March 17, 2015
The global remittance business is $500+ billion strong. However, this broad market belies a less than rosy outlook for the business. Different geographies display very different trends in remittances and an analysis of these trends shows that problems are beginning to arise in this space. These problems are due to regulatory issues, policy issues, business model issues, cost pressures and some are even related to macroeconomic and other factors. In countries where regulations are strict, only banks are allowed to handle remittance services. Rising regulatory compliance costs have made it difficult for the banks to support the remittance firms.
Here are some use cases from multiple geographies highlighting banks closing remittance services:
JPMorgan Chase and Bank of America had shut down low-cost remittance services that allowed Mexican immigrants to send money to their peers across the border. Citigroup’s Banamex USA unit had closed many of its branches in Texas, California and Arizona that catered to Mexicans living in the United States. These banking units stopped remittances to Mexico as they faced a federal investigation related to money laundering controls. In the face of scrutiny from regulators, the Merchants Bank of California told some money transfer companies in cities with large Somali enclaves that it may no longer be able to provide them with banking services.
The Australian banks are closing accounts of remittance companies in order to comply with international laws to combat terrorism funding and money laundering. Banks fear that they can face fines and other legal recriminations if the rules are violated and money ends up in criminal hands.
To cite an example, Westpac will close accounts of firms that specialise in money remittance services after March 31. The bank intended to close these accounts earlier but a court ruling led it to extend the closure deadline after a group of 20 remitters sued the bank asking for more time to seek alternative business plans.
Australia’s anti-money laundering and counter-terrorism financing regulator had cancelled the license of three remitters, underlining the risk that banks were facing in dealing with such companies.
In 2013, Barclays, one of Britain’s largest banks, had cut ties with Dahabshiil, a Somali company that brings in the majority of the country’s $1.2 billion in yearly remittances. The primary reason behind the bank taking this action was to close ties with businesses that lack adequate controls in monitoring the money transfers.
Banks in New Zealand are restraining from providing banking for remittance service providers due to concerns over potential breaches to anti-money laundering laws. Following the implementation of the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act), New Zealand banks are taking their obligations under the Act very seriously and are drifting their focus away from remittance services.
The Spanish bank BBVA reportedly sold its unit that wires money to Mexico and across Latin America.