January 4, 2002

Facing stiff competition, Mexican banks seek to expand presence among Hispanics

By Santiago Perez
Dow Jones Newswires
The Wall Street Journal

MEXICO CITY, December 30, 2001 — Mexican banks faced with stiff competition in the booming business of transferring home money from Mexicans living in the U.S. are now seeking to expand their presence in the Hispanic market through new products.

One result of the growth in remittances, which now rival oil and tourism as a major source of dollar inflows, is that Mexicans in the U.S. are becoming more aware of the different financial services available to them.

"These are `bankable' individuals," said Juan Hernandez, advisor to President Vicente Fox on Mexicans living abroad.

The total purchasing power of Hispanic workers in the U.S. is inching close to that of Mexico's 100 million inhabitants. So the largest banks, Citigroup Inc.'s Grupo Finan-ciero Banamex SA unit and Grupo Financiero BBVA-Bancomer SA, are seeking to establish a foothold in that market.

"Both BBVA-Bancomer and Banamex are showing more progress on this front," said Fernando Jimenez-Ontiveros, a member of the Remittances Program of the Inter-American Development Bank's Multilateral Investment Fund.

BBVA-Bancomer, controlled by Spain's Banco Bilbao Viz-caya Argentaria SA, already has a solid presence in the remittances market, in association with the U.S. Postal Service.

BBVA-Bancomer chief executive Vitalino Nafria has said that an expansion plan in the U.S. could include an association with a big local bank, acquisitions, or developing its own branch network. The company is looking at niches for new immigrants on one hand, and professionals doing cross-border businesses on the other. Banamex, which was acquired by Citigroup earlier this year for $12.5 billion (14.12 billion euros), has renamed its California Commerce Bank unit as Banamex-Citibank. It will focus first on key markets in Texas and California and seeks to expand to New York and Illinois in a later stage. Both companies can offer credit cards, savings and insurance products to a large mass of workers willing to open accounts with Spanish-speaking clerks at companies with well-positioned brands.

"These immigrants can demonstrate that they are creditworthy," Mr. Hernandez said. "If they deposit $1,000 every month, banks could easily start granting loans to them, and the Social Security number becomes irrelevant."

Cash-carrying Mexican work-ers tend to be crime targets, which is why some local law-enforcement agencies are asking banks to allow Mexican immigrants to open accounts with identification cards issued by the Mexican government, instead of requesting a Social Security number.

Wells Fargo & Co. has already moved in that direction. In Chicago, Bank of Montreal's Harris Bank unit has developed a Hispanic division with specialized branches that cater to Mexican clientele.

Market expansion

Mexico is the world's leading recipient of remittances. Transfers from Mexicans abroad hit a record $2.47 billion in the third quarter, up more than 34% from the year-ago quarter and also 3% above the second quarter of 2001. On Mother's Day alone, the volume of transfers reached $1 billion. Remittances could be close to $10 billion this year, according to industry watchers who note that real inflows from the U.S. are above official statistics, because Mexicans working illegally in the U.S. often send cash to relatives through acquaintances.

"Brazilians count on foreigners' appetite for their state-owned companies, the Chinese count on their cheap labor and skilled work force which attract investment by multinationals. Mexicans have Mexicans to fund their foreign financing needs," wrote Edgar Amador, an economist for Stone & McCarthy Research Associates.

Remittances now cover more than 78% of Mexico's $3.15 billion current account deficit. In the first nine months of the year, such transfers amounted to $6.99 billion, equal to two-thirds of Mexico's revenue from oil exports in the same period.

"Remittances are the main source of foreign currency if you compare the investment needed for oil or manufacturing exports and the investment necessary to export immigrants," said Jorge Bustamante, advisor on international immigration issues for the Organization for Economic Cooperation and Development.

The U.S. has close to 20 million inhabitants of Mexican origin, of whom seven million have Mexican citizenship and around three million have no legal status, according to Mr. Bustamante's estimates.

Competition brings lower fees

The increased competition in the remittances market has been evident in lower transfer fees. Mexico's specialty retailer Grupo Elektra SA, for example, said revenue from its "Dinero Express" money-transfer service, in partnership with Western Union, fell by 28% in the third quarter to $9 million as a more competitive environment pressured fees.

Fees had already begun falling after First Data Corp.'s unit Western Union and Viad Corp.'s MoneyGram Payment settled lawsuits in the late 1990s, accused of charging exorbitant transfer fees and giving exchange rates below market levels. In addition, the Mexican government, under a consumer awareness program, publishes a newsletter comparing services and fees charged by a dozen companies.

Remittances are also modernizing, with electronic transfers rising by more than 40% this year, while money orders have fallen by a similar proportion, according to government statistics. Banamex, for example, recently switched U.S. partners, selecting Western Union and leaving MoneyGram because of Western Union's greater use of electronic services. The rate of growth in the market has slowed down as the labor-intensive agricultural and services sectors in the U.S. are hit by the recession and September's devastating terrorist attacks.

"We think this is strictly a temporary phenomenon," said Mr. Jimenez-Ontiveros. "We expect a recovery in 2002."

( Reprinted from the Center for Immigration Studies, Washington, DC. http://www.cis.org)

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