More on remittance traffic to Latin America

I have previously posted on Hispanic worker banking patterns in the U.S. and on the record $53.6 billion in remittances in 2005 from all worldwide sources to Latin America. Where did the money go? Some interesting information flows below, including how remittances to the Dominican Republic can be home delivered within hours of being sent, how much is sent, and from where in the U.S. and elsewhere, and to where (top three countries are in order Mexico, Brazil and Columbia).
MoneyGram International, Walmart’s remittance partner, sends cash from some 100,000 locations in 170 countries. As Latin Business Chronicle reports, “We’ve seen very significant growth to Latin America – over 45 percent versus a year before,” says Augusto Esclusa, the company’s Miami-based marketing manager for US outbound shipments to Latin America.
The article goes on: In Honduras, remittances accounted for 22% of the country’s GDP last year, a Latin Business Chronicle analysis of the IDB data and figures from the International Monetary Fund shows. In El Salvador, remittances accounted for 17.1% of GDP and it was also key to economies like Nicaragua (12.2%), the Dominican Republic (12.2%) and Guatemala (10.9%).
Remittances were larger than foreign direct investment last year in countries like Mexico, Colombia, the Dominican Republic Ecuador, El Salvador, Guatemala, Honduras and Nicaragua, according to a Latin Business Chronicle analysis of the IDB data and fresh figures from the UN Economic Commission for Latin America and the Caribbean (ECLAC).
Compared with exports, remittances were larger in Haiti and [were equivalent to] 60.9% of El Salvador’s exports and 58.8% of Guatemala’s exports, according to our analysis. Remittances also accounted for a high percent of exports from other countries like Nicaragua (45.4%), Bolivia (28.8%), the Dominican Republic (27.2%), Colombia (16.7%), Paraguay (16.1%) and Peru (13.1%), the analysis shows. Although they play a smaller role in Mexico measured in percent of exports (8.9%), that figure is still considerable.

MoneyGram currently charges a flat fee of $9.99 for any transfer up to 1000. That compares with a fee of 2 percent before. “We basically cut our price in half,” Esclusa says. And Bank of America last year reduced the fees for transfers to Mexico from $10 to $8 for remittances up to $1,500. It also eliminated a foreign exchange fee of 3 percent.
Technology has also helped. “Technology has been a big part of our growth in Latin America,” Esclusa says. MoneyGram introduced a card that allows senders to record their key data, so they can avoid having to fill out new forms each time they return. “The new product…Makes filling forms obsolete,” he says.
Major transfer companies like MoneyGram would for many years depend on Latin American banks at the receiving end, but has recently expanded its network to include other retailers that have broader range than the banks, with locations outside the big cities and longer opening hours. Although banks are still important for MoneyGram, they now account for 20 percent of its business down from 80 percent 10 years ago, according to Esclusa.
At the same time, Latin America remains considerably under-banked and receiving money through cash transmitters like La Nacional and MoneyGram remain the only option for a majority of the region’s population. And the service is just as convenient in many cases. “In the Dominican Republic, for example, we offer home delivery service where 95 percent will get the money within two hours or less after you send the money here,” Friedman says.
Fewer than 10 percent of Latin American recipients of money transfers have access to bank accounts, according to the IDB. Also the senders – in the United States, for example – are largely under-banked, due to a combination of legal, economic and cultural reasons, industry experts say.
California tops the origin for sending remittances from the United States to Latin America, followed by New York and Texas, according to IDB research in 2004. Other key states that sent remittances included Florida, Illinois and New Jersey. On average, remittances were $1,805, with states like Maryland and North Carolina posting higher averages and states like California and Florida posting lower averages, the IDB data showed.
Mexico accounted for 35.6% of all remittances sent to Latin America last year.
Remittances to Mexico have been growing at strong rates the last few years and are now more double the $8.9 billion sent in 2001, according to the IDB.
“In the sending side as well as the receiving side, a high level of competition is observed,” the IDB says of Mexico. “Banamex and Bancomer offer a wide distribution network in the Mexican side. In the U.S. side, institutions such as Citicorp, Wells Fargo [and] Bank of America are seeking to attract new customers among sending groups.”
Brazil is the second-largest recipient of remittances in Latin America. The country received $6.4 billion in remittances last year, an increase of 14.0 percent from 2004.
Unlike Mexican remittances, which largely come from the United States, the Brazilian remittances come from Brazilians living in Japan ($2.2 billion), and Europe ($1 billion) and other countries ($500 million) as well as the United States ($2.7 billion).
Colombia, the third-largest remittance recipient in Latin America, last year posted an increase of 7.0 percent to $4.1 billion. The remittances come from growing Colombian populations in the United States, Spain and Latin America. Leading companies are Western Union, Envíos de Valores, Remesas Pujol, La Nacional, and Viameras. There is also a healthy business on the distribution of remittances, with Titan as one of the key distributors, the bank says.