Swift has launched a new system for banks to extend
their remittance businesses into new markets. It claims the
standardised format can cut set-up times from six to two months and
reduces fees, including legal fees, by as much as 80 percent.
Charles Davis reports.
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In the recent past, banks looking for a
way into the lucrative remittance business had little choice but to
use the non-bank giants dominating the space. However, alternatives
are now popping up to provide more bank-centric options.
Swift – the Society for Worldwide Interbank
Financial Telecommunication – has created a remittance service
providing a common messaging format, online and mobile remittance
availability and a streamlined process for establishing agreements
with receiving banks in other countries.
Swift has signed up 43 banks for its new Worker
Remittance 1.0 platform, and its executives say it is
well-positioned to square off against the titans of money exchange,
Western Union and MoneyGram. Visa and MasterCard also are promoting
transfer services that banks can offer to consumers.
Stacy Rosenthal, senior business manager for
banking initiatives at Swift, said that five years ago, Swift
member banks began asking for a remittance solution of their
own.
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By GlobalData
Ideal bank-first solution
Banks are keen to fatten their share of
the remittance business, which they see as a potential source of
fee income and new customers, but view the money exchange
businesses as competitors. Swift’s status as a neutral back-office
enabler positions Worker Remittance as an ideal bank-first
solution.
“Banks have made very few inroads into
remittance,” Rosenthal said.
“Most of the offerings are proprietary in
nature, which makes it time consuming and technically challenging
to set up relationships with banks in foreign countries.”
Swift’s remittance system includes guidelines
for participating banks and a message standard used for clearing
and settling payments, Rosenthal said.
It also maintains a database where banks can
upload details of the locations they allow transfers to, and
guidelines for drafting business agreements between sender and
recipient institutions.
La Caixa of Spain was one of the early adopters
of the Swift system. The bank offers remittances in 14 countries
with 25 partner banks, and in 2009 saw 1.5m transactions.
The remittance business represents a roughly
$15bn business opportunity in terms of revenue for banks, a market
currently plagued by high prices and a relative dearth of
competition. Snaring just a fraction of that market could prove a
real money-maker.
Of the 43 banks signed up to Swift’s service,
14 are live now or certified to go live shortly, Rosenthal said.
Other participants include BBVA Bancomer and Banco do Brasil,
Citigroup, ICICI Bank, Standard Chartered, China Construction Bank
and Nedbank.
Jairo Namur, Swift regional manager for Latin
America, said the technology provides a tool for banks to compete
against money-transfer firms instead of partnering with them.
Most existing remittance deals require
participants to develop proprietary agreements, and involve
customised technical integrations between the individual banks’
systems, Namur said.
Forcing banks to repeat the process with every
new partner makes remittances an enormous effort, he added.
“Remittance is an economy of scale issue, and
you can’t reach the scale you need on a deal-by-deal basis,” Namur
said. “By reusing the contracts and standardised systems, banks can
build international remittance relationships much more
quickly.”
And to make the business side of the equation
even easier, Swift has spent much of the past two years working
with an advisory council to establish a set of standardised
guidelines and contract templates that are consistent with both the
business practices and the technical issues.
Though individual banks must still forge their
own partnerships with counterparts in other countries, the
standardised agreements will make it easier for them to come to a
business agreement.
Participants said using SwiftNet Remit cuts
users’ costs by 80%, including legal fees, compared with setting up
one-off arrangements with counterparts.
Also, setting up the connections typically
takes about two months, a third of the time it takes banks to
connect with each other on their own.
“We will rely on the marketing muscle of the
banks to sell the service, but we have made it easier than ever to
be up and running with a new bank in a new region,” Rosenthal said.
“As banks embrace the increasingly global customer base, we see
that in some regions around the world, mobile banking is outpacing
online channels and this service moves along with them.”
This is an important point given the fragmented
market for remittances worldwide. The US has more than 70 major
money transfer operators. In the UK there are more than 4,000 money
transfer entities outside the regulatory umbrella of the Financial
Services Authority.
Sign of things to come
One US bank, Wells Fargo, has extended
its own remittance service, permitting customers to initiate
transfers through its online banking site. In a sign of things to
come, Wells has priced its service aggressively. Remittances to
Mexico cost $5 for non-customers, but can be $2.50 or even free,
depending on the nature of relationships or the number of accounts
a customer has with the bank.
The major card association brands are also
marketing remittance solutions to banks. Visa’s Money Transfer
product allows card issuers to initiate payments for consumers
directly to a recipient’s credit, debit or prepaid card over its
payments network.
Visa has about 50 partners offering the
service, including two recently announced US customers.
MasterCard provides its issuers a similar
service called MoneySend that allows end users to initiate
transfers to MasterCard and Maestro cardholders via automated
teller machines, online, branches and other venues.
Still more US banks are teaming with the money
exchange services. Already this year, US Bancorp of Minneapolis,
Fifth Third Bancorp of Cincinnati and the core-processing vendor
Fidelity National Information Services of Jacksonville have signed
agreements with Western Union for remittances.
