Cross border remittances and financial access issues: topics to understand the market base of MSBs

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Cross border remittances and financial access
issues topics to understand the market base of
MSBs

• Manuel Orozco
• October 25th, 2007 Chicago
• FDIC Committee on Economic Inclusion

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A. The context migrants, development, and
financial access

• One key trend in the global context is increasing
  labor market integration and transnational
  economic activities resulting from such
  integration
• For one, the increased competitive capacity of
  the U.S. economy depends of an adequate demand
  for foreign labor to increase the countrys
  productivity
• Our demographic composition will experience
  faster aging without immigration
  
• Moreover the current transnational context has
  strengthened ties while already changing U.S.
  demographic composition
  
• Market supply and access to wealth among migrants
  is a critical factor to enhance development and
  competitiveness in our economy
  
• Efforts to expand access remain shy and highlight
  the need for greater intervention among
  government, private sector and grass roots civil
  society.
• Efforts that work include grassroots marketing,
  alternative banking products, IT innovation and
  partnerships.
  
• Alternative products such as cards are still a
  work in progress. . .

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The relationship between a declining unemployment
rate among Hispanics in the U.S. and the increase
of remittances to Mexico is an indicator of the
increasigng demand for foreign labor in the U.S.
Source Orozco, Manuel data compiled by the author
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Transnational ties Remittances to Latin America
and the Caribbean, 2001-2006
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Outbound remittances from the United States
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Main countries of destination of remittances from
the U.S.
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The profilemigrant remitters
Source Orozco, Manuel and Jacob, Katy.
Remittances, prepaid cards,
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Length of time in the US and average remitted
Source Orozco, Manuel. Transnational Engagement,
Remittances and their Relationship to Development
in Latin America and the Caribbean. Washington,
DC ISIM
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Gender and average remitted
Source Orozco, Manuel. Transnational Engagement,
Remittances and their Relationship to Development
in Latin America and the Caribbean. Washington,
DC ISIM
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US citizen and average remittance sent
Source Orozco, Manuel. Transnational Engagement,
Remittances and their Relationship to Development
in Latin America and the Caribbean. Washington,
DC ISIM
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B. Issues on the marketplace of money transfers

• Players in the market type, size,
• Pricing operating costs and consumer costs
• Market structure and concentration
• Regulatory environment
• Financial intermediation demand and supply side
  dynamics
  
• Technology innovation

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Changes in the demand side . . .
Account to account transfers to Mexico 1.00
(2004) 2.55 (2006) 7.28 (2007)
Informal networks declined from 20 in 2000 to
about 10.
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Consumer preferences to change
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Costs influence decision to switch
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Nigerian migrants preference to change to a more
efficient way and current cost of sending as of
principal sent
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- Remittances and cost in Latin America and the
Caribbean
Source Orozco, Manuel, International Flows...
(2006)
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C. Issues on financial access . . .

• Usability capable of opening accounts affordably
  and with small balances
  
• Openness capable of reaching everyone without
  underserving any social sector
  
• Formality capable of enforcing regulations
  without compromising use and openness
  
• Functional capacity capable to serve the four
  core product needs (payments, savings, credit
  and risk mitigation)
  
• Migrants are in a space where they often lack
  financial access, and where it exists, the access
  is not linked to formal depository institutions
  

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Most migrants use businesses that offer none or
few financial services . . .
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. . . Partly because they have few financial
obligations and no banking access. . .
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Immigrants without bank accounts
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. . . Migrants are not a monolithic group that
either has no financial access and no obligations
or has both.
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Moreover, at least one third or more saves . . .
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And the average amount is significant . . .
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And some unbanked migrants are saving . . .
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They also believe that the most important reason
to have a bank account is to save money . . .
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and would be prepared to use banking services if
. . .
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Their access to bank accounts is determined
partly by . . .

• Demand for financial services
• Number of financial obligations
• Age
• Gender
• Citizenship, and not income (as is almost a
  constant)
  
• Moreover, their interest to switch to account to
  account transfers is associated to changes among
  banks

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Moreover, those owning accounts are more likely
to send more money . . .
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Recommendations

• Accelerating financial access
• Targeted goals and standards to increase access
  to financial services and access (who would be
  benefited)
  
• Develop methodologies to accelerate banking
  rates
  
• Increase a critical mass of the policy network
• Underserved vs. marginality
• Partnerships between MTOs and depository
  institutions in the U.S. and LAC Dinero a
  Mexico, Red de la Gente, and others
  
• Make clear the compatibility between financial
  access and mitigating methods that reduce
  security risks of transactions
  
• Segment and target appropriate markets
• Lower the barriers to entry
• Develop effective distribution channels
• Educate the target market
• Consider mobile banking channels

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Consolidation and maturation
Source Orozco, Manuel. Markets and Financial
Democracy (2005)
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Factor estimates of migrant remitting by region
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Some determinants of migration
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Income dependence on remittances
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