TCM Guide 2007 : Global Direct Remittances: Developing Low-Value Payments Capabilities

For generations, immigrants have sent money back to their homes to support their extended families. It is estimated that upward of $230 billion was remitted by more than 175 million immigrants and migrant workers worldwide in 2005, a figure projected to swell to $289 billion this year, according to the World Bank. Today, major money service businesses are the primary servicers of the remittance market. It is estimated that only 10% of remittance transactions from the US are sent through banks. Many immigrant workers are wary of established banking institutions, unfamiliar with the customs and faced with a language barrier, or have no experience with banks at all. Many are simply unaware that different remittance options exist.

Financial institutions around the world have increasingly shown interest in remittances. Initially, money transfers are the primary financial need among immigrants, and remittance service offered at a competitive rate provides an entry point for banks into the immigrant market. Once established, remittances are an opportunity to create long-term client relationships, leading to increased market share, income potential, and customer loyalty as worker wealth increases and remittance clients seek credit, car loans, and mortgages.

Further, in an age of globalization, companies are more and more dependent on global networks of customers, suppliers, and investors, and dependence on a global workforce and employee mobility is growing. As a result, companies increasingly need to offer global remittance services to employees as part of their banking packages, placing greater demand on cross-border payments activity, and providing opportunities for banks that can meet that demand.

Both banks and governments have an interest in channeling this payment activity into the banking system, creating new opportunities for banks that can develop competitive solutions quickly and cost-effectively. But many banks lack a global retail payment capability. Varied payment systems; formatting standards, rules, and regulations; and a lack of global standards regarding market practice and banking laws are also barriers for banks seeking to compete in this space. The gathering and distribution of payment-related information present other, multiple levels of complexity. For example, entities initiating payments need to collect and maintain the necessary routing information to pay beneficiaries, given the differing requirements by country.

There are additional barriers to entry. Without an extensive correspondent banking network or the investment in technology to develop a global payments capability, banks lack the robust infrastructure to offer a cost-effective remittance solution, and the time and cost of establishing and maintaining a network and developing a remittance platform is prohibitive. Lacking that infrastructure, banks are confined to executing payments by wire. The cost and complexity of complying with Know Your Customer, anti-money laundering regulations, and other control activities add further complications.

To compete, banks need low-cost payment methods that enable them to offer sustainable competitive prices to their customers. Banks that are quick to market, with an easy-to-use service that simplifies the payment flow and lowers cost, stand to benefit. The problem is how to bring this about.

The Private Label Solution
Private labeling can be a strategic alternative to building an in-house global remittance capability. It is a viable way to tap into the growing retail cross-border market; it can compress time-to-market and enable a bank to gain competitive advantage. Leveraging an established system eliminates the cost of development, maintenance, and ongoing investment, while providing access to the latest advances in technology.

Evaluating a Provider
A provider should bring considerable experience and expertise to implementing a solution. It should offer a well-established, extensive, correspondent banking network, the technology to automate the entire payment transaction, and a full spectrum of disbursement options. A solution should feature a flexible infrastructure that can scale to volume growth, new product developments, and continuously emerging market opportunities. It should integrate seamlessly with customer payment initiation points, including teller systems and online banking platforms. And it should guarantee speed of payment delivery, and allow for the ability to track payments. Payments processing should be a core business of the provider, and it must provide efficiencies of scale and rigorous payment controls.

The Bank of New York Mellon can offer banks a global direct remittance solution that meets all these criteria. Our solution is:

• Easy to use, allowing payments to be initiated through our existing banking platform;
• Comprehensive, allowing access to multiple payment delivery options in local countries; and
• Utilize The Bank of New York Mellon’s extensive network of receiving correspondent banks around the world.

Currently, many providers offer service only from one into another or only a few other countries, serving only established corridors such as US to Mexico or India. Our network of correspondent banks is one of the largest and most well-maintained networks in the industry. Our global network includes 12 branches, 18 representative offices and 1,600 correspondent bank relationships.

Based on our strength in payment processing, technology, and correspondent banking, The Bank of New York Mellon can be a major facilitator of remittances by linking correspondents worldwide. Those banks that establish a global remittance structure today will be best positioned to take advantage of the rise in retail global payments and increasing customer demand for new payment services in the years ahead. The Bank of New York Mellon’s global direct remittance offering can bring that about.

Eric Kamback