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Report to the Committee on Banking, Housing, and Urban Affairs, U.S.
Senate:
November 2005:
International Remittances:
Information on Products, Costs, and Consumer Disclosures:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-204]:
GAO Highlights:
Highlights of GAO-06-204, a report to the Committee on Banking,
Housing, and Urban Affairs, U.S. Senate:
Why GAO Did This Study:
Remittances are personal funds immigrants send to their home countries.
The United States is the largest remittance-sending country in the
world, with more than $36 billion remitted in 2003, according to the
International Monetary Fund. The majority of these remittances are sent
to Latin America and the Caribbean and they are a very important source
of financial flows to many countries. In 2004, the United States, with
other countries, pledged to reduce fees for remittances. Remittance
senders in the United States can send funds through entities in the
formal financial sector such as money transfer operators, banks, and
credit unions or other informal means such as couriers. This report
provides information on (1) the methods of transmission available to
remittance senders in the formal financial sector and the advantages
and disadvantages of each, (2) the costs to send remittances through
the formal financial sector, and (3) disclosures remittance providers
typically provide to senders.
What GAO Found:
Remittance senders in the United States have a range of methods
available including money transfer operators (MTOs), banks, credit
unions, and the United States Postal Service. However, most
transactions occur through MTOs. These products range from cash-to-cash
wire transfers to account-based transfers, stored value cards, and
Internet-based transactions. There are a number of reasons remittance
senders continue to choose MTOs over other providers, including their
extensive networks and customers’ familiarity with their products.
Banks and credit unions offer some products at lower cost and the
advantage of access to other financial services. However, limited
banking hours, language barriers, or inconvenient locations may make it
difficult for some remittance senders to use these services. Recently,
some federal banking agencies have undertaken initiatives to move more
remittances through banks and credit unions and bring these senders
into the financial mainstream.
Research shows that competition in the remittance market has resulted
in a drop in the cost of remittances from the United States to Latin
America and the Caribbean. The standard costs to a remittance sender
are the transfer fee and the foreign exchange conversion fee. The costs
vary for different products. For example, on average, most providers we
spoke with charge approximately $10 to send $300 to Mexico using the
cash-to-cash method, while providers charge less for products such as
dual-ATM cards.
Disclosures we reviewed from remittance providers included information
on the transfer fee, the exchange rate, and the right to a refund. The
way this information is presented varies by provider, and a sender may
have to do additional work to compare costs across different providers.
Some efforts are under way to provide consumers with more aggregate
information on the cost of remittances across different providers and
products.
Regional Destinations of Workers’ Remittances Sent from the United
States, 2003:
[See PDF for image]
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-06-204.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Yvonne Jones, (202) 512-
2717, JonesY@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Remittance Senders Have a Variety of Options Available to Send
Remittances but Continue to Predominantly Use MTOs for Multiple
Reasons:
Standard Costs for Sending Remittances to Certain Regions of the World
Have Fallen, but These Costs Vary among Providers and Products:
Although State and Federal Disclosure Requirements Vary, Remittance
Providers Offer Basic Information on Cost and Error Resolution:
Observations:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Description of Products That Are Offered by Providers We
Interviewed:
Appendix III: Transfer Fees to Mexico and the Philippines for the
Providers We Interviewed:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Remittances as a Percentage of Various Economic Indicators for
Selected Countries for 2003:
Table 2: Remittance Providers and the Different Product Types They
Offer:
Table 3: Average Transfer Fees to Send $300 to Mexico and the
Philippines for Cash-to-Cash-Based Product Offered by the Providers:
Table 4: Range of Transfer Fees to Send $300 to Mexico and the
Philippines for All Remittance Products Offered by the Providers:
Table 5: States Reviewed That Required a Receipt:
Table 6: States Reviewed That Specify Disclosure Requirements for Error
Resolution:
Table 7: Description of Remittance Products Offered by Providers We
Interviewed:
Table 8: Product Costs of Providers We Interviewed:
Figures:
Figure 1: Regional Destinations of Workers' Remittances Sent from the
United States, 2003:
Figure 2: Cash-to-Cash Remittance Transaction:
Figure 3: Account-Based Remittance Transaction:
Figure 4: ATM-Based Remittance Transaction:
Figure 5: Stored Value Card Remittance Transactions:
Figure 6: Hawala System for Remittances:
Figure 7: The Total Cost of a Remittance Transfer as a Percentage of
the Amount Sent by Industry Sector for 14 Latin American and Caribbean
Countries, 2001-2004:
Figure 8: The Average Percentage Difference in Exchange Rate from the
Central Bank Rate Offered by Five MTOs, June-July 2005:
Figure 9: The Exchange Rate Offered by the Six Providers and the
Central Bank of Mexico, June-July 2005:
Figure 10: The Exchange Rate Offered by the Six Providers and the
Central Bank of the Philippines, June-July 2005:
Figure 11: The Exchange Rate Spread among Various Remittance Providers
to 14 Latin American and Caribbean Countries, 2001-2004:
Figure 12: An Example of a Cash-to-Cash Receipt:
Abbreviations:
ACH: Automated Clearing House:
BSA: Bank Secrecy Act:
CUNA: Credit Union National Association:
DFID: Department for International Development:
EFTA: Electronic Funds Transfer Act of 1978:
FinCEN: Financial Crimes Enforcement Network:
FDIC: Federal Deposit Insurance Corporation:
ICBA: Independent Community Bankers of America:
IDB: Inter-American Development Bank:
IMF: International Monetary Fund:
IRnet: International Remittances Network:
MTO: money transfer operator:
NATF: New Alliance Task Force:
NMTA: National Money Transmitters Association:
PROFECO: Procuraduria Federal del Consumidor:
USPS: United States Postal Service:
WOCCU: World Council of Credit Unions, Inc.
Letter November 17, 2005:
The Honorable Richard C. Shelby:
Chairman:
The Honorable Paul S. Sarbanes:
Ranking Minority Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
According to the International Monetary Fund (IMF), in 2003, personal
remittances amounted to about $100 billion for developing countries.
These personal remittances can be used for various purposes including
basic consumption, housing, education, and small business formation.
The United States is the largest remittance-sending country in the
world. According to the IMF, in 2003, more than $36 billion was sent
from the United States to other countries. The majority of these funds
were sent to Latin America and the Caribbean, and substantial amounts
were also sent to Asia and Africa. These personal remittances also
serve as an important financial source for some countries. For example,
the Inter-American Development Bank estimated that in 2003 remittances
to Latin America and the Caribbean exceeded all combined foreign direct
investment and official development assistance to the region, and
accounted for at least 10 percent of gross domestic product for six
countries in the region.
Community groups and some U.S. government officials have raised
concerns that remittance senders pay excessive fees to send funds to
their home countries. The United States and other major industrialized
nations committed in 2004 at the Sea Island Summit of G8 countries to
lead an international effort to reduce remittance fees.[Footnote 1]
Another concern raised by community groups is that remittance senders
are not obtaining sufficient information on the total cost of the
remittance transaction and their rights to dispute transactions.
Finally, some federal banking agencies, members of Congress, and
community groups have expressed interest in exploring ways to bring a
greater percentage of immigrants into the mainstream financial system,
such as by encouraging remittance senders to use banks or credit unions
to send remittances.
Remittance senders in the United States have a variety of options to
transfer money to their home countries. Senders can use the formal
financial sector, which includes money transfer operators (MTOs), such
as Western Union and MoneyGram, as well as banks and credit unions.
They may also choose the informal financial sector, using options like
personal couriers and hawalas--an Arabic word that means "transfer"--to
send funds.[Footnote 2] Our work focused primarily on remittances sent
through the formal financial sector.
In light of the large volume of remittances and the need for better
understanding of these flows and the methods that remittance senders
use, you asked us to undertake a review of remittances from the United
States. Specifically, we examined (1) the methods of transmission
available to remittance senders and the advantages and disadvantages of
each, (2) the various costs to the remittance sender to use different
methods, and (3) information remittance providers disclose to senders
and the federal and state disclosure requirements. You also asked us to
review available estimates on remittances from the United States, which
we plan to address in a separate report.
To examine the methods of transmission available to remittance senders,
we developed a set of structured questions and used them to interview
selected MTOs, banks, credit unions, and Internet-based remittance
providers. We spoke with and reviewed documentation from a total of 28
remittance providers. To examine the various costs to the remittance
sender to use different methods, we asked the remittance providers we
met with for the transfer fees and any additional fees to send $300,
primarily to Mexico and the Philippines, which are among the largest
recipients of remittances from the United States. To examine what
information remittance providers disclosed to remittance senders, we
asked the providers what they provided to remittance senders during a
remittance transaction and also collected and reviewed documentation
they provided to us such as receipts, brochures, and terms and
conditions they provide to consumers. We also reviewed federal and
selected state laws to determine disclosure requirements for various
remittance products. Appendix I provides additional details on our
scope and methodology. We conducted our work from December 2004 to
October 2005 in accordance with generally accepted government auditing
standards.
Results in Brief:
Remittance senders in the United States have a range of methods to send
money abroad, including money transfer operators, banks, credit unions,
and the U.S. Postal Service. However, most transactions in the formal
financial sector-the scope of this report--are conducted through MTOs.
In the formal financial sector, mechanisms and products for
transferring money offered by remittance providers range from more
traditional cash-to-cash wire transfers to account-based transfers,
stored value cards, or Internet-based transfers. In the informal
sector, remittance senders may use couriers or hawalas, which generally
transfer funds outside of the formal financial sector. There are a
number of possible reasons remittance senders continue to choose MTOs
over other providers, including the extensive network large MTOs have
both in the United States and abroad, as well as customers' familiarity
with the products MTOs offer. Additionally, even though the fees
remitters incur when using an MTO may be higher than the fees incurred
when using other providers, remitters may choose an MTO because it has
a name they trust and may offer the convenience of service 24 hours a
day. Banks and credit unions offer remittance senders the benefits of
deposit insurance and access to other banking products, but limited
banking hours, language barriers, and inconvenient locations may make
it difficult for them to use this service. Two federal banking agencies
have undertaken some new initiatives in an effort to move more
remittances through formal financial institutions and bring more
immigrants into the financial mainstream.
Research shows that competition in the remittance market has resulted
in a drop in the cost to send remittances from the United States to
certain regions of the world. For example, according to the Inter-
American Dialogue, the cost of sending remittances from the United
States to Latin America (particularly Mexico) has fallen since around
2001 and, more specifically, since 2003, the average cost of sending
$250 has fallen from 12.5 percent to 7 percent.[Footnote 3] However,
the cost reductions have stabilized recently. Little is known about the
trends in costs of remittances from the United States to other regions
of the world. The standard costs to remittance senders are the transfer
fee and the foreign exchange commission, which is the fee to convert
currency. These costs vary for different products and providers. In our
review of products from 28 remittance providers, we found that the
transfer fee could differ based on provider and product used, the
amount sent, and the destination. However, the MTOs, banks, credit
unions and the U.S. Postal Service with whom we spoke that offered the
predominant cash-to-cash product, had similar transfer fees to send
$300 to Mexico, charging approximately $10. Additionally, banks offered
lower-cost alternatives to send remittances, such as card-based
products or account-to-account-based products. For example, the
transfer fee to use a dual ATM card to send remittances to Mexico could
be as low as $1.50. The foreign exchange commission can also vary
according to factors, such as the provider and product used or the
level of competition among sending agents. The results of an Internet
tracking exercise we conducted with five MTOs and one bank showed that
in general the foreign exchange commissions were lower to Mexico than
to the Philippines. Depending on the provider, product, and service
used, remittance senders may incur additional costs such as those
associated with maintaining a bank account or fees for home delivery.
Providers we met with generally presented remittance senders with basic
information on the transaction fee and the exchange rate that would be
applied to the transaction, as well other terms and conditions of the
transaction, such as a customer's right to a refund. The way in which
information was presented varied among providers. Receipts we examined
from MTOs, banks, credit unions, and the U.S. Postal Service that
offered the cash-to-cash product consistently provided the transfer
fee, exchange rate, amount of local currency to be received, as well as
information on error resolution, at the time of the transaction. Banks
that offered other remittance products, such as account-based
transfers, including dual ATM cards, presented disclosures in various
ways, such as in a fee schedule given to customers when they opened an
account or on a monthly statement. Additionally, disclosure
requirements vary based on whether the provider is regulated at the
state or federal level, as well as the type of remittance product
offered to the customer. MTOs are generally regulated at the state
level, and each state may set its own disclosure requirements. For
example, California's law requires its MTOs to be licensed and
stipulates specific information that must be contained on receipts for
each transaction regarding cost and a right to a refund. Montana, on
the other hand, has no specific money transmitter laws. In contrast,
banks and credit unions are subject to a specific federal disclosure
law. However, some banks we spoke with told us that they believed this
law did not apply to all of their remittance products, such as stored
value cards. While information on the cost of the remittance
transaction is available to remittance senders, they may have to do
additional work to compare costs across different types of remittance
products because of various fees and types of disclosures. Although
there was no consensus among the officials we spoke with on whether
customers need additional disclosure information to make informed
decisions, efforts are under way to provide some customers with more
aggregated information on the cost of remittances across different
providers and products. For example, the Mexican consumer protection
agency publishes information on the Internet, on transfer fees and
exchange rates offered by a cross section of providers sent to Mexico
from nine cities in the United States.
We make no recommendations in this report. We requested and received
technical comments on relevant sections of a draft of this report from
the Bureau of Economic Analysis, the Federal Deposit Insurance
Corporation, the Federal Reserve Bank of Atlanta, the United States
Postal Service, and the National Credit Union Administration.
Background:
Remittances have become an important source of financial flows to
developing regions. For some countries, these funds constitute the
single largest source of foreign exchange and can often rival foreign
direct investment. Table 1 shows that remittance flows for selected
countries exceed flows of various economic indicators such as official
development assistance, foreign direct investment, and gross national
income.
Table 1: Remittances as a Percentage of Various Economic Indicators for
Selected Countries for 2003:
Country: Dominican Republic;
Remittance as a percentage of official development assistance: 3,372;
Remittance as a percentage of foreign direct investment net inflows:
750;
Remittance as a percentage of gross national income: 13.
Country: India;
Remittance as a percentage of official development assistance: 1,847;
Remittance as a percentage of foreign direct investment net inflows:
408;
Remittance as a percentage of gross national income: 3.
Country: Mexico;
Remittance as a percentage of official development assistance: 14,148;
Remittance as a percentage of foreign direct investment net inflows:
135;
Remittance as a percentage of gross national income: 2.
Country: Philippines;
Remittance as a percentage of official development assistance: 1,069;
Remittance as a percentage of foreign direct investment net inflows:
2,470;
Remittance as a percentage of gross national income: 9.
Source: World Bank.
Notes: Remittances comprise workers' remittances and compensation
earned by nonresident employees. The countries selected are some of the
top recipients of remittances in their respective regions.
[End of table]
The United States has historically served as an important destination
for immigrants as they seek to improve their economic conditions.
According to the 2000 U.S. Census, the 1990s saw the largest increase
in the foreign-born population in the United States. These immigrants
from various parts of the world have traditionally sent personal
remittances back home to help family members pay for basic necessities.
As figure 1 shows, the majority of remittances from the United States
flow to Latin America and the Caribbean, which includes Mexico, Central
America, South America, and the Caribbean. This figure also shows that
a large amount flows to Asia, including the Philippines.
Figure 1: Regional Destinations of Workers' Remittances Sent from the
United States, 2003:
[See PDF for image]
[End of figure]
As the amount of remittances from the United States has grown over
time, more providers beyond the traditionally large MTOs have entered
the remittance market. For example, small providers that serve specific
remittance corridors (e.g., Chicago to a specific region of Mexico)
have started offering remittances. Further, banks and credit unions, in
their efforts to attract more immigrant clients, particularly Latinos,
have attempted to use remittances as a vehicle to attract these
potential clients. Finally, remittance firms on the Internet have also
entered the market.
The regulation of remittance providers is done at both the state and
the federal level. MTOs are required to register with the Department of
the Treasury and prepare and maintain a list of their agents. MTOs in
some states are examined for financial soundness by state regulators
and are subject to examinations by the Internal Revenue Service for
compliance with the Bank Secrecy Act (BSA), a federal anti-money
laundering law. Banks and credit unions are generally regulated by
either federal or state banking regulators for both financial soundness
and compliance with the BSA.
Remittance Senders Have a Variety of Options Available to Send
Remittances but Continue to Predominantly Use MTOs for Multiple
Reasons:
Remittance senders in the United States have a number of methods and
product options available to them when sending money to their home
countries through the mainstream financial sector. However, many
continue to use MTOs for a number of reasons. A remittance sender in
the United States can send money through formal financial channels,
such as banks, credit unions, or MTOs. These different providers offer
traditional remittance products like cash-to-cash transfers and account-
based transfers, as well as newer products like stored value cards.
Remittance senders can also use informal value transfer systems to
transfer money, such as personal couriers and hawalas. Each type of
remittance provider and product has its own advantages and
disadvantages. For example, most banks and credit unions we spoke with
that offer remittance services only send to Latin American countries,
with the majority of those sending to Mexico. Thus, a remittance sender
might gain the security of using the mainstream financial sector, but
the receiving countries available to the sender may be limited. An MTO
may have a wider distribution network but may charge a higher fee for
this service, especially for countries where there is relatively little
competition. Remittance senders nevertheless continue to use MTOs
because of factors such as convenience and trust. In an effort to move
more remittances through mainstream financial institutions such as
banks and credit unions and bring immigrants into these institutions,
some federal banking agencies have undertaken initiatives to encourage
remittance senders to use banks or credit unions to send remittances.
Remittance Senders Have a Variety of Formal and Informal Methods to
Transfer Funds:
There are a number of different types of providers inside and outside
the formal financial sector offering remittance services.
Traditionally, MTOs have dominated the remittance industry in the
formal financial sector. Recently though, more banks, credit unions,
and Internet-based providers have started offering remittance services
to customers. As more remittance providers enter the market, the range
of products has also expanded. Table 2 shows the types of products that
may be offered by the different types of formal providers. Appendix II
has a more thorough description of the products offered by the
providers we spoke with.
Table 2: Remittance Providers and the Different Product Types They
Offer:
MTOs;
Cash-to-cash: No;
Cash-to-account: Yes;
Account/credit card-to-cash: Yes (via an on-line transfer);
Account-to-account: No;
ATM product: No;
Stored value card: Yes;
Money order: Yes.
Banks;
Cash-to-cash: Yes;
Cash-to-account: Yes;
Account/credit card-to-cash: Yes;
Account-to-account: Yes;
ATM product: Yes;
Stored value card: Yes;
Money order: No.
Credit unions;
Cash-to-cash: Yes;
Cash-to-account: No;
Account/credit card-to-cash: Yes;
Account-to-account: Yes;
ATM product: No;
Stored value card: No;
Money order: No.
USPS;
Cash-to-cash: Yes;
Cash-to-account: No;
Account/credit card-to-cash: No;
Account-to-account: No;
ATM product: No;
Stored value card: No;
Money order: Yes.
Internet-only providers;
Cash-to-cash: No;
Cash-to-account: No;
Account/credit card-to-cash: Yes;
Account-to-account: No;
ATM product: No;
Stored value card: Yes;
Money order: No.
Source: GAO.
[End of table]
Money transfer operators:
Traditionally, MTOs have dominated the remittance industry in the
formal financial sector. One recent estimate from a private research
firm states that the four largest MTOs sent approximately 40 percent of
remittances from the United States.[Footnote 4] Larger MTOs in the
United States may serve upward of 170 countries, while some small MTOs
may serve only one country or region.
Generally, a sender can walk into an MTO, provide cash to cover the
transfer amount and fees, provide basic identification information for
themselves and the recipient (most often a name, address, and phone
number), and the money will be wired to a specified agent location in
the recipient's country. This type of transaction is referred to as a
cash-to-cash transaction because a sender provides cash to the money
transmitter and the receiving agent pays out cash to the remittance
recipient in either U.S. dollars or local currency.[Footnote 5] Figure
2 shows how this process operates.
Figure 2: Cash-to-Cash Remittance Transaction:
[See PDF for image]
[End of figure]
MTOs provide a variety of places to send or receive cash. The majority
of MTO users initiate cash-to-cash transactions at an MTO-dedicated
storefront or an affiliated agent. Examples of the latter include
convenience stores, supermarkets, check cashers, and ethnic-run retail
stores.[Footnote 6] One MTO we spoke with has moved away from this
model in favor of a branch-based system where the company runs all its
remittance branches and does not have any contracted agents. All of the
branches are located in areas where Latinos live and work. A company
official told us the company moved toward this model because it allows
greater flexibility in its pricing structure, and the company can pass
additional savings on to the customer. Other sending and receiving
options offered by MTOs include:
* Cash-to-account--This is a relatively uncommon option in which some
MTOs have formed partnerships with banks that allow the sender to pay
in cash and have the funds deposited in the recipient's bank account.
One provider we spoke with offers a cash-to-account product to the
Philippines. This service allows U.S. dollars to be transferred to the
recipient's bank account.
* Web sites--Some MTOs have Web sites where customers can initiate a
remittance over the Internet, pay for the transaction with a credit
card, and the payout would be received in cash at a corresponding agent
location. The MTOs we spoke with that offer transfers over their Web
sites said a very small volume of their transactions is conducted this
way.
* Money orders--Some MTOs we spoke with also sell money orders that
could be used as remittance products. The sender purchases the money
order with U.S. dollars and sends it to the recipient, who then cashes
it in at a bank for local currency.
Most MTOs we spoke with offering cash-based transactions (for example,
cash-to-cash) said that the money is available to the recipient within
24 hours, and some MTOs offer a same day transaction for a higher fee.
While most recipients usually retrieve remittances at the provider's
place of business, sometimes the money can be delivered to the
recipient's home.[Footnote 7] Some MTOs also offer a free 3-minute
international phone call to senders so they can inform the recipient
the money has been sent and one provider we spoke with will send a text
message to the recipient's mobile phone alerting them that the money
has been sent.
Banks:
Both large and small banks have entered the remittance market in an
effort to attract immigrants as a new client base. Researchers, as well
as officials from the Federal Reserve, estimate that banks accounted
for about 5 percent of all international remittances sent from the
United States in 2004. Traditionally, banks have wired money from a
customer's account to a recipient's account as the primary method for
transferring money abroad. This was not marketed as a remittance
product, and banks targeted this option at high-volume account holders
who send large sums of money for retail or investment purposes, and
they generally charge more than the cost of a remittance
transfer.[Footnote 8] Most U.S. banks we identified offering remittance
products and services do so only for Latin America, with a few also
serving India and the Philippines. Some banks have developed their own
remittance products, such as account-based products, which usually
require the sender, and in some cases the receiver, to have an account.
For account-based products, as shown in figure 3, the money is
transferred from the sender's account to the recipient's account
(account-to-account) or it is paid out in cash (account-to-cash). Banks
offering account-based products usually transfer the money to branches
they have abroad or to banks with which they have formed partnerships.
Figure 3: Account-Based Remittance Transaction:
[See PDF for image]
[End of figure]
Some of the larger banks we spoke with have recently acquired Mexican
banks, providing them with an instant distribution network for
remittances. Banks also offer other remittance options, such as
traditional remittances paid for with cash, dual ATM cards, or stored
value cards. The cash-based products operate in a manner similar to
that described above. Like cash-to-account or account-to-account
products, a dual ATM card is linked to a customer's bank account. A
recipient could withdraw the money from a special remittance account
linked to the sender's regular bank account or directly from the
sender's regular bank account or directly from the sender's savings or
checking account. If the money is withdrawn from a separate remittance
account, the senders can either transfer funds from their accounts into
the remittance account or make a deposit directly into the remittance
account. We spoke with five banks that are offering a dual ATM product.
Three of these banks limit the amount that can be transferred on a
daily basis through them to $200 or $400 as a security precaution,
since they are linked to a customer's account. As shown in figure 4, a
remittance sender using this type of product sends an ATM card to the
receiver, who can then use it to withdraw money at a local ATM.
Figure 4: ATM-Based Remittance Transaction:
[See PDF for image]
[End of figure]
With stored value cards, as shown in figure 5, senders purchase a card
from a bank for a certain dollar amount, which is posted to the card
before it is sent to the recipient. This card can also be used to
withdraw money from an ATM or used as a point-of-purchase card to buy
goods. The card may be reloaded with more funds and is usually branded
by one of the major credit card issuers. Three of the 12 banks we spoke
with that offer remittance services are offering a stored value card.
According to one researcher we spoke with, account-based remittances
currently constitute a small part of the total remittance flows leaving
the United States, as many immigrants lack bank accounts, are not aware
of the products or the technology, or their banks do not offer the
service. Two banks we spoke with told us they have opted to act as
agents of an MTO and provide cash-to-cash services because this is a
low-cost way for them to enter the remittance market. Another bank we
spoke with is considering this option because of the low level of
interest in the other remittance products it offers. Furthermore, one
community bank told us it has allowed an MTO to open a kiosk in its
branch because it does not have the resources to offer its own
remittance services, and it want to meets the needs of its customers.
Figure 5: Stored Value Card Remittance Transactions:
[See PDF for image]
[End of figure]
Credit Unions:
Credit unions have entered the remittance market in an effort to meet
the needs of some of their immigrant clients for lower-cost remittance
products and possibly attract new members. Many credit unions in the
United States offering remittances do so through an electronic platform
developed by the World Council of Credit Unions, Inc. (WOCCU) called
the International Remittances Network (IRnet).[Footnote 9] IRnet
provides credit unions access to the means by which they can offer
remittance services. On the sending side, WOCCU has contracted with two
MTOs to serve as the transmitter of account-to-account, account-to-
cash, or cash-to-cash remittances for IRnet participant credit unions.
A credit union that joins IRnet can choose which MTO's services it
would like to offer to its members. WOCCU officials told us they
provide a choice of MTO to each credit union in an effort to offer
remittance senders and receivers more options for transferring and
receiving funds. Remittance senders using an IRnet participating credit
union can send money to countries in Latin America, Asia, Africa,
Europe, and Australia. According to WOCCU, as of August 2005, there
were 174 credit unions that were members of IRnet, the majority of
which were located in California and Texas.
Many of the credit unions we spoke with said that remittances are not a
significant part of their business. For example, of the seven credit
unions we spoke with, one reported that it conducted more than 250
remittance transactions a month through IRnet in 2004 and another
reported conducting around 80 transactions a month. The other five
credit unions we spoke with reported conducting fewer than 25
transactions a month in 2004 with some fewer than 15 transactions for
the year.
United States Postal Service:
The United States Postal Service (USPS) provides remittance services
abroad through international money orders and cash-to-cash wire
transfers. Remittance senders can mail international money orders to 30
countries, many of which are sent using USPS's international mail
services. Recipients can then cash these money orders either at their
destination country's local post office or at banks in destination
countries, depending upon the acceptance policies of those post offices
and banks. In 1996, USPS entered into a partnership with the Mexican
bank Bancomer (now BBVA Bancomer) to offer a wire transfer service
called Sure Money, branded Dinero Seguro at participating post offices.
The service mirrors traditional money transfer operations, with cash
being wired from U.S. post offices to financial institutions that BBVA
Bancomer has entered into agreements with, including, but not exclusive
to, BBVA Bancomer branches. In order for the recipient to access the
money, the sender must provide him with the confirmation number and the
recipient must provide proper identification upon pickup of the funds
at the participating payout agent. The recipients are not required to
have an account with BBVA Bancomer or any of the payout agents to
collect funds. In 2004, USPS expanded Dinero Seguro to nine additional
countries also in partnership with BBVA Bancomer.[Footnote 10]
Online Providers:
Recently, some Internet-based money transfer companies have begun
offering remittance services. Unlike traditional MTOs that might allow
customers to send money through their Web sites, these MTOs operate
solely online and do not have agents or branches. Remittances initiated
at an online provider must be paid for with a credit or debit card. On
the recipient end, the money is disbursed to either a stored value card
or in cash at a correspondent agent location. We spoke with officials
of one online provider who told us they entered the business because
they felt they could offer a competitive advantage over physical
providers with a lower-cost product and greater convenience. While
online remittance providers currently have a small share of the market,
a 2005 report on remittances and technology from a communications firm
projects that by 2007, more than 5 million foreign-born households will
do some form of online banking and at least half of these will use an
online transfer or card-based product for remittances.[Footnote 11]
Hawalas and Courier Services:
Some remittance senders choose not to send money through formal
financial channels. It is difficult to gather information about these
informal money transfers, since some of them occur through cultural
arrangements with little or no documentation. Informal value transfer
systems are often used in places where formal financial transactions
are unavailable, expensive, or unreliable. Two common types of informal
value transfer systems are courier services and hawalas. Courier
services carry funds across the border often along with other goods.
The courier may hand-deliver the money to the recipient or may have a
storefront where the recipient can retrieve it. According to one study
on the United States-Mexico remittance corridor, couriers play a
significant role in transferring money between the residents in the two
countries.[Footnote 12] The hawala system operates differently. As
shown in figure 6, a customer using a hawala would hand cash to the
hawaladar and request that an equivalent amount be delivered in local
currency to the recipient. The hawaladar would then contact a hawaladar
in that receiving country and ask that the funds be disbursed to the
recipient. In most cases, no fees are discussed. Rather, the
transaction cost is factored into the quoted exchange rate or the
amount that will be delivered to the recipient. Remittances sent
through hawalas are delivered anywhere from within a few minutes to 48
hours, depending upon the urgency and destination of funds. While the
hawala system operates in the informal sector, hawaladers often hold
bank accounts and use the formal financial channels to settle their
outstanding balances.
Figure 6: Hawala System for Remittances:
[See PDF for image]
[End of figure]
Remittance Providers in the Formal Sector Have Their Advantages and
Disadvantages, yet MTOs Remain the Dominant Choice of Provider:
There are advantages and disadvantages to the remittance sender of
using each type of provider in the formal sector. Factors such as trust
in the provider, speed of transaction, reliability and security of the
transaction, and cost were all cited by remittance providers and a
limited group of senders we spoke with as reasons thought to be
important to a remittance sender when choosing a provider and product.
Most remittance senders first choose the provider and then choose a
product type offered by that particular provider. Remittance senders,
though, may be limited in their choice of provider based on the
convenience and accessibility of the payout location for the recipient.
Remittance providers we spoke with said that there are a number of
possible reasons remittance senders continue to choose MTOs over other
providers. For example, MTOs have established extensive networks both
in the United States and abroad that allow them to initiate
transactions and distribute money in and throughout more countries than
any other type of provider. Some of the largest MTOs we spoke with told
us they have between 75,000 and 225,000 agent locations worldwide in
more than 170 countries. The large numbers of agent locations,
including convenience stores, grocery stores, check cashers, and ethnic-
run retail stores provide the remittance sender with more locations
from which to send funds and may better equip MTOs to deliver money in
rural areas than other types of providers. Six of the 10 MTOs we spoke
with said that customers prefer to use them because they have multiple
sending or receiving locations. MTOs also offer convenient hours of
operation and locations and some may offer service 24-hours a day. Of
the 10 MTOs we spoke with, half identified convenient hours of
operation as a reason a consumer uses them. In addition, MTOs offer
relatively quick and reliable transactions. Many MTOs we spoke with
said their cash-to-cash transaction--the most common one they offer--is
available within a few hours, and some said within a few minutes. Some
MTOs also offer a free 3-minute international phone call to senders so
they can inform the recipient the money has been sent. In addition,
remittance providers believe that senders are familiar with and
comfortable with MTOs and the products they offer and may choose an MTO
as a provider because they trust the service the MTO offers. A 2004
study of Latin American immigrants to the United States found that 78
percent of those surveyed used MTOs to send money home to their
families.[Footnote 13] A similar study of remittance recipients in the
Dominican Republic found that 66 percent of them had a bank account,
but 84 percent of recipients surveyed received remittances through an
MTO either at the agent location or through home delivery.[Footnote 14]
Remittance providers and senders we spoke with said there also are some
possible disadvantages to sending money through an MTO. Some remittance
senders may find that there are high costs associated with using MTOs.
A remittance sender also could encounter language barriers when sending
money, especially at some of the agent locations. For example, a sender
may go into a chain supermarket that also serves as an agent of an MTO.
This supermarket's checkers may not speak the language of the sender
since handling remittance transactions is only a small part of their
job. A limited group of remitters that we spoke with echoed the concern
of the higher cost of using some MTOs.
Remittance providers we spoke with said that banks that offer
remittance services have the advantage of offering remittance senders
the option of some lower-cost products that are secure and reliable.
Bank remittance products, such as dual ATM cards and account-based
transfers, tend to be lower in cost than cash-based products offered by
MTOs. As discussed in greater detail in the next section, the bank
products we looked at had transfer fees ranging from no charge to
$10.00 for a $300 transaction to Mexico, while the range of transfer
fees for sending this amount through an MTO, according to those we
spoke with, was $4.90 to $15.00.
One barrier to using a bank for some remittance senders is that the
senders may be required to have a bank account. Of the 12 banks we
spoke with that are offering remittance products, 9 require a
remittance sender to be an account holder for at least one of their
products, and some of the others offer lower fees to account holders.
Providers said that many immigrants may have come to the United States
from countries with unstable banking systems and may distrust banks;
others may think they do not have the proper documentation to open an
account. Four banks we spoke with told us that lack of proper
identification may keep someone away from using their remittances
services. The banks offering remittance services that we spoke with all
accept the Mexican consular identification card as a valid form of
identification.
Additionally, limited banking hours, language barriers, or inconvenient
locations may make it difficult for an immigrant to use this service.
Five banks we spoke with said their inconvenient location may be a
barrier, while three said limited hours of operation may be a barrier.
Most banks we spoke with are not open in the evenings or on the
weekend, when immigrants often have time off from their jobs to take
care of personal business. Some of these banks have or are considering
opening branches in communities where immigrants live and work and are
offering expanded hours in an effort to make their services more
accessible to this market. In an effort to serve more customers, one
community bank we spoke with has addressed this issue by opening a
kiosk in a Latino grocery store that offers extended hours 7 days a
week. Most of the tellers of this bank are bilingual in an effort to
better serve the community they work with. This bank told us the
grocery store is also an agent of a large MTO, and it has been able to
draw many of these customers to its remittance product as it is offered
at a lower cost than others and the bank has been able to bring them
into the formal banking sector at the same time. Another bank said it
had remodeled a branch in a predominantly Latino community, and the
decor will have Mexican art and a color scheme that will remind
customers of their homeland.
Trust in the provider, low cost of service, reliability and security in
the transaction, and language accessibility were all advantages cited
by credit unions we spoke with as reasons customers use them to send
remittances. Six of the seven credit unions we spoke with cited low
cost as a reason customers use them to send remittances. The IRnet
remittance service used by most credit unions offering remittances is
offered as a lower-cost alternative to MTOs. Five of the seven credit
unions we spoke with told us that those who use their remittance
services are attracted to the service because of the security of the
transaction. They also mentioned that many of their tellers speak
Spanish, the language of the majority of those sending remittances.
Perhaps the most significant disadvantage to using a credit union for
remittances is that of access. That is, credit union services may be
limited to those who are members. If someone is not a member or does
not have an account at the credit union, that person cannot use any of
the services offered. All seven credit unions we spoke with cited this
as a disadvantage. Some of the credit unions we spoke with said they
would consider offering remittance services to nonmembers in the hopes
of drawing those people in as members if they could get the proper
approval from their regulators. Other reasons an immigrant may not use
a credit union are similar to those for a bank, including inconvenient
locations (four of the seven credit unions we spoke with cited this
reason), perception that the remitter lacks the proper identification
to open an account, and the slow transaction time.
USPS officials said that the advantages to remittance senders of using
their services are the reliability and security of the transaction, low
cost, and trust in the provider. These officials believe sending
remittances using USPS offers a level of security to some senders that
other providers may not afford, since transfers are being conducted by
an independent establishment of the U.S. government and USPS is a name
many people trust and are familiar with. Additionally, USPS offers both
of its products at a competitive cost (see the section on costs for a
comparison of the cost of these products to others). USPS also has the
advantage of offering other products and services that many people use
(such as mailing and stamps), so it may be a convenient option.
Disadvantages to the remittance senders in using USPS include possible
language barriers, inconvenient location for pickup, and inconvenient
hours of operation of either the USPS locations or payout agents. USPS
employees may not speak the language of the remittance sender, and the
lack of a common language could be a barrier to a transaction.
Furthermore, most USPS locations are open during standard business
hours during the week (8 a.m. to 5 p.m.) and weekend hours are limited.
Some Federal Banking Agencies Are Involved in Initiatives That Use
Remittance Products and Services as a Means of Bringing Immigrants into
the Mainstream Banking Sector:
In an effort to bring immigrants into the formal banking system, some
federal government agencies (in conjunction with certain foreign
governments, banks, credit unions, and community groups) have launched
two new efforts: the New Alliance Task Force (NATF) and the Federal
Reserve Automated Clearing House (ACH) International wire transfer
service (Directo a Mexico). These efforts intend to provide banking
services primarily for Latin American immigrants in the United States.
The NATF--an initiative focused on providing accounts with low-cost
remittance services and financial education to immigrants--is a
partnership formed in Chicago in 2003 by the Federal Deposit Insurance
Corporation (FDIC), the Mexican consulate, banks, and others. According
to FDIC, as of September 2005, the NATF was composed of 65 members,
including 40 banks, government agencies, and nonprofit advocacy and
community groups in the Chicago and Milwaukee areas.
FDIC reported that as of September 2005, more than 10,000 people had
participated in NATF financial education workshops and more than 50,000
new bank accounts had been opened by those living in the areas where
the NATF is active. The Mexican consulate participates in this effort
by providing immigrants who come to the consulate or mobile consular
sites with financial education on opening and using a bank account and
educating banks about the Mexican consular identification card (also
known at the matricula consular) as a valid form of identification for
opening an account. Most banks or credit unions we spoke with said that
they require two forms of identification, one of which usually is a
photo identification. If an immigrant does not have a driver's license
or other identification, he or she may avoid the banking sector. The
banks involved with the NATF all accept the matricula consular card and
other valid forms of identification. Many have started offering
remittance products to customers as a means of attracting them to the
bank.
NATF-based initiatives have recently been launched in Austin, Texas,
and Los Angeles, California. Additional NATF programs are planned for
other cities across the country in the coming months. FDIC officials
told us that banks have been eager to get involved in these initiatives
because of a strong interest among banks and community leaders to bring
immigrants into the financial mainstream.
The Directo a Mexico service began in February 2004 and allows a
customer of a U.S. bank to send money to a recipient with a Mexican
bank account at a low cost through the Federal Reserve's ACH network.
This network connects most banks in the United States to the Federal
Reserve and allows them to receive and post electronic payments. The
Directo a Mexico service operates at a cost of 67 cents per transaction
to the bank and, according to officials at the Federal Reserve we spoke
with, most banks that offer the service are charging their customers
between $2.50 and $3 per transaction. The recipient bank in Mexico gets
a share of the 67 cents, and the bank is not permitted to impose a
pickup fee or other fees on the recipient side. Federal Reserve
officials also told us that the Directo a Mexico service offers a
favorable exchange rate to bank customers. When the program was
launched, funds were available 48 hours after they were sent, but the
Federal Reserve recently cut the delivery time in half in response to
feedback from customers that they would like the money available
sooner. As of October 2005, 50 banks in 20 states had enrolled in
Directo a Mexico. Federal Reserve officials told us banks have been
slow to sign up for this service and, of those that have, a small
number are actively using it. Officials said they are making some
changes to the program based on feedback they have received and hope
that as more banks learn about the service, use will grow.
Standard Costs for Sending Remittances to Certain Regions of the World
Have Fallen, but These Costs Vary among Providers and Products:
Research conducted by the Inter-American Dialogue has shown that an
increase in competition in the remittance market has resulted in a
decrease in the cost of sending remittances from the United States to
certain regions of the world. The standard costs to remittance senders
are the transfer fee and the foreign exchange commission, which is the
fee to convert currency. These costs vary for different products and
providers. In our review of 28 remittance providers we found that
transfer fees can vary for numerous reasons, including provider,
product type, and the receiving countries we focused on. However, we
found that for the cash-to-cash product, transfer fees to send $300 to
Mexico were similar across the providers with whom we spoke. Also, we
found that some banks offered card-based and account-to-account-based
products that cost less than the cash-to-cash method. The foreign
exchange commission also can vary for multiple reasons, such as the
provider and product type or the level of competition among sending
agents. In the case of Latin America and the Caribbean, the foreign
exchange commission has come down since 2001, according to the Inter-
American Dialogue. Finally, additional costs outside of the transfer
fee and the foreign exchange commission may exist for certain products.
Competition Has Produced Reductions in Remittance Costs from the United
States to Latin American Countries:
Since the early 2000s, there has been increased competition among
remittance providers from the United States to Latin America. The
marketplace for remittances to this region has evolved as new players
have entered the market. As a result, the total cost to the remittance
sender to remit funds from the United States to Latin America has
fallen in recent years. For example, according to the Inter-American
Dialogue, the total cost of remittances from the United States to Latin
America and the Caribbean, particularly Mexico, has fallen since 2001
and the average cost of sending $250 has fallen from 12.5 percent in
2003 to 7 percent in 2005. However, the price reductions have leveled
off recently. Based on the Inter-American Dialogue's analysis of 14
Latin American and Caribbean countries as shown in figure 7, total
costs, which include transfer fees and the foreign exchange commission,
have fallen for remittances sent across all types of providers since
2001. Among providers surveyed by the Inter-American Dialogue, large
national MTOs continue to charge the highest total costs for the
remittance senders. According to an official from the Inter-American
Dialogue, these higher costs are driven primarily by higher transfer
fees rather than higher foreign exchange commissions. Compared with
these large national MTOs, banks and credit unions consistently had
lower total costs.
Figure 7: The Total Cost of a Remittance Transfer as a Percentage of
the Amount Sent by Industry Sector for 14 Latin American and Caribbean
Countries, 2001-2004:
[See PDF for image]
Note: The total cost includes the transfer fee and the foreign exchange
commission. The transactions that were analyzed were cash-to-cash
transactions. The numbers of providers that data were collected from
varied by year depending on factors such as which providers were in
business. Specifically, data were obtained from 45 companies in 2001,
76 in 2002, 75 in 2003, and 60 in 2004. These companies were chosen
based on, among other things, the criteria that they served at least
one country in Latin America and the Caribbean, were present in at
least one state in the United States, and included the largest
providers to specific countries in the region. The National Money
Transmitters Association (NMTA) has about 12 members, who are typically
medium-sized and small providers. The U.S. banks and all credit unions
include those institutions that are offering a remittance transfer
product either as agents of an MTO or as companies with their own
platforms. The selection was based using the list of banks accepting
the Mexican consular identification card as well as the list of credit
unions that are agents of Vigo or MoneyGram. "Other" includes about 30
providers that are typically smaller regional players and are not
members of NMTA.
[End of figure]
Remittance Transfer Fees Vary Depending on a Number of Factors:
Almost all providers we spoke with charged remittance senders a fee to
transfer funds, which varied depending on such factors as the provider,
product type, and where the sender initiated the transaction or where
the money was received. We found that for the most common cash-to-cash
remittance product, the average transfer fees to send $300 to Mexico
were similar in cost regardless of provider. As shown in table 3, among
the limited number of providers we spoke with that offered a cash-to-
cash product and provided us with detailed cost information, MTOs
charged approximately $11, credit unions charged approximately $10,
USPS charged $10, and banks charged approximately $9 to send $300 to
Mexico. There was a greater range for sending $300 to the Philippines
using a cash-to-cash product.
Table 3: Average Transfer Fees to Send $300 to Mexico and the
Philippines for Cash-to-Cash-Based Product Offered by the Providers:
Country: Mexico;
MTOs' average transfer fees in U.S. dollars: (number of respondents):
$10.70(4);
Banks' average transfer fees in U.S. dollars: (number of respondents):
$8.80(5);
Credit unions'[A]: average transfer fees in U.S. dollars (number of
respondents): $10.29(6);
USPS's average transfer fees in U.S. dollars: (number of respondents):
$10.00(1).
Country: The Philippines;
MTOs' average transfer fees in U.S. dollars: (number of respondents):
$12.43(4);
Banks' average transfer fees in U.S. dollars: (number of respondents):
$25.00(1);
Credit unions'[A]: average transfer fees in U.S. dollars (number of
respondents): $12.33(5);
USPS's average transfer fees in U.S. dollars: (number of respondents):
Not offered.
Source: GAO.
Note: Some providers offered multiple cash-to-cash products or charged
different fees typically depending on how the funds were distributed,
and in those cases these were included as separate data points in our
calculation of the average. Additionally, in this cost summary, we
excluded information from providers with whom we spoke who did not
supply us with detailed cost information on their remittance products
or who were not actively providing remittance products when we met with
them.
[A] All customers using remittance services were required to be members
of the credit unions we spoke with. Members can debit their account to
send a remittance, conducting an account-to-cash transfer. However, all
credit unions we spoke with had formed partnerships with an MTO to
offer a product that was similar to the typical cash-to-cash transfer
product. Therefore, we have categorized credit union remittance
products as "account-to-cash or cash-to-cash (MTO)" and have included
credit union products in table 3.
[End of table]
Officials of some MTOs we spoke with told us that that the transfer fee
they or their agents charged for sending $300 from the United States to
Mexico or the Philippines using a cash-to-cash product could vary
depending on the originating and receiving locations. Officials
indicated that competition from other MTOs in a certain area was a
reason why their transfer fees from various locations in the United
States to the same country could differ. Officials from some MTOs also
told us that agreements they had with their various paying agents in
the receiving countries could also affect the transfer fee and fees
could differ based on the specific location to which the remittance was
sent.
Besides the cash-to-cash product, remittance providers we spoke with
also offered other remittance products, some of which had a lower
transfer fee to send $300 to Mexico or the Philippines. Table 4 shows
the range of transfer fees across the remittance products offered by
the 23 providers we surveyed that provided us with detailed cost
information. Banks offered a low-cost alternative to send money to
Mexico through account-to-account transfers. Four banks we spoke with,
three large national banks and one community bank, provided this
service with transaction fees costing up to $8, generally to send
between $1,000 and $3,000 to Mexico. To use this product, typically
both the sender and the receiver were required to have accounts at a
participating bank. However, the community bank that offered this
service through the Federal Reserve's Directo a Mexico service enabled
nonaccount holders to send cash for a higher price of $4.00 instead of
$2.50 for account holders. Additionally, two other banks enabled the
recipient to pick up cash when money was sent to Mexico, and in one
case, the bank charged the sender $8 to enable a cash pickup instead of
$5 to send funds to a bank account. Of the banks we spoke with, only
one large national bank provided an account-to-account transfer service
to the Philippines and charged $8 to transfer up to $1,000 per day. As
discussed earlier, however, banks have around a 5 percent share of the
remittance market; thus these products while less costly, are used to a
much lesser extent than the cash-to-cash product.
Table 4: Range of Transfer Fees to Send $300 to Mexico and the
Philippines for All Remittance Products Offered by the Providers:
Country: Mexico;
MTOs' range of transfer fees in U.S. dollars: (number of respondents):
$4.90-$15.00(6);
Banks' range of transfer fees in U.S. dollars: (number of respondents):
$0.00-$10.00(10);
Credit unions' range of transfer fees in U.S. dollars (number of
respondents): $8.00-$16.00(6);
USPS's range of transfer fees in U.S. dollars: (number of respondents):
$3.25-$10.00(1).
Country: The Philippines;
MTOs' range of transfer fees in U.S. dollars: (number of respondents):
8.00-$16.88(6);
Banks' range of transfer fees in U.S. dollars: (number of respondents):
2.00-$25.00[A] (4);
Credit unions' range of transfer fees in U.S. dollars (number of
respondents): 8.00-$16.00(5);
USPS's range of transfer fees in U.S. dollars: (number of respondents):
Not offered.
Source: GAO.
Note: Some banks and credit unions offered the traditional wire product
as a way to conduct international transfers. Fees for this product were
generally about $30 or $40. However, we excluded these products from
our summary of costs because they are typically not viewed as a
remittance products.
[A] One bank offers remittances through its dual ATM card for free if
the customer has a specific bundled set of services with the bank.
[End of table]
Banks are also providing new lower-cost card-based products, such as
dual ATM and stored value cards.[Footnote 15] For example, to withdraw
money using a dual ATM card, U.S. banks typically charge account
holders a fee of $5 or less for each withdrawal, and the withdrawal fee
could sometimes be as low as $1.50. One bank offering an ATM product
charged the account holder a fee when funds were deposited into the ATM
account or transferred from a separate account for the recipient, and
there was no fee charged when the recipient withdrew funds at
designated ATMs in the receiving country. Banks we spoke with that
offered a stored value card charged the remitter a fee ranging from $2
to $10 to load the card. All five banks we spoke with that offered a
dual ATM card product required the remittance sender to have an account
with them. However, of the three banks we spoke with that offered a
stored value card product, only one required customers to hold an
account to use this product. However, one bank charged a higher fee to
nonaccount holders. For a more detailed presentation of the transfer
fees and additional costs of the different remittance products among
the 28 providers we interviewed, see appendix III.
Foreign Exchange Commissions Also Vary, but, Fees Have Fallen for Some
Countries:
Most remittance providers also charge a fee to convert currency, that
is, to change U.S. dollars into local currency. Customers generally
receive a "retail" price for the conversion of U.S. dollars to the
local currency. This quoted price is normally higher than what
providers pay to originally purchase the currency. This difference is
known in the industry as an exchange rate spread, and the higher the
spread, the less advantageous it is to the remittance sender. We
attempted to gain an indication of the average percentage difference
between the exchange rate offered by five MTOs to remittance senders
and the exchange rate set by the central bank of the recipient country.
We obtained exchange rate information for these MTOs over the Internet
for transfers distributed in cash funded through a credit card or a
bank account for a 35-day period from mid-June to the end of July 2005.
(See app. I for more detail on our methodology.) We found that, on
average, the exchange rate spread for Mexico among these five MTOs
ranged from negative 2.15 percent to 3.65 percent, as shown in figure
8. The MTO that offered a negative 2.15 percent exchange rate spread,
offered on average a better exchange rate than the central bank rate.
Figure 8 also provides the average exchange rate spread for the
Philippines among the five MTOs. For the Philippines, in general the
MTOs had a higher exchange rate spread than for Mexico, with the
exception of MTO 1. In addition, for one bank, we obtained exchange
rate information over the phone for its account-to-account transfer
product to Mexico and dual ATM card for the Philippines. Its exchange
rate spread was 2.59 percent for Mexico and-0.04 percent for the
Philippines.
Figure 8: The Average Percentage Difference in Exchange Rate from the
Central Bank Rate Offered by Five MTOs, June-July 2005:
[See PDF for image]
Note: The average percentage difference was calculated by taking the
daily difference between the providers' exchange rate and the central
bank rate divided by the central bank rate and computing the average of
all available days. A negative value means that on average, the
provider offered a higher exchange rate to the remittance sender than
the rate established by the central bank. These figures were taken for
remittances between California and Mexico and California and the
Philippines.
[End of figure]
In addition, when comparing the daily exchange rate offered by all six
providers with the rate offered by the Central Bank of Mexico, they all
follow a pattern of a decreasing rate over time, as shown in figure 9.
One provider offered a fixed rate over this period, which was higher
than that offered by the Central Bank of Mexico.
Figure 9: The Exchange Rate Offered by the Six Providers and the
Central Bank of Mexico, June-July 2005:
[See PDF for image]
Note: Gaps in the line indicate that data were missing for that
particular day.
[End of figure]
For the Philippines, the exchange rate offered by the six providers and
the Central Bank of the Philippines followed somewhat of an increasing
trend, as shown in figure 10. For the most part, all of the providers
offered an exchange rate lower than that of the Central Bank over the
time period we looked at.
Figure 10: The Exchange Rate Offered by the Six Providers and the
Central Bank of the Philippines, June-July 2005:
[See PDF for image]
Note: Gaps in the line indicate that data was missing for that
particular day.
[End of figure]
Research conducted by the Inter-American Dialogue between 2001 and 2004
on the cost of currency shows that the exchange rate spread for
remittances to Latin America and the Caribbean has decreased since
2001, as shown in figure 11. In particular, the research shows that the
exchange rate spread had significantly fallen by 2004. For Mexico, this
is consistent with what we were told by an official from a company that
works with entities in the United States, such as large banks, credit
unions, and national MTOs, to facilitate transfers to Mexico. He told
us that he did not see a great deal of variation in the exchange rate
spread among approximately 200 client companies. He stated that most
companies charged a 1 percent to 1.2 percent spread.
Figure 11: The Exchange Rate Spread among Various Remittance Providers
to 14 Latin American and Caribbean Countries, 2001-2004:
[See PDF for image]
[End of figure]
Remittance providers we spoke with said that the spread on the most
popular cash-to-cash product can vary for different reasons. For
example, some providers said that contracts with paying agents in each
country could affect the spread, as well as the amount of currency a
provider purchases. Officials from some MTOs that we spoke with said
competition between sending agents could influence conversion rates.
Most banks and credit unions that had partnerships with MTOs to provide
the cash-to-cash-based service told us that the partner MTO set the
exchange rate.
For other remittance products, the exchange rate offered to customers
was determined in varying ways. Large national banks we spoke with that
offered account-to-account transfers generally told us that they, with
their partner banks in receiving countries, determined the exchange
rate. The exchange rate offered to customers who use the Directo a
Mexico service is a 0.21 percent markup from the wholesale rate
determined by the Central Bank of Mexico. For the card-based products,
such as the dual ATM or the stored value card, providers we spoke with
indicated that other institutions such as banks in the receiving
country or credit card associations generally determined the exchange
rate each time the card was used.
Additional Costs May Exist, Depending on Provider, Product, and Service
Offered:
While the transaction fee and the foreign exchange commission apply in
almost all remittance products we examined, consumers may incur
additional fees, depending on the provider, product, and service
offered. For example, one MTO we spoke with told us consumers may incur
additional fees to send funds to rural areas, use home delivery, pay
with a credit card, or receive a confirmation that the money was sent.
The MTO said that it disclosed such fees to the customer at the time of
the transaction. MTOs and banks that offer stored value cards may also
charge additional fees to initially purchase or set up the card,
deliver the card to the recipient, or maintain the card on a monthly
basis.
Additionally, because some products offered by banks and credit unions
require customers to hold accounts, indirect fees related to
establishing or maintaining an account may apply. Such products were
typically lower-cost products, as noted earlier, such as dual ATM cards
or account-to-account transfers. Seven of the 10 banks we spoke with
offered at least one product that required the customer to have an
account. These banks typically charged a fee to open or maintain an
account that was waived if the customer met direct deposit or minimum
balance requirements. For example, many banks charged a fee of $3 to $5
per month if such requirements were not met. All credit unions we spoke
with required customers to become a member to use their remittance
products and maintain a minimum balance in their account, typically $50
or less. Most credit unions charged a monthly service fee if members
did not meet minimum balance requirements, ranging from $1 to $6.
Although State and Federal Disclosure Requirements Vary, Remittance
Providers Offer Basic Information on Cost and Error Resolution:
Remittance providers we met with generally provided customers with
basic disclosure information on the transaction fee and the exchange
rate, as well other terms and conditions of the transaction. The way in
which disclosure information was presented, as well as what information
state and federal regulators required providers to disclose, varied.
Judging from the receipts we examined for the cash-to-cash product,
providers consistently presented disclosures on costs and error
resolution in a single receipt. Disclosures for other remittance
products offered by banks were presented to customers in multiple forms
or at different times, such as in a fee schedule when customers first
opened an account or on a monthly statement. Because of various fees
and types of disclosures, it may be difficult for customers to
comparison shop across different types of remittance products. There is
no consensus among the officials we spoke with on whether customers
need additional disclosure information to make informed decisions.
However, efforts are under way to provide some consumers with more
aggregated information on the cost of remittances across different
providers and products.
Remittance Providers Consistently Presented Disclosures on Costs and
Error Resolution for Cash-to-Cash Products, but Disclosures Varied for
Other Remittance Products:
Remittance providers disclosed cost and error resolution information to
their customers in varying ways. Most of the MTOs, banks, and credit
unions we spoke with offering the predominant cash-to-cash product
provided customers with a receipt at the time of the transaction
detailing cost information and terms and conditions of the
transfer.[Footnote 16] Receipts we examined from providers of the cash-
to-cash product, including MTOs, banks, and credit unions, contained
information on the transfer fee, the exchange rate applied for the
transaction, and the amount paid to the recipient. Figure 12 provides
an example of cost information found on a typical receipt.
Additionally, providers we spoke with offering cash-to-cash products
that provided us with receipts displayed information on their receipts
in English and Spanish regarding the terms and conditions for a
customer's right to a refund as well as a customer service telephone
number. One MTO that focuses on the Philippine market presented this
information in Tagalog. Some providers of cash-to-cash-based products
disclosed on the receipts we examined that they made a profit from the
currency conversion. Receipts we examined for the USPS Dinero Seguro
product included the exchange rate applied to the transaction and the
interbank rate on the day of the transaction. Officials from USPS told
us that by providing the interbank rate and retail exchange rate,
customers could calculate how much the foreign exchange commission was
and use it to calculate the total cost of the remittance transaction.
Some providers also indicated that they or their agents informed
customers about costs in other ways, such as offering a toll-free
telephone number customers can call to learn what the exchange rate was
for that day, requiring that customers review and sign the receipt
before the transaction is completed, or posting the fees and exchange
rate on signage in their stores.
Figure 12: An Example of a Cash-to-Cash Receipt:
[See PDF for image]
[End of figure]
In contrast, disclosures on costs and error resolution for other
remittance products and providers we examined varied. For example,
banks we spoke with offering dual ATM cards told us they usually
presented fee information and transaction terms and conditions to
customers when they first opened their account or in monthly
statements, generally in English, as they would for any bank customer.
The exchange rate for card-based products, including the dual ATM or
stored value card to send a remittance, is determined by other parties,
such as the bank in the foreign country or the credit card association,
each time the card is used. Therefore, bank officials told us the
remittance sender does not know the exchange rate that the recipient
will receive when withdrawing funds from an ATM or using the card at
merchants.[Footnote 17]
For account-to-account transfers, banks told us they disclosed fees in
various ways. Officials from one large bank told us customers obtained
information on the transfer costs in the fee schedule provided when
they opened an account, and in brochures provided to the customer. The
customer could obtain the exchange rate by calling a toll-free number.
Both the transfer fee and exchange rate applied to the transaction
would also be itemized on the sender's monthly statement. According to
officials from another large bank, customers could conduct account-to-
account transfers at an ATM or online, and the machine displayed such
information as the fee and the exchange rate, the amount to be
transferred in U.S. dollars, and the amount to be transferred in local
currency. According to officials from this bank, this information was
displayed on the screen and printed on the receipt. They told us that
customers could review this information on the screen before completing
the transaction. A community bank that was offering account-to-account
transfers to Mexico through the Directo a Mexico service disclosed the
transfer fee for account holders in a brochure. The exchange rate for
this product cannot be specified at the time of transfer because the
Central Bank of Mexico determines the exchange rate the following day.
For account-based bank products, such as dual ATM cards and account-to-
account transfers, officials from banks we spoke with told us that,
like the cost and fee information, terms and conditions of the
transaction were also generally presented in booklets or pamphlets
given to customers when they opened an account with the bank. This
information was generally presented in English. These, along with
disclosures on fees, were standard disclosures that banks were required
to provide to all of their customers who opened an account subject to
electronic fund transfers with the bank. Judging from documents we
examined, banks typically provided customers with fee information in
separate booklets or pamphlets from those that included disclosures on
such things as the terms and conditions of the transfer or ATM card,
steps to take regarding unauthorized transfers, and telephone numbers
to contact in the event of an error.
State Disclosure Laws Vary and Federal Disclosure Laws Do Not Apply to
All Remittance Products:
Regulations on remittance product disclosures varied based on the
provider and product. Disclosures could also vary by state if the
provider was regulated at the state level. In 46 states, MTOs are
required to have a state license, and some of these states have
specific disclosure requirements. We reviewed the disclosure laws and
regulations of 15 states. We chose states in three categories: those
with over 1 million immigrants; those with immigrant populations of
less than 1 million, but more than 380,000; and, those with less than
15,000 immigrants based on the U.S. census of 2000.[Footnote 18] Among
these states, 6 require licensed MTOs to provide a receipt to the
customer for each transaction. However, each has varying requirements
about exactly what information must be included on the receipt, as
shown in table 5. For example, California's regulations specify that
receipts must include certain information, such as the exchange rate,
the amount of commission or fees, and the total amount to be delivered
to the recipient. California also explicitly stipulated the exact
language providers must use regarding a customer's right to a refund
that must be present on every receipt. In contrast, Massachusetts
requires providers to give customers a receipt, but it does not specify
what types of information should be presented on the receipt.
Additionally, of the states we reviewed, California and Texas
specifically require providers to give information on the exchange rate
and present information in languages other than English, as applicable.
Table 5: States Reviewed That Required a Receipt:
State: California;
Receipt contents: Costs:
* Rate of exchange;
* Amount of commission or fees;
* The amount in U.S. dollars to be transferred;
* Total amount of currency presented;
* Total amount to be delivered to the recipient;
Receipt contents: Error resolution:
* Right to a refund and the request process;
Receipt contents: Receipt language(s):
* English and the language principally used by licensee/agent to
advertise, solicit, or negotiate if other than English.
State: Georgia[A];
Receipt contents: Costs:
* Dollar amount of transmission;
* Fee charged;
Receipt contents: Error resolution:
* No requirement;
Receipt contents: Receipt language(s):
* No requirement.
State: Illinois[B];
Receipt contents: Costs:
* Amount of the transmission;
* Service charge;
Receipt contents: Error resolution:
* The licensee's refund procedures;
* Toll-free telephone number for customer assistance;
Receipt contents: Receipt language(s):
* No requirement.
State: Massachusetts;
Receipt contents: Costs:
* No requirement[C];
Receipt contents: Error resolution:
* No requirement;
Receipt contents: Receipt language(s):
* No requirement.
State: New York;
Receipt contents: Costs:
* Dollar amount of the transmission;
* Fee charged;
Receipt contents: Error resolution:
* Statement of licensee's liability if the transmission is delayed or
not delivered;
* Statement of licensee's refund policy;
Receipt contents: Receipt language(s):
* No requirement.
State: Texas[D];
Receipt contents: Costs:
* Amount of currency to transfer;
* Fees charged;
* If the exchange rate is fixed at the time of the transaction, the
receipt must disclose the rate of exchange; amount to be paid in the
foreign currency; and the period, if any, in which the payment must be
made in order to qualify for the fixed rate;
* If the exchange rate is not fixed when the transaction is initiated,
the receipt must also disclose that the rate of exchange will be set at
the time the recipient receives the funds in the foreign country;
Receipt contents: Error resolution:
* As described in table 6, a notice on how a customer should resolve
complaints must be posted or included on receipts;
Receipt contents: Receipt language(s):
* No requirement.
Source: GAO.
[A] In addition, the receipt for Georgia must also include, among other
things, the date the order was placed.
[B] In addition, the receipt for Illinois must also include, among
other things, the date of the transaction and to whom the money is to
be transmitted.
[C] Massachusetts law does not include specific receipt requirements,
but it says that the receipt used must be a form approved by the
state's Commissioner of Banks.
[D] In addition, the receipt for Texas must also include, among other
things, the toll-free or local phone number customers can access at no
charge to receive information about a currency transmission. If the
customer requests, the business must provide the required disclosures
before completing the transaction.
[End of table]
In addition to receipt requirements, disclosure requirements for error
resolution procedures also varied among the 15 states we reviewed. As
shown in table 6, 6 states required such disclosure while the others
did not. States with both receipt and error resolution disclosure
requirements typically specified that receipts must disclose
information such as a customer's right to a refund, the licensee's
refund policy, or a phone number the customer could call regarding
complaints. Florida and Colorado had disclosure requirements, but no
receipt requirements, and specified in their laws that licensees must
provide contact information for the state department for consumer
contacts or complaints. Additionally, among the states we reviewed,
some states that did not have explicit disclosure requirements for MTOs
in their laws, such as Georgia and Arizona, did provide consumer
contact and complaint forms on their Web sites.
Table 6: States Reviewed That Specify Disclosure Requirements for Error
Resolution:
State: California;
Requires receipt: Yes;
Disclosure contents:
* As shown in table 5, the receipt must contain a notice concerning the
right to a refund and the basic process for obtaining a refund.
State: Colorado;
Requires receipt: No;
Disclosure contents:
* Every licensee must post a state-furnished notice that provides
consumer information concerning the Colorado Money Transmission Act and
how to file a consumer complaint with the state's banking department.
State: Florida;
Requires receipt: No;
Disclosure contents:
* Provider must give customers a toll-free phone number for the purpose
of customer contacts or the address and phone number of the appropriate
state consumer services office.
State: Illinois;
Requires receipt: Yes;
Disclosure contents:
* As shown in table 5, the receipt must include the refund procedures
and a toll-free telephone number for customer assistance;
* Each licensee/seller must post a notice with the name of the licensee
and a toll-free phone number for the Department of Financial
Institutions, which will provide customer support for suspected
violations of Illinois' Transmitters of Money Act.
State: New York;
Requires receipt: Yes; Disclosure contents:
* As shown in table 5, the receipt must include a statement of the
licensee's liability if the transmission is delayed or not delivered,
as well as the refund policy;
* Licensee's signage must include a phone number for questions and
complaints and a statement that unresolved consumer complaints may be
mailed to the Consumer Services Division of the state banking
department. Signage must be in English and in any other predominant
language spoken by the licensee's customers.[A].
State: Texas;
Requires receipt: Yes;
Disclosure contents:
* A notice must be used to let consumers know how to file complaints.
The notice should say that complaints should be directed to the state's
banking department and give the address and phone number. The notice
must be provided in the language in which the transaction is conducted
and must conform substantially with the language in the law. The law
provides specific measures to give the required notice, such as how it
can be posted and the fact that it may be included on receipts.
Source: GAO.
[A] The law excludes licensees that only sell travelers checks and
money orders.
[End of table]
Although state disclosure requirements varied, MTO receipts we examined
included information on costs and error resolution, such as a
customer's right to a refund.[Footnote 19] Some MTOs we spoke with that
had branches or agents in multiple states told us they typically
produced one standard receipt for their agents across the United States
and adhered to California's disclosure requirements because of their
strictness.
In contrast to MTOs, banks and credit unions are regulated at either
the federal level or state level and are subject to federal disclosure
laws. The Electronic Funds Transfer Act of 1978 (EFTA) establishes the
rights, liabilities, and responsibilities of participants in electronic
fund transfer systems.[Footnote 20] Under EFTA, financial institutions
must provide specific disclosures to customers, such as any fees
imposed by the financial institution for electronic fund transfers, a
summary of the consumer's liability for unauthorized transfers, and
procedures regarding how errors will be resolved. EFTA also requires
that financial institutions generally provide monthly statements as
well as receipts at electronic terminals. Receipts must contain
information such as the amount of the transfer, which may include a
transaction fee if the amount of the fee is disclosed on the receipt
and displayed on or at the terminal.
The banks we spoke with indicated they believed EFTA did not apply to
all of their remittance products. For example, an official from one
bank told us that the act applied to dual ATM cards and international
account-to-account transfers, but not cash-to-cash products they
offered. An official from another bank that offered customers a
remittance product that enabled customers to conduct account-to-account
or account-to-cash transfers told us that although remittance products
were not subject to EFTA, the bank followed EFTA in providing
disclosures for their product. Additionally, EFTA does not specifically
extend to stored value cards.[Footnote 21] Consequently, banks that
offer stored value cards, make their own decisions on the type of
disclosures to provide for this product. For example, disclosures from
one community bank offering customers a reloadable stored value card
included information on fees to issue and maintain the card, how the
exchange rate was determined for international transactions, and the
customer's liability in using the card. Such disclosures, however, did
not provide information on the fee to reload the card or the maximum
amount that could be loaded on the card each time. Additionally,
according to officials from a large MTO and a trade organization that
represents credit unions, banks and credit unions that have formed
partnerships with MTOs to offer a cash-to-cash product are generally
viewed as agents of an MTO and follow MTO disclosure laws. An official
from one large bank that we spoke with that offered its own cash-to-
cash based product provided disclosures on fees and terms and
conditions of the transactions to their customers, but indicated the
bank did this voluntarily.
Remittance Providers Disclose Certain Cost Information, but Consumers
May Need to Do Additional Work to Compare Costs of Different Providers:
Judging from disclosure documents we examined, providers of cash-to-
cash products typically included information in a single source on cost
and error resolution, while providers of other remittance products
presented more disparate sources and forms of information. As discussed
earlier, disclosure documents for most of the cash-to-cash based
products we examined had information on costs and error resolution
presented to the customer in a single receipt. Providers generally
provided this information in English and another language, typically
Spanish. However, on the basis of disclosure documents we examined, we
found that providers did not always do this for other remittance
products. For example, for an account-to-account transfer product
offered by one large national bank, information on the transfer fee
could be found in a fee schedule presented to the customer at the time
the account was opened as well as on monthly statements. This
information was generally presented only in English. The exchange rate
that would be applied on the day of the transfer could be obtained by
calling a toll-free number. The same bank presented information on dual
ATM cards in a similar manner, with information on transfer fees in one
booklet and information on the exchange rate and account terms and
conditions in another booklet. Additionally, some banks told us that
some materials (such as brochures) were provided in multiple languages
such as English, Spanish, and for one bank in Tagalog; and other
disclosure materials (such as monthly statements) were provided in
English, but not in other languages.
Because of various fees and types of disclosures, it may be difficult
for customers to comparison shop across different types of remittance
products. For the cash-to-cash product, providers typically disclose
transfer fees on a single receipt, so the fees are comparable. However,
because the cost of a remittance is based on two components, the
transfer fee and the exchange rate spread, customers may need to do
additional calculations to compare the total cost across providers. For
example, one provider may charge a higher transfer fee, but a more
favorable exchange rate, while another provider may charge a lower
transfer fee, but a less favorable exchange rate. Additionally,
comparing costs across other remittance products could be more
complicated for the remittance sender if there are additional fees that
are not related to the remittance itself, such as a fee to open or
maintain an account for account-to-account products. For other
products, such as some card-based products, providers may not disclose
all cost information at the time of the transaction, such as the
exchange rate, because this is determined at the time the card is used.
There was no consensus among the officials we spoke with about whether
customers use current cost and disclosure information available to them
to comparison shop. Some remittance providers, community groups, and
experts believed remittance senders shopped around and were very aware
of the exchange rate and transfer fees, while others believed that
senders were not aware or paid less attention to such costs and did not
shop around. Additionally, in informal discussions with limited groups
of immigrants who send money home, some immigrants told us they are
aware of costs, including the exchange rate, and these are a factor in
their choice of provider. However, other factors affect their choice of
provider, such as location, the security of the transaction and trust
in the provider. Some of these immigrants also indicated that it was
not difficult to find out and compare exchange rates, but that they did
not have time to do so.
Moreover, there was no consensus among officials we spoke with about
whether additional disclosure information would be useful for customers
to make better informed decisions. Some experts and officials we spoke
with believed that information currently disclosed on receipts of large
national MTOs was sufficient for the customer to make informed
decisions. They also did not believe additional information, such as
the exchange rate spread, needed to be disclosed on money transfer
receipts. Other officials noted that with some products, such as the
Directo a Mexico service, it may be difficult to require providers to
disclose a fixed exchange rate at the time of transfer because the
exchange rate for such products is not set at that time. In contrast,
other experts and community groups believed more information could be
provided to the customer on the total cost of remittances or aggregated
in a way that would enable customers to more easily compare costs
across different providers and products.
Although it is not clear whether additional disclosures would be useful
to the customer, there are efforts are under way to provide some
consumers with more aggregated information on the cost of remittances
across different providers and products. For example, in 2003 the
Mexican consulate in Chicago formed a partnership with Procuraduria
Federal del Consumidor (PROFECO), the Mexican consumer protection
agency, to publish on the Internet information on the transfer fees and
exchange rates for remittances sent to Mexico from nine cities in the
United States. An official from the Mexican consulate in Chicago told
us that PROFECO relies on voluntary information from a cross section of
providers (banks, MTOs, and USPS) and updates the Web site on a weekly
basis. The United Kingdom has used a different approach. There, the
Department for International Development and the Banking Code Standards
Board commissioned a survey to examine the costs of 22 money transfer
providers to six target countries. A 2005 report contained these survey
results, which are part of a public awareness campaign to provide
information to consumers through pamphlets and on the
Internet.[Footnote 22] Such information includes the names of providers
in the United Kingdom that send remittances to the targeted countries,
transfer fees associated with these providers, and the method by which
remittances are sent. The Internet site also directs users to a
privately owned Web site to obtain information on current market
exchange rates. One researcher we spoke with is in the process of
developing a score card on remittance providers that will include
information on fees, the estimated amount of commission a provider
makes on the foreign exchange of the currency, the provider's presence
in certain geographic areas in the United States and abroad, and the
extent the company is involved in economic development in the receiving
country. This researcher told us that providers have been eager to
provide this information, as they feel they will be rated higher than
their competitors. This researcher also believes this information will
be helpful to consumers in making better informed decisions.
Observations:
With the billions of dollars of remittances going from the United
States to other countries, there has been an increased interest in
serving this market, not only from the traditional MTOs but also from
other types of remittance providers, including banks, credit unions,
and Internet-only companies. These providers also continue to increase
the variety of remittance products they offer, thereby giving some
remittance senders more options to send money home. However, many of
the banks and credit unions offering remittance services do so only for
corridors to Latin America, leaving remitters sending to other parts of
the world with fewer choices outside of the traditional MTOs. In their
efforts to use remittances as a vehicle to bring immigrants, primarily
those from Latin America, into the financial mainstream, the banks and
credit unions offering remittance services, in some cases, offer the
remittance sender an option that is less costly and more convenient
than the traditional cash-to-cash products offered through MTOs.
The banks and credit unions that have been successful in the
remittances market have worked at the grassroots level with community
groups and local immigrant businesses to educate the community about
their products and services. They have also located their businesses in
the communities where immigrants live and work and have employed
tellers and agents who speak the language of those they are serving.
Some federal agencies, such as FDIC and the Federal Reserve, have also
undertaken initiatives to bring immigrant communities into the
financial mainstream through financial education programs and the use
of the Federal Reserve's ACH system, through which banks and credit
unions can offer a low-cost remittance product. These initiatives have
been conducted in cooperation with Mexican government entities and have
been principally targeted at Mexican immigrants. To date, efforts to
extend these programs to other immigrant communities have been limited.
Despite these efforts, banks and credit unions continue to have a
relatively small share of the remittance market. The success that banks
and credit unions have in effectively using remittance products as a
means of attracting immigrants as customers will depend on how well
they understand and address the factors that are important for
remittance senders in choosing a provider, including cost, convenience,
and trust. It may also require some federal agency efforts targeted at
and working in cooperation with governments of other countries to
extend initiatives like those aimed at Mexican immigrants to other
immigrant groups.
The cost to remittance senders of sending funds from the United States
has decreased in recent years for Latin America and the Caribbean, in
part because of increased competition in the market. Anecdotal evidence
suggests that costs have not come down as significantly for other parts
of the world, but there has been no detailed cost research on areas
outside of Latin America and the Caribbean. Many of the locations for
which prices are still considered high are those without a well-
established financial infrastructure, thus making it more difficult for
competition to be fostered through new or additional entrants into
these remittance markets.
Although community groups raised concerns in the past that remittance
senders were not provided with information on the cost of sending
funds, the providers we spoke with disclosed information on the total
cost of the remittance transaction and remitters' rights in the case of
error resolution. These disclosures were made either during the
transaction or, in the case of some bank products, at account opening
and in monthly statements. Receipts for cash-to-cash transactions were
generally provided in English, Spanish, and for one MTO specializing in
the Philippines, in Tagalog. However, if remitters speak another
language, they may not receive this information in that language.
Moreover, the disclosure information provided for account-based
remittance products was generally available only in English, which may
make it difficult for non-English speakers to understand. In addition,
with the wide variety of remittance products and with information
presented at different times and not always in the remitter's native
language, it is difficult for the remitter to compare the different
products and providers to determine the most convenient and cost-
efficient method to send funds home. Some remittance providers who are
interested in attracting immigrants have provided remitters with
remittance disclosure information in their native language and others,
such as the Mexican consumer protection agency, have also made efforts
to provide immigrants with more information for them to use to make
better informed remittance choices. These efforts serve as models for
providers who want to serve this market and for others who want to
ensure that remittance senders have access to timely and understandable
information about the cost of sending funds.
We are sending copies of this report to the Department of the Treasury,
the Bureau of Economic Analysis, the Federal Reserve Board, Federal
Deposit Insurance Corporation, Office of the Comptroller of the
Currency, Office of Thrift Supervision, National Credit Union
Administration, United States Postal Service, and interested
congressional committees. We will also make copies available to others
on request. In addition, this report will be available at no cost on
our Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-2717 or [Hyperlink, jonesy@gao.gov]. Contact
points for our offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix IV.
Signed by:
Yvonne D. Jones:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Our report objectives were to examine (1) the methods of transmission
available to remittance senders and the advantages and disadvantages of
each, (2) the various costs to the remittance sender to use different
methods, and (3) information remittance providers disclose to senders
and the federal and state disclosure requirements.
For this report, we developed a set of structured questions and used
them to interview officials at 8 money transfer operators (MTOs), 13
banks, 7 credit unions, and 2 Internet-only remittance providers. These
sources provided us with descriptive and documentary information on
their operations and their different products. Of the 8 MTOs we
interviewed, 4 of them were the largest providers in the United States
(in terms of dollar volume of remittances) and provided remittance
services to multiple countries.[Footnote 23] The remaining 4 MTOs were
medium-sized in terms of dollar volume of remittances, and 2 of these
primarily served Latin America, 1 primarily served the Philippines, and
the other served multiple countries. Of the 13 banks we interviewed, 8
were large in terms of assets under management and were generally
national in terms of locations, 1 was medium, and 1 was a small
community bank.[Footnote 24] The banks primarily served Mexico and some
other Latin American countries, and 2 also served the Philippines, and
1 served India. Of the 7 credit unions we interviewed, 3 were large in
terms of assets under management, 1 was medium in size, and 3 were
small.[Footnote 25] These providers spoke to us with the understanding
that we would not publish their names in our report; therefore, we
refer to each of them anonymously. We also interviewed two major credit
card associations.
To obtain information about the methods of transmission available to
remittance senders, we interviewed officials at the United States
Postal Service, the Board of Governors of the Federal Reserve as well
as the Federal Reserve Banks of Atlanta, Chicago, and New York; the
Federal Deposit Insurance Corporation (FDIC) in Chicago and Washington,
D.C; the Office of the Comptroller of the Currency; the Office of
Thrift Supervision; and the National Credit Union Administration. In
addition, we also interviewed officials from the U.S. Department of the
Treasury's Office of International Affairs, Office of International
Banking and Securities Markets, Internal Revenue Service, and Financial
Crimes Enforcement Network, as well as officials from the U.S.
Department of State and the U.S. Agency for International Development.
We also interviewed trade organizations representing money
transmitters, banks, and credit unions. These included the American
Bankers Association, the Credit Union National Association, the
Independent Community Bankers of America, the National Money
Transmitters Association, and the World Council of Credit Unions, Inc.
In addition, we interviewed six experts in remittances and reviewed
reports that they had developed.
To identify the advantages and disadvantages of the different
remittance providers and products, we asked our limited group of
remittance providers why remittance senders may or may not use their
services. We also asked the government officials, trade organizations,
and experts we met with to describe the advantages and disadvantages of
the different remittance providers and products. To gain an
understanding of the factors that are important to remittance senders
when choosing a remittance provider or product, we spoke with a limited
group of immigrants from Africa, Europe, and Latin America, in two
English as a second language classes in Arlington, Virginia, and a
vocational training class in San Francisco, California. We also
reviewed two reports that included interviews of actual remitters to
Mexico and Latin America.[Footnote 26] The reports, among other things,
described the reasons why these remitters chose one remittance provider
or product over another.
To obtain information on initiatives that are under way to bring
immigrants into the formal banking system, we interviewed officials
with FDIC's New Alliance Task Force, the Federal Reserve Banks of
Atlanta and Chicago, and the Mexican consulate in Chicago.
To identify the cost to the remittance sender of different remittance
products, we asked our select group of providers about the fees
associated with their various products.[Footnote 27] We specifically
asked these providers to provide us with the transfer fees and any
additional fees to send $300 to Mexico, the Philippines, Ecuador, and
Nigeria. We reported costs on Mexico and the Philippines because they
are two of the largest remittance recipient countries from the United
States, and most providers we spoke with served both of these
countries. Because of insufficient information from the providers we
spoke with, we chose not to report transfer fees and additional fees
for Ecuador and Nigeria. Some providers noted that the costs they gave
us were the costs that most of their customers paid when sending $300
to these countries, but that they may vary depending on factors such
the specific location from where the remittance was sent or where it
was received. We excluded costs of traditional international wire
transfers that some banks and credit unions offered because providers
we spoke with told us few customers used this service to send
remittances. During our interviews of these remittance providers, we
also asked them how they set the exchange rate they provided to the
remittance sender.
Further, in an effort to determine the difference in the exchange rates
offered by different providers with that of a base exchange rate, such
as one established by central banks, we conducted an online analysis of
exchange rates offered by a select group of 6 remittance providers. We
obtained the exchange rate for 5 of the 6 providers on the Internet,
and called a 1-800 number to obtain this information for the remaining
provider. Five of the providers offered a credit card-to-cash product,
and one provider offered a dual ATM product for remittances to the
Philippines and an account-to-account transfer and a cash-to-cash
transfer product for remittances to Mexico. We specifically looked at
the exchange rate to send $300 from the United States to Mexico, the
Philippines, Peru, and Senegal. We chose these countries because of
their location and the ability to obtain exchange rate information
through the Internet for each country from at least 2 of these 6
providers. We obtained this information, as well as the exchange rate
established by the central banks over a 35-day period, excluding
weekends. Although most remittance senders do not use the Internet to
remit funds, we wanted to understand the fluctuations in the difference
between the exchange rates these 6 providers offer to remittance
senders compared with a base rate, such as a central bank rate.
To obtain information on the total cost of a remittance transaction--
the transfer fee and exchange rate spread--we also relied on
information a leading expert on remittances had compiled over time on
the total cost to remit funds from the United States to Latin America
and the Caribbean. We asked the expert a number of questions about his
methodology for collecting this information in order to gain an
understanding of his methodology and assure ourselves that the data
were sufficiently reliable for the purposes of this report.
To identify the information providers are disclosing to consumers on
the cost of their transactions as well as their right to a refund and
how to resolve errors, we used the set of structured questions to ask
the 8 MTOs, 13 banks, 7 credit unions, and 2 Internet-only remittance
providers about what they provide to remittance senders during a
remittance transaction.[Footnote 28] We also asked which disclosure
regulations, if any, applied to their remittance products and we
collected and reviewed documentation they provided to us such as
receipts, brochures, and terms and conditions they provide to
consumers. In an effort to compare the different state disclosure
requirements for remittance providers, we reviewed state disclosure
laws for MTOs from a sample of 15 states chosen for the size of their
immigrant populations. We also conducted a review of the Federal
Electronic Funds Transfer Act and its implementing regulation,
Regulation E, which protects consumers engaged in electronic funds
transfers, to understand its applicability to different remittance
products.
To understand whether additional information is needed to help
customers make informed decisions, we asked government officials,
experts, and representatives from community groups whether they
believed customers used disclosure information to comparison shop and
whether additional information was needed. Additionally, we asked the
limited group of immigrants we met with questions regarding costs and
disclosures.
To obtain information on current efforts that are under way to provide
some consumers with more aggregated information on the cost of
remittances, we interviewed a remittance expert and an official from
the Mexican consulate in Chicago and the Department for International
Development in the United Kingdom. We also reviewed documentation and
reports on these initiatives.
Our work was performed in Arlington, Va; Chicago, Ill; New York, N.Y;
San Francisco, Calif; and Washington, D.C., between December 2004 and
October 2005 in accordance with generally accepted government audit
standards. We requested and received technical comments on relevant
sections of this report from the Bureau of Economic Analysis, the
Federal Deposit Insurance Corporation, the Federal Reserve Bank of
Atlanta, the National Credit Union Administration, the Internal Revenue
Service, and the United States Postal Service.[Footnote 29]
[End of section]
Appendix II: Description of Products That Are Offered by Providers We
Interviewed:
Remittance providers offer a variety of products that can work in
different ways. Table 7 provides a more detailed description of the
products offered by the providers we interviewed.
Table 7: Description of Remittance Products Offered by Providers We
Interviewed:
Provider type: MTOs.
MTO 1;
Product type: Cash-to-cash (next day);
Product description: Cash-to-cash transfer. Delivery is next day.
Product type: Cash-to-cash (same day);
Product description: Cash-to-cash transfer. Delivery is generally
within 10 minutes.
MTO 2;
Product type: Cash-to-account;
Product description: Cash-to-account transfer. Funds are deposited
directly into the recipient's bank account. Funds are available to the
recipient in 2 hours or less.
Product type: Cash-to-cash;
Product description: Cash-to-cash transfer.
Product type: Cash-to-cash (home delivery);
Product description: Cash-to-cash transfer delivered to the recipient's
home within 4 hours. Available in the Dominican Republic and certain
destinations in Colombia, El Salvador, Guatemala, Nicaragua, and Peru.
An additional fee may apply.
Product type: Cash-to-debit card/stored value card;
Product description: Cash transfer to a reloadable debit or stored
value card branded by one of the major credit card companies. This
service is available to Mexico and the Dominican Republic.
MTO 3;
Product type: Cash-to-cash/cash-to-account;
Product description: Cash-to-cash service involves a customer
presenting U.S. dollars and having the recipient pick them up in the
local currency. For cash-to-account product, the MTO has agreements
with 14 banks in Mexico.
MTO 4;
Product type: Cash-to-cash (home delivery);
Product description: The sender goes into a branch and sends a
remittance and the funds are delivered to the home of the recipient.
Funds are delivered by a third-party distributor in the Philippines.
Product type: Cash-to-account;
Product description: Direct deposit is used for those who live in
provincial areas in the Philippines and for which home delivery is not
feasible. Money is sent in cash to a nearby bank account in the
Philippines. The recipient gets a message to pickup his/her money. This
is not an individual's savings account, but an account for the bank.
Product type: Cash-to-cash (bank pickup);
Product description: This service allows customers to transmit U.S.
dollars and have these deposited into a recipient's savings account. A
recipient must have an account with a bank in the Philippines to use
this product.
MTO 5;
Product type: Account-to-cash/account-to-account (Internet-only
provider);
Product description: Sender sends funds through an existing bank
account.
Product type: Credit card or PayPal-to-cash or account (Internet-only
provider)[A];
Product description: Sender sends funds through a credit card or an
established PayPal account.
MTO 6;
Product type: Cash-to-cash;
Product description: Cash-to-cash transfer.
Product type: Money order;
Product description: The money order is purchased at the MTO and sent
to the recipient.
MTO 7;
Product type: Cash-to-cash;
Product description: Cash-to-cash transfer.
Product type: Cash-to-account;
Product description: The MTO partners with a bank that transfers the
money for it. Customers pay in cash, the system captures the
information, and the money is transferred into the recipient's account.
Product type: Cash-to-cash (home delivery);
Product description: Cash-to-cash transfer that is then delivered to
the recipient's home.
MTO 8;
Product type: Cash-to-cash/cash-to-account;
Product description: Cash-to-cash wire transfer except in Mexico, El
Salvador, or Brazil, where the money can be sent to a bank account.
MTO 9;
Product type: Credit card-to-debit card/stored value card (Internet-
only provider);
Product description: Money is sent from a credit card to a reloadable
debit card or stored value card. The recipient can withdraw money at an
ATM or point-of-sale terminal.
MTO 10;
Product type: Cash-to-cash/cash-to-account;
Product description: Cash-based transfer. Money can be picked up in
cash or as a check at a participating bank or deposited into a
designated bank account.
Product type: Stored value card;
Product description: When sending to Mexico, the sender can choose to
have the money deposited to a stored value card. This product is
offered by a bank. However, the transfer takes place over the MTO's
network.
Provider type: Banks.
Bank 1;
Product type: Dual ATM;
Product description: The remittance recipient is sent a second ATM
card. The sender must be an account holder at the bank to use this
service.
Product type: Cash-to-cash (MTO);
Product description: Cash-to-cash transfer initiated at an MTO that
rents space from the bank. The customer does not need to have an
account at the bank to use this service.
Bank 2;
Product type: Cash-to-cash/cash-to-account or account-to-account;
Product description: Cash or account-based transfer to bank locations
in Mexico. The sender does not need to have an account to use the
service but the recipient needs an account at the Mexican bank to
receive money in an account.
Bank 3;
Product type: Dual ATM;
Product description: The remittance recipient is sent a second ATM
card. The sender must be a bank account holder to use the service.
There is a daily withdrawal limit of $200.
Bank 4;
Product type: Dual ATM;
Product description: The sender holds an interest-bearing account that
the recipient can withdraw from. The exchange rate is set at the time
of withdrawal. The sender must be a checking account holder at the
bank. There is a daily withdrawal limit of $300.
Bank 5;
Product type: Dual ATM;
Product description: The sender opens the account and receives two ATM
cards. One of the cards is sent to the family in the country of origin,
separately providing the PIN number and directions as to how to access
the account. Funds deposited in the account in the United States are
directly transferred to family when they withdraw them at any ATM in
the country of origin.
Product type: Stored value card;
Product description: This card allows a person to buy a prepaid
MasterCard with a value that is limited to the dollar amount prepaid by
the purchaser. The card is not reloadable. Neither the sender nor the
recipient needs an account to use the product.
Product type: Account-to-account (Directo a Mexico for account
holders);
Product description: Recipients must have a bank account at 1 of the 23
participating Mexican banks that are involved with the program. The
exchange rate is applied by the recipient bank in Mexico, and it
currently takes 24 hours for the funds to be received.
Product type: Cash-to-Account (Directo a Mexico for non-account
holders);
Product description: Same as above but there is an additional charge
for non-account holders.
Product type: Stored value card;
Product description: The reloadable card is a prepaid MasterCard with a
value limited to the dollar amount prepaid by the purchaser, but it can
be reloaded by credit card on the bank Web site or by check in person
at the bank. No account is needed.
Bank 6;
Product type: Account-to-account/account-to-cash;
Product description: Account-based transfer to Mexico only. If the
recipient has an account in Mexico, the money can be transferred to
that account. There is a limit of $1,500 per transfer.
Bank 7;
Product type: Account-to-account;
Product description: An account-to-account transfer that permits a
remitter to send the local currency equivalent of up to $3,000 per day
to a designated recipient's account held with one of the remittance
network member banks in Mexico, Guatemala, El Salvador, or India.
Product type: Cash-to-cash;
Product description: A cash-to-cash transfer to Mexico offered in
conjunction with Bancomer Transfer Services. The product allows a
remitter to send up to $3,000 per day to a recipient in Mexico, where
funds can be picked up at any Bancomer branch. The remitter need not be
an account holder to use this service.
Product type: Account-to-ATM;
Product description: An account that permits the account holder to
designate an authorized cardholder in the Philippines. The account
holder receives a separate ATM card embossed with the authorized
cardholder's name. The authorized cardholder can withdraw the
Philippine Peso equivalent of up to $400 per day from the account.
Bank 8;
Product type: Account-to-account;
Product description: Allows for transfers from the United States to 22
other countries. All transfers must be from an account at the sending
bank to an account held by the same bank.
Product type: Account-to-cash;
Product description: Allows for transfers from the United States to
Mexico. The sender must be an account holder but the recipient can pick
up cash at a corresponding bank in Mexico.
Product type: Account-to-stored value card;
Product description: This is a MasterCard branded card for Mexico and
has low minimum balance and fees. The customer in Mexico can purchase a
card from a Mexican bank and transfers can be made only from a bank
account to the card.
Bank 9;
Product type: Cash-to-cash (MTO);
Product description: The bank has partnered with a third-party vendor
to offer point-of-payment pickup at non-bank branches. This third party
vendor is a money transfer operator. Money is available in 15 minutes.
Product type: Cash-to-account;
Product description: Same as the product directly above, but in Mexico
the money can be deposited into an account.
Bank 10;
Product type: Account-to-stored value card;
Product description: The sender transfers money from a bank to a stored
value card. The card can be used at any Visa or Plus ATM in the world.
Product type: Cash-to-stored value card;
Product description: The sender transfers cash to a stored value card.
The card can be used at any Visa or Plus ATM in the world. The sender
is not an account holder, so there may be an additional charge.
Product type: Cash-to-cash (MTO);
Product description: Customers can send funds from the bank to any of
the locations where the contracted MTO has a distribution network.
Provider type: Credit Unions.
Credit Union 1;
Product type: Account-to-cash/cash-to-cash;
Product description: Account-based or cash-based transfer. For an
account-based transfer, the money is withdrawn from the sender's credit
union account.
Credit Union 2;
Product type: Account-to-cash/cash-to-cash;
Product description: Account-based or cash-based transfer. For an
account-based transfer, the money is withdrawn from the sender's credit
union account.
Credit Union 3;
Product type: Account-to-cash/cash-to-cash;
Product description: Account-based or cash-based transfer. For an
account-based transfer, the money is withdrawn from the sender's credit
union account.
Credit Union 4;
Product type: Account-to-cash;
Product description: Account-based transfer.
Credit Union 5;
Product type: Account-to-cash/cash-to-cash;
Product description: Account-based or cash-based transfer. For an
account-based transfer, the money is withdrawn from the sender's credit
union account.
Credit Union 6;
Product type: Account-to-cash/cash-to-cash;
Product description: Account-based or cash-based transfer. For an
account-based transfer, the money is withdrawn from the sender's credit
union account.
Credit Union 7;
Product type: Cash-to-cash/account-to-cash;
Product description: Account-based or cash-based transfer sent via a
corporate credit union.
Product type: Cash-to-cash/account-to-cash;
Product description: Account-based or cash-based transfer. For an
account-based transfer, the money is withdrawn from the sender's credit
union account. The transfer information is entered directly into the
MTO Web site.
U.S. Postal Service (USPS).
USPS;
Product type: International money order;
Product description: The money order is purchased at USPS and sent to
the recipient.
Product type: Cash-to-cash (Dinero Seguro);
Product description: Cash-to-cash transfer.
Source: GAO.
[A] An Internet-based company that allows businesses or individuals to
send and receive payments online. PayPal's service builds on the
existing financial infrastructure of bank accounts and credit cards.
[End of table]
[End of section]
Appendix III: Transfer Fees to Mexico and the Philippines for the
Providers We Interviewed:
We surveyed 28 providers and obtained detailed cost information on
their remittance products from 24 of them, as shown below in table 8.
The purpose of this table is to present a general gauge of pricing
based on what officials told us. However, it may not be a comprehensive
indication of pricing for all products or services offered by these
providers to the specified receiving country.
Table 8: Product Costs of Providers We Interviewed:
Provider type: MTO.
MTO 1;
Product type: Cash-to-cash (minutes);
Transfer fee to send $300 to Mexico: $15.00;
Transfer fee to send $300 to the Philippines: $16.00.
MTO 1;
Product type: Cash-to-cash (next day);
Transfer fee to send $300 to Mexico: $9.99;
Transfer fee to send $300 to the Philippines: $14.00.
MTO 2;
Product type: Cash-to-cash/cash-to-account;
Transfer fee to send $300 to Mexico: Information not provided;
Transfer fee to send $300 to the Philippines: Information not provided.
MTO 3;
Product type: Cash-to-cash or cash-to-account;
Transfer fee to send $300 to Mexico: $9.00;
Transfer fee to send $300 to the Philippines: NA[A].
MTO 4;
Product type: Cash-to-cash (home delivery);
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: $13.00.
MTO 4;
Product type: Cash-to-cash (bank pickup);
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: $9.00.
MTO 4;
Product type: Cash-to-account;
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: $15.00.
MTO 5;
Product type: Account-to-cash/account-to-account (Internet-only
provider);
Transfer fee to send $300 to Mexico: $4.90;
Transfer fee to send $300 to the Philippines: $10.50.
MTO 5;
Product type: Credit card or PayPal-to-cash or account (Internet-only
provider);
Transfer fee to send $300 to Mexico: $9.10;
Transfer fee to send $300 to the Philippines: $16.88.
MTO 6;
Product type: Cash-to-cash;
Transfer fee to send $300 to Mexico: $9.99;
Transfer fee to send $300 to the Philippines: $14.00.
MTO 6;
Product type: Money order;
Transfer fee to send $300 to Mexico: Information not provided;
Transfer fee to send $300 to the Philippines: Information not provided.
MTO 7;
Product type: Cash-to-cash;
Transfer fee to send $300 to Mexico: $9.50;
Transfer fee to send $300 to the Philippines: $8.00.
MTO 7;
Product type: Cash-to-account;
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: $13.00.
MTO 7;
Product type: Cash-to-cash (home delivery);
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: $13.00.
MTO 8;
Product type: Cash-to-cash/cash-to-account;
Transfer fee to send $300 to Mexico: Information not provided;
Transfer fee to send $300 to the Philippines: Information not provided.
MTO 9;
Product type: Credit card-to-debit card/stored value card;
Transfer fee to send $300 to Mexico: $14.00;
Transfer fee to send $300 to the Philippines: $14.00.
MTO 10;
Product type: Cash-to-cash/cash-to-account/stored value card;
Transfer fee to send $300 to Mexico: Information not provided;
Transfer fee to send $300 to the Philippines: Information not provided.
Provider type: Banks.
Bank 1;
Product type: Cash-to-cash (MTO);
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 1;
Product type: Dual ATM;
Transfer fee to send $300 to Mexico: $5.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 2;
Product type: Cash-to-cash/cash-to-account/account-to-account;
Transfer fee to send $300 to Mexico: $9.99;
Transfer fee to send $300 to the Philippines: NA.
Bank 3;
Product type: Dual ATM;
Transfer fee to send $300 to Mexico: $10.00[B];
Transfer fee to send $300 to the Philippines: NA.
Bank 4;
Product type: Dual ATM;
Transfer fee to send $300 to Mexico: $1.50;
Transfer fee to send $300 to the Philippines: NA.
Bank 5;
Product type: Directo a Mexico/account-to-account;
Transfer fee to send $300 to Mexico: $2.50;
Transfer fee to send $300 to the Philippines: NA.
Bank 5;
Product type: Directo a Mexico/cash-to-account;
Transfer fee to send $300 to Mexico: $4.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 5;
Product type: Stored value card (reloadable);
Transfer fee to send $300 to Mexico: $2.00;
Transfer fee to send $300 to the Philippines: $2.00.
Bank 5;
Product type: Stored value card (non-reloadable);
Transfer fee to send $300 to Mexico: $3.00;
Transfer fee to send $300 to the Philippines: $3.00.
Bank 5;
Product type: Dual ATM;
Transfer fee to send $300 to Mexico: $2.00;
Transfer fee to send $300 to the Philippines: $2.00.
Bank 6;
Product type: Account-to-cash or account transfer;
Transfer fee to send $300 to Mexico: $0.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 7;
Product type: Cash-to-cash;
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 7;
Product type: Account-to-account;
Transfer fee to send $300 to Mexico: $5.00[C];
Transfer fee to send $300 to the Philippines: NA.
Bank 7;
Product type: Account-to-ATM;
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: $5.00[C].
Bank 8;
Product type: Account-to-account;
Transfer fee to send $300 to Mexico: $5.00;
Transfer fee to send $300 to the Philippines: $8.00.
Bank 8;
Product type: Account-to-cash;
Transfer fee to send $300 to Mexico: $8.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 8;
Product type: Account-to-stored value card;
Transfer fee to send $300 to Mexico: $5.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 9;
Product type: Cash-to-account;
Transfer fee to send $300 to Mexico: $3.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 9;
Product type: Cash-to-cash (MTO);
Transfer fee to send $300 to Mexico: $8.00;
Transfer fee to send $300 to the Philippines: NA.
Bank 10;
Product type: Cash-to-cash (MTO);
Transfer fee to send $300 to Mexico: $8.99;
Transfer fee to send $300 to the Philippines: $25.00.
Bank 10;
Product type: Stored value card (account holders);
Transfer fee to send $300 to Mexico: $8.00;
Transfer fee to send $300 to the Philippines: $8.00.
Bank 10;
Product type: Stored value card (non-account holders);
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: $10.00.
Provider type: Credit Unions;
Credit Union 1;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: $20.00.
Credit Union 2;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: NA.
Credit Union 3;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: $10.00.
Credit Union 4;
Product type: Cash-to-cash;
Transfer fee to send $300 to Mexico: NA;
Transfer fee to send $300 to the Philippines: NA.
Credit Union 5;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: $10.00.
Credit Union 6;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $8.00;
Transfer fee to send $300 to the Philippines: $10.00.
Credit Union 7;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $8.00;
Transfer fee to send $300 to the Philippines: $8.00.
Credit Union 7;
Product type: Cash-to-cash or account-to-cash (MTO);
Transfer fee to send $300 to Mexico: $16.00;
Transfer fee to send $300 to the Philippines: $16.00.
Provider type: U.S. Postal Service (USPS) .
USPS;
Product type: Cash-to-cash;
Transfer fee to send $300 to Mexico: $10.00;
Transfer fee to send $300 to the Philippines: NA.
USPS;
Product type: International money order;
Transfer fee to send $300 to Mexico: $3.25;
Transfer fee to send $300 to the Philippines: NA.
Source: GAO.
[A] Not applicable (NA) means that officials we spoke with told us
provider does not offer this service to the specified country or has
never had experience sending a remittance to that country.
[B] The provider told us it charges $5.00 to the account holder per
withdrawal. However, customers can withdraw $200 each time. Thus, to
withdraw $300, a customer would have to withdraw from the ATM twice and
be charged a total fee of $10.00.
[C] This bank also offers this product for free if the customer has a
specific bundled set of services with the bank.
[End of table]
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Yvonne D. Jones (202) 512-2717 or [Hyperlink, jonesy@gao.gov].
Acknowledgments:
In addition to the contact named above, Barbara I. Keller, Assistant
Director;
LaKeshia Allen;
Gezu Bekele;
Tania Calhoun;
William R. Chatlos;
Bruce L. Kutnick;
Theresa Lo;
Marc M. Molino;
José R. Peña;
David M. Pittman;
and Rachel E. Seid made key contributions to this report.
(250228):
FOOTNOTES
[1] The Group of 8 (G8) is a group of eight countries: Canada, France,
Germany, Italy, Japan, Russia, the United Kingdom, and the United
States. The G8 Summit brings the heads of state or government of these
countries together on an annual basis to deal with the major economic
and political issues facing their domestic societies and the
international community as a whole. Representatives from the European
Union are also involved in the meetings.
[2] Hawalas are one type of informal value transfer system often used
in places where formal financial transactions are unavailable,
expensive, or unreliable. There are different words for similar
informal funds transfers in other countries--fei-ch'ien (China), hui
kuan (Hong Kong), hundi (India), padala (Philippines), and phei kwan
(Thailand).
[3] The Inter-American Dialogue is a center for public policy analysis,
exchange, and communication on issues in Western Hemisphere affairs.
[4] Schatt, Dan, "Global Money Transfers: Getting the Formula Right
When High-Tech Meets High Touch," Celent (March 2005).
[5] Some countries, such as Ecuador, have a U.S. dollar-based economy
so a recipient can only receive U.S. dollars. Some other countries
allow for payout in local currency or U.S. dollars.
[6] These agents receive a commission from each transaction they
process. The contracts between the MTO and the individual agents
specify if they must follow a fee schedule provided by the MTO, if they
can set their own exchange rate, and if they can charge additional fees
for the transaction.
[7] There is usually an additional charge for home delivery, and it is
not available in all countries. In some locations where it is offered,
delivery staff travel in unmarked vehicles in an effort to avoid
becoming victims of robbery.
[8] Most banks charge around $40 to wire money internationally.
[9] The World Council of Credit Unions, Inc., is an international
membership organization for credit unions. WOCCU has members and
affiliates in 91 countries.
[10] In addition to operating in Mexico, Dinero Seguro operates to
Argentina, Columbia, the Dominican Republic, Ecuador, El Salvador,
Guatemala, Honduras, Nicaragua, and Peru.
[11] Schatt, Dan, "Global Money Transfers: Getting the Formula Right
When High-Tech Meets High Touch," Celent (March 2005).
[12] Hernandez-Cos, Raul, "The U.S.-Mexico Remittance Corridor: Lessons
on Shifting from Informal to Formal Transfer Systems," The World Bank
(February, 2005).
[13] Bendixen and Associates, "State by State Survey of Remittance
Senders: U.S. to Latin America," (April 2004).
[14] Multilateral Investment Fund and the Inter-American Development
Bank, "Sending Money Home: Remittance Recipients in the Dominican
Republic and Remittance Senders from the U.S.," (November 2004).
[15] At the time of our study, two MTOs we spoke with also provided a
stored value card product, although one MTO provided this product only
through a specific bank in Mexico. Other MTOs were considering offering
this product.
[16] Internet-based MTOs disclose costs on receipts separately from
terms and conditions.
[17] One provider we spoke with that offered a stored value card
through a partner bank in Mexico told us that funds are immediately
converted into pesos when funds are transferred and the card is loaded
with pesos. Thus, the sender knows the exchange rate and the amount to
be received by the recipient when the remittance is sent.
[18] States in the first category were California, Florida, Illinois,
New Jersey, New York, and Texas. States in the second category were
North Carolina, Georgia, Arizona, Massachusetts, Virginia, and
Colorado. States in the third category were North Dakota, Montana, and
Wyoming.
[19] Internet-based MTOs provided terms and conditions on their Web
sites that were separate from the cost information provided on their
receipts.
[20] EFTA, codified at 15 U.S.C. §§ 1693 et. seq., as implemented by
Federal Reserve regulations at 12 C.F.R. Part 205 ("Regulation E"),
applies to any electronic fund transfer that authorizes a financial
institution to debit or credit a consumer's account. 12 C.F.R. §
205.3(a). Electronic fund transfers covered by EFTA include point-of-
sale transfers, ATM transfers, debit card transfers, and transfers
initiated by telephone. See12 C.F.R. § 205.3(b).
[21] The District of Columbia and at least 15 states have extended
their money transmitter laws to prepaid or stored value cards; the
states are Connecticut, Illinois, Iowa, Louisiana, Maryland, Minnesota,
Mississippi, North Carolina, Oregon, Texas, Vermont, Virginia,
Washington, West Virginia, and Wyoming.
[22] United Kingdom Government's Department for International
Development, "Sending money home? A Survey of Remittance Products and
Services in the United Kingdom," (London 2005).
[23] Large, or tier 1 MTOs are those with remittance volumes of more
than $700 million per year. Medium-sized MTOs are those with remittance
volumes of $100 to $700 million per year. Small MTOs are those with
remittance volumes of less than $100 million per year.
[24] Large banks were defined as those with more than $1 billion in
assets. Medium-sized banks were those with assets of $250 million to $1
billion. Small banks are those with assets of $250 million or less.
[25] Large credit unions are defined as those with more than $500
million in assets. Medium-sized credit unions were those with assets of
$100 million to $500 million. Small credit unions are those with assets
of $100 million or less.
[26] The Pew Hispanic Center and the Multilateral Investment
Fund,"Billions in Motion: Latino Immigrants, Remittances, and Banking,"
(November 2002), Washington, D.C., and the Federal Reserve Board,
"Banking on Remittances: Increasing Market Efficiencies for Consumers
and Financial Institutions," (April 2005).
[27] One credit union we spoke with did not actively promote its
remittance product, and we did not include its cost figures in our
analysis.
[28] One credit union we spoke with did not actively promote their
remittance product, and we did not include the method in which they
disclose costs and error resolution in our analysis.
[29] We requested comments from the Federal Reserve Bank of Atlanta
because the Directo a Mexico program is run out of this reserve bank.
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