LATAM: Foreign banks try to catch remittance flow
As Latin American economies look forward to another year of robust growth, remittance flows continue to outpace expectations. With payments by expatriates worth a record $45 billion last year and increasing at more than 10% a year, it is little surprise that banks now want a piece of the action. Latin American and US banks are not only eyeing services to rival traditional wire services to bring in extra revenues, but also see money flows as a way to develop portfolios aimed at the small-scale Latin American customer, offering loans and mortgages.
According to the IMF, Mexico is only behind China and India in terms of the size of remittances received, valued at $20 billion last year and far bigger than those sent to any other Latin American or Caribbean nation. Still, remittances account for 25% of Haiti’s GDP and 15% of El Salvador’s. Unlike other capital flows, remittances are also counter-cyclical; they do not stop when any country goes through economic or political turbulence.
US banks such as Wachovia have started up a debit card system that enables families in Latin America to withdraw money from US bank accounts, circumventing wire transfers with a 15% transfer fee, and Wells Fargo and Bank of America have both started up free money transfers.