A study conducted by Visa shows that the remittance market in the Latin America and Caribbean region reached US$52bn in 2005, a 15% increase over 2004. But while 50% of remittance volume to the region is distributed via financial firms, only 11% is received in bank accounts; the remainder is distributed in cash.
This shows that despite the participation of financial institutions in the remittance process, recipients are not yet receiving the benefits provided by banking, says Visa.
The study - which surveyed beneficiaries in Ecuador, El Salvador, Mexico and the Dominican Republic as well as senders in the US and Spain - found that 56% of respondents are interested in establishing some type of formal relationship with a bank. Around 70% showed a "favourable" attitude toward banks.
A quarter (24%) of senders interviewed have been living abroad for 10 to 15 years and continue to send remittances periodically. This shows the consistency of this business in the long term, says Visa.
José María Ayuso, EVP, Visa International, Latin America and Caribbean region, says: "Both the volume and the frequency of remittances have increased the spending potential of recipients, which is an important step toward banking."
A number of institutions, including Visa, Wells Fargo, Bank of America and HSBC, have sought to cash in on the Latin American money transfer business and have launched services aimed at the Hispanic community in the US.
Although the Latin America remittance market is a lucrative one, Belgium-based interbank messaging network Swift says global remittance flows are estimated to total US$230bn in 2005.
Swift is now looking at ways of tapping this market and is exploring support for banking products in the remittance business. Workers' remittances is one of the ten market-facing initiatives outlined in Swift's 2010 strategy and the co-operative is looking at ways it can assist banks in overcoming barriers in capturing this business.
Swift says its payments markets group convened a group of 11 retail banks from the largest remittance sending and receiving countries and found that regulation is a main cost driver, bank distribution networks need to be adapted to the market and the traditional correspondent way of doing business is not suited for remittances.
Swift will now develop proposals that address existing inefficiencies for remittances in the interbank space.
"We will scope out the high level business, operational and standards requirements for a multiproduct interbank platform," says Geoffroy de Schrevel, head of payments markets, Swift. "The main objectives of this platform would be to promote high levels of STP and provide settlement guarantees for banks. This will allow banks to offer certainty of value and value date for their customers."