Why don’t U.S. banks offer remittance services similar to Xoom’s?
Banking
Asked by Question Bot10/Apr/20141 answer
1 Answer
F
Faisal Khan
Answered 10/Apr/2014
There are many reasons for this. Unfortunately, one of the primary reasons is FUD (Fear, Uncertainty and Doubt). Most banks in the US won't even open a bank account for a Money Transmitter Licensed company, let alone venture into the world of remittances.
The way, banks see it, its too much risk for what they feel is too little of reward (don't know how wrong they can be on this, considering the total size of the remittance market is about $950 Billion, and the white or legal portion of this is about $550 Billion).
Technology, AML, KYC, etc. are not impediments in this business. Today, all of these elements are quite extensive, advance and plenty of service providers who can offer such services. So what does it boil down to?
It boil downs to three elements:
The channel of a TT (Telegraphic Transfer), also known as a Wire Transfer was never meant to be used as a Remittance channel. Because of the small value of the remittance transaction, paying US$ 50 for a wire transfer for a small amount to be sent overseas, is quite a significant portion of the original transfer.
Then there is the issue of dealing with multiple sources for FX rates on a daily basis and having the bank's treasury handle the risk (not a complex task, but for some reasons the US banks make a big deal out of it).
Within the US, there are few remittance professionals. All of them are usually employed by Banks or large MTOs. Education and awareness is a huge impediment for banks to enter into the remittance business, for the VPs sitting down at the table, are clueless on many fronts.
Its the bitter truth, but this is what it is.
The way, banks see it, its too much risk for what they feel is too little of reward (don't know how wrong they can be on this, considering the total size of the remittance market is about $950 Billion, and the white or legal portion of this is about $550 Billion).
Technology, AML, KYC, etc. are not impediments in this business. Today, all of these elements are quite extensive, advance and plenty of service providers who can offer such services. So what does it boil down to?
It boil downs to three elements:
- Domain knowledge about remittances (this means, accepting a viewpoint of a world outside the US and how it operates).
- Regulatory & Compliance issues (both on Federal and State level)
- Finding correspondents to work with and to integrate with their systems to have a frictionless mechanism to send across remittances and compete wit the existing players.
The channel of a TT (Telegraphic Transfer), also known as a Wire Transfer was never meant to be used as a Remittance channel. Because of the small value of the remittance transaction, paying US$ 50 for a wire transfer for a small amount to be sent overseas, is quite a significant portion of the original transfer.
Then there is the issue of dealing with multiple sources for FX rates on a daily basis and having the bank's treasury handle the risk (not a complex task, but for some reasons the US banks make a big deal out of it).
Within the US, there are few remittance professionals. All of them are usually employed by Banks or large MTOs. Education and awareness is a huge impediment for banks to enter into the remittance business, for the VPs sitting down at the table, are clueless on many fronts.
Its the bitter truth, but this is what it is.