Cross-Border Payments: What Role Do Banks Play in Remittances?
At $250 billion, the market for cross-border, consumer-to-consumer remittance payments already is huge. But with the World Bank estimate of 30 percent year-over-year growth, the market is one banks no longer can ignore.
According to a panel of bankers at Sibos in Boston in early October, banks must find a way to efficiently deliver remittance services to migrant workers around the globe in order to compete with traditional remittance providers, such as Western Union. Michael Bellacosa, VP and group head, global payments services product management, for The Bank of New York Mellon (New York), told Sibos delegates that the SWIFT remittance advisory group, composed of 13 banks, is working to create a framework that enables banks to provide the highest level of service to their remittance customers. The framework would include messaging standards, market practice and messaging services to foster interoperability.
In an informal poll, the audience, consisting of about 250 delegates, mostly from Europe and North America, indicated that they viewed cost as the No. 1 motivator behind remittance service selection. Antonio C. Bizzo Lima, general manager, foreign trade and exchange products, for the foreign trade division of Banco do Brasil (Brasilia), reinforced that belief. "In the past, speed and cost were not as important as they are today," he said, asserting that in today's Internet age, cost, speed and convenience drive the market.
Competition is the key to improving remittance service and driving lower costs, added Marc Hollanders, special adviser on financial stability and market infrastructure for the Bank for International Settlements (Basel, Switzerland). "A global SWIFT network would increase competition among all [remittance] players," including banks and other providers, he said.
Joanne Strobel, VP, payments strategy and infrastructures, cash management - product management, global payments, for Deutsche Bank (Frankfurt), stressed the importance of remittance services to penetrating the unbanked market. By providing remittance services to the unbanked, banks will be able to help them feel more included in the financial system, she suggested.
Opportunity South of the Border
Latin America is one of the biggest recipients of remittances, with several countries owing more than 10 percent of their gross domestic products (GDP) to remittance payments, according to the World Bank. The people of Brazil, for example, receive $6.4 billion a year in remittances from the 3 million Brazilians who live abroad, said Banco do Brasil's Bizzo Lima. Brazilian ex-pats send as much as 50 percent of their monthly incomes to family members in Brazil, he added.
The central bank of the Philippines expects remittances to top $14.7 billion in that country this year. "We intend to pursue the market very aggressively," said Richard So, SVP, head of international operations, Banco de Oro-Equitable PCI Bank (Makati City, Philippines), adding that his bank has partnered with the central bank and other retail banks to facilitate wider remittance distribution throughout the country. Banco de Oro-Equitable PCI Bank operates remittances services 24 hours a day, 365 days a year, So noted.
Despite the uncertain role banks will play in the remittance market, bankers are optimistic about their prospects. When polled, the majority of participating Sibos delegates said banks will be the leading providers of remittances in five years.
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