[SpongeG]

Sending money home to India, the United States or Portugal has become a big business — and not just for corner stores and jewellery shops.

Financial services companies, from Visa International Service Association to Bank of Montreal and ICICI Bank of India, are steamrolling into the remittance business. Money transfers at Senvia Money Services Inc., for example, an arm of AIC Ltd., have grown at triple-digit rates yearly since it was formed in 2003.

Demographics tell much of this story. The number of visible minorities in Canada is expected to double by 2017 and form more than half the population in greater Toronto and Vancouver, Statistics Canada projects.

“This is a sustainable need,” said Nigel Gray, president of Burlington, Ont.-based Senvia. “If this is the way the market's going, in the year 2017 we'll have a large and lively marketplace who will want to avail of these services.”

The industry, with its reputation for being opaque, exorbitant and unregulated, faces challenges. Wire transfers have come under increasing scrutiny since Sept. 11, 2001, when the U.S. and other countries cracked down on money mobility.

For Senvia, compliance has meant spending “hundreds of thousands” of dollars on software to screen out banned recipients or groups, plus ongoing costs of updating the software every day.

“We view it as a cost of doing business,” Mr. Gray said.

Money transfers are exploding worldwide. Globally, the World Bank pegged remittances at $167-billion (U.S.) in 2005 — almost three times the size of foreign aid flows. It would be at least 50 per cent higher if the bank included unofficial flows, it estimates.

Canadian data are fuzzy. Statscan doesn't track remittances, and estimates vary widely. A study commissioned by Visa found volumes running close to $9-billion a year, with annual growth of 4.5 per cent.

That doesn't include informal transfers, such as sending cash to loved ones in a friend's suitcase, through a travel agency, or in hawala transfer networks to countries such as Somalia (the latter of which has faced a crackdown in recent years). This area could be worth about $5-billion, studies show.

Big institutions say their presence will add transparency and legitimacy to the market, and that growing competition means clients no longer have to pay fees of up to $17 (Canadian) for every $100 sent.

The Bank of Montreal last month closed a deal to buy bcpbank Canada, which accounts for three-quarters of the remittance business to Portugal. Cid Palacio, BMO's vice-president of retail financing products, said the bank sees the purchase as a learning tool for the entire Canadian remittance market.

“I wouldn't be surprised if this becomes more and more of a focus.”

The reason is clear: 250,000 new immigrants come to Canada each year, and more than half of newcomers send money home on a regular basis in the first five years of their arrival, Ms. Palacio said.

Visa Canada Association's Zack Fuerstenberg says his company is in talks with some of the big Canadian banks about partnerships to expand remittance services. It's part of Visa's global strategy to reach more of the three billion people who don't have bank accounts.

ICICI, India's No. 2 bank, is also keen. India is the largest source of remittances from Canada, and ICICI has an advantage because of its popularity at home. People can send money home to their local ICICI branch within a day, or send money to about 3,000 branches at other banks within India.

The Canadian market may spell opportunity, given that it's home to the second-highest foreign-born population in the Organization for Economic Co-operation and Development, but the remittance market here is small compared with the U.S. and Europe.

The reason: “We have an extremely generous family reunification policy,” said Don DeVoretz, a professor of economics at Simon Fraser University who focuses on immigration issues. “As soon as family members arrive, the remittances end.”

As Canada gets more temporary immigrants to cope with the country's labour shortages, remittances will grow. That means the industry should be measured and tracked, said Danielle Goldfarb, a researcher at the Conference Board of Canada who published a paper on remittances last month.

“Nobody truly knows the numbers for Canada,” she said. Fees should be regulated to ensure that more money actually reaches its home destination and formal channels should be promoted, she said.

“There needs to be more transparency,” she concludes.

http://www.theglobeandmail.com/servlet/story/RTGAM.20070121.wremittances0121/BNStory/Business/home

[Dorian G.]

Here's a somewhat-related article; I assume I'm allowed to post it as long as everyone promises not to read it.

America's money-transfer business
Check for cheque-cashers
Jan 11th 2007 | NEW YORK
From The Economist print edition

Those who serve the unbanked find themselves unbanked, too

NO INNER-CITY area in America is complete without a sprinkling of cheque-cashing shops and money-transfer agents. Yet these days so-called money-service businesses (MSBs) are the unacceptable face of high-street finance. Many banks have stopped offering accounts to them, citing regulatory concerns.

Money-service firms play an important role, serving poor urban, often immigrant, customers whose access to banks is limited. For many, they are the only means of getting cash or sending remittances to family abroad. They are also a big business: in 2005, in New York State alone, money transmitters processed over 92m transactions together worth $96 billion.


Just as the unbanked need MSBs, so MSBs need banks: without access to payments systems, they cannot clear cheques or wire cash. But this access, by making them portals to the banking system, also makes them vulnerable to money launderers and financiers of terrorism.

Since the attacks of September 11th 2001, regulators have got a lot tougher when implementing anti-money laundering provisions. The Patriot Act, passed in the wake of the atrocity, added greatly to the pressure on banks to scrutinise their customers, and their customers' customers; it became, as one banker put it, a bit like a rail company being told it had to know everyone on its trains. [or an airline being responsible for its passengers, perhaps?…]

The result has been that most banks have closed their doors to the industry. JPMorgan Chase, a big provider of MSB accounts, did so in 2005. Bank of America followed last year, after concluding that the profits on offer no longer matched the increased risks. A few prefer to do the job themselves: HSBC has a service called Easy-Send, popular with Mexicans, which allows clients to wire money abroad.

Though a few sizeable banks still serve MSBs, they have become much choosier about who they will touch. David Landsman of the National Money Transmitters Association (NMTA), a trade group, says his members are rejected 94% of the time when trying to open bank accounts. Regina Stone, who licenses MSBs at the New York State Banking Department, says this has led to levels of concentration that need to be watched. A single bank now serves 70% of the state's cheque cashers, for instance; they would struggle to find new banks if it, too, quit the business.

The most frustrating thing, says Kevin Neuschatz of Choice Money Transfer, a remittance firm, is the indiscriminate nature of the regulatory crackdown. To get a state licence, MSBs have to go through a gruelling vetting process. Yet the law treats all money-service firms—from public companies like Western Union and MoneyGram to dodgier single-branch outfits—as one high-risk lump.

Even the most sophisticated MSBs face legal nasties: the state of Arizona seized some of Western Union's transfers to Mexico as part of a probe into illegal immigrants, though a court ruled this week that it had no authority to do so.

Some regulators talk of a crisis for MSBs, but there is no consensus on how to make life easier for them. Diana Taylor, New York's superintendent of banks, has recommended narrowing the definition of a high-risk money firm and offering incentives to banks to serve MSBs. The NMTA is urging the introduction of a federal bill that would give more guidance to banks. Charles Rangel, the new chairman of the House Ways and Means Committee, supports the cause. But it is not clear whether he would sponsor the legislation.

Meanwhile, some MSBs, fearing that the issue will never gain political traction, are taking matters into their own hands. A dozen firms in New York have joined together to apply for a banking licence. Do-it-yourself may soon be the only option.

[Kilgore Trout]

it's a story as old as immigration itself --- people have been sending money back to their home countries for generations. it's a boon for family members and communities but, at the same time, it can also create a massive imbalance in local and national economies. the philippines is incredibly dependent on the billions of dollars in remittences its expats send home, for instance.

[LordMandeep]

its a good idea, my father now has land worth 500k in India and has sent only 30k over 25 years to buy more land.