ATM machines have the potential to threaten the global money transfer and remittance market currently dominated by Western Union, according to a new Celent Communications study.
A new report "Global Money Transfers: Exploring The Remittance Gold Mine," reports that in the United States, money transferred as remittances, funds earned by immigrants in foreign nations sent home to relatives, totaled $136 billion dollars in 2001. The number is expected to climb to $177 billion in 2006.
At the moment, Western Union controls 24% of the remittance market. Celent noticed, however that Western Union has a high profit margin, 30% compared to 12% at United States commercial banks, and low customer acquisition costs. These factors lead Celent to believe that the market is itching for new entrants and the growth of the ATM machine should peak at the perfect time.
By 2006, Celent forecasts that ATMs will be responsible for 11% or $19.5 billion of global remittances, which is a huge leap from $.3 billion in 2002. These predictions are based on the fact that many countries are planning to rapidly expand the number of available ATM machines.
According to Celent, the number of ATMs globally will grow from 1.2 million in 2001 to 2.3 million in 2005. In China ATMS are expected to multiply in numbers from 2,800 in 2001 to 30,000 in 2005. India is expected to have 165,000 ATMS in 2005 up from 49,000 in 2001.
Celent predicts ATM machines will prosper in the remittance market for a variety of reasons. For example, the lure of Western Union was that before ATMs, it was one of the few outlets that had the ability to send money transfers in real time throughout the world.
"The main barrier to entry into remittance market is the cash delivery challenge," said Gwenn Bezard, senior analyst at Celent and author of the study. "Most players can't deliver the remittance in cash to recipients around the world. Now, however, there are 10 times more ATMs than Western Union agents, globally, a difference that will only expand over time. Western Union has a competitor who can delivery money worldwide as quickly as it can and at a lower cost."
However, there are two major factors that could keep American banks from expanding their claim in the remittance market. There is a breach of trust between immigrants living in this nation, especially from Mexico and Latin America, and American banks. Most immigrants are wary to set up accounts in banks because they are afraid that the United States government can use information they give to the banks against them.
Most major banks in America are also globally limited and not capable of delivering remittances fast enough around the world because they have limited branches outside of the country.
"Most banks provide some sort of remittance services but none of them have been able to build a global operation like Western Union because most banks are domestically oriented and have a regional focus," said Bezard. "ATMs offer a unique opportunity to create new global operations to compete with global players like Western Union."