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"About 70% of our members have never opened a bank account, not here or in their country of origin," says Luis Pastor, CEO of the Latino Community Credit Union, based in Durham, N.C. "From the moment a person enters our offices, we are with him at least 45 minutes, explaining what a bank account is, what a credit union is, what services we offer." Mostly, however, it is the word-of-mouth testimonials that help newcomers get over their distrust of financial institutions and stop worrying that the credit union will report them to immigration officials. The credit union, which charges $10 to wire as much as $1,000 to some 2,500 locations, remitted $1 million last year through IRnet, a four-year-old proprietary money-transfer network owned by the World Council of Credit Unions.
Until the late '90s, U.S. banks largely ignored Latino migrant workers, in part because many were in the country illegally and lacked the identification necessary to open an account. Enter a tamper-proof version of the matricula card, issued by Mexican consulates in U.S. cities to verify Mexicans' identities without divulging their immigration status. This ID card has prompted Bank of America, Citigroup and Wells Fargo to each partner with a big Mexican bank and launch binational ATM-based money transfers. Today money transfers are still mostly face-to-face transactions involving tellers, but that will change with the expansion of ATM networks. "ATMs are a bigger threat to money transfers than a lot of people believe," says UBS senior analyst Adam Frisch. "But we're not there yet. Remember, for a long, long time people didn't use ATMs because they wanted to wait in line to see a teller put a stamp on the receipt. But that was obviously overcome." In an acknowledgment that the switch to bank accounts could be slow, Wells Fargo has started offering to wire cash as Western Union does--for customers who don't have accounts. Citi has dropped its fee from $10 to $5 for transfers of as much as $3,500. And in June U.S. Bancorp teamed with a rural consortium to reach the millions of Mexicans who live in areas not served by large banks.
Western Union has fought back by slashing its fees from $30 to $15 to send as much as $200 from the U.S. to Mexico. The company also introduced alternative delivery options in Mexico that cost less (and take longer), including $10 home-delivery service in which a messenger brings cash to the recipient's door. These changes helped reverse a brief decline in transaction growth south of the border, with Mexico accounting for about 5% of Western Union's revenues. But more drastic price cuts may be required now that a binational clearinghouse, announced in June, will allow U.S. banks to send funds to their Mexican counterparts for about 60ยข per transaction.
This move could hasten Western Union's foray into the fledgling ATM-based money-transfer market. Its parent, First Data, is in the process of buying Concord EFS, based in Memphis, Tenn., which owns the STAR, MAC and Cash Station ATM networks, to become one of the world's biggest ATM owners.