really merit the cost of the transfer, but we had no choice," says Mr. Massuh, shouting over the roar of machinery behind his office. "Now we do."
The moves by Visa and banks are challenging the role of Western Union, which has a 14% market share in the fragmented money-transfer business but a much larger share -- as much as 50%, according to some estimates -- of the remittance market to Latin America. Western Union says it can also profit from proliferation of debit cards, since migrants can still use Western Union to wire cash directly into their relatives' card accounts back home.
Banks profit from money transfers by adding a premium to the interbank rate -- the rate that banks use to settle their accounts with each other. The banks can then add a fee to that rate, bringing the average cost to consumers for remittances to Mexico to 1.4% to 3.5%.
Visa, meanwhile, benefits from each additional transaction that goes across its network. Financial institutions pay Visa an average 10 cents for each $100 transaction -- no matter if it is on a credit card, debit card or money-transfer card. The closely held organization doesn't disclose the amount of revenue it generates from these transactions; one of its primary goals is to increase the flow of card volume for its member banks. |
