Banks aim to help immigrants send money home

Every month, José Valencia sends between $300 and $400 to his sisters and other relatives in Ecuador from the Delgado Travel office in Queens, N.Y.

"We never cease to do that," says Mr. Valencia, who heads the New York Association for New Americans, an immigrant advocacy group. "We are always going to send money home."

Delgado Travel, a family-owned business with 35 locations in New York, New Jersey, and Illinois, serves between 8,000 and 11,000 customers a day. But Valencia is considering switching to Citibank. "They are the biggest bank in the whole world," he says. "With a lot of these small companies, you don't know whether the money is going to get there. So I would deal with a big bank because I know that [it is] going to be there."

Besides reputation, loosening regulations and lower fees are changing the way immigrants transfer money. The result may hurt longtime operations like Delgado Travel, while bringing immigrants into the mainstream financial fold.

Citibank, HSBC, Bank of America, and other banks are seeking a piece of the $100 billion immigrants send home each year. Advanced electronic systems and widespread distribution networks - a product of mergers with banks in other countries - have enabled banks in the United States to provide money transfers for lower fees.

Remittance fees average about 8 percent of the amount transferred, according to the Inter-American Development Bank. By charging less than the competition, banks are gaining in popularity among immigrants. According to a Government Accountability Office (GAO) report on remittances published in November, banks charged just $8.80 on a $300 remittance to Mexico, whereas the US Postal Service charged $10, and money-transfer operator Western Union charged $10.70. Delgado Travel, which offers to pay out in US dollars instead of pesos, thereby avoiding any negative exchange-rate fluctuations, typically charges $12.

Despite the price disparity, wire- transfer companies still control 70 percent of the remittance market, which gives them a $4.2 billion slice of an estimated $6 billion in annual transactions fees. Western Union made $1.3 billion from money transfers alone in 2004.

But banks are gaining ground, now holding about 11 percent of the remittance business. (See chart above.)

While increased competition has helped lower fees by more than 50 percent from a decade ago, immigrant advocates and some federal lawmakers say that remittance costs are still too high. Sen. Paul Sarbanes (D) of Maryland has spearheaded a bill that would mandate listing those costs nationally. The information, which would be provided to remittance senders at the point of sale, would include the transfer fee, the exchange rate, and the amount paid out in the recipient country. By adding transparency to the process, advocates say the measure would address financial literacy obstacles that many immigrants in the US face.

But critics object to requirements that the information be written in English and in the language "principally" used by the remittance-transfer provider - a move that they say would add to the cost of remittance services.

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