Recent news from two companies with Minnesota roots engaged in a little-noticed $300 billion corner of the financial services market may be a well-timed move anticipating an upturn in the global economy.
Minneapolis-based Ceridian combined forces this week with MoneyGram International to tap into the $300 billion “remittance” market in which immigrants and foreigners send a portion of their earnings back to family and friends in the developing world.
The partnership harnesses Ceridian’s stored-value card business, backed up by a network of payment-processing services across 40 countries and 26 currencies, with MoneyGram’s network of agents spread across 196 countries.
Cards purchased for cash at retail, petroleum and convenience stores can be redeemed for cash by recipients in their home currency, not merchandise. This is the first time the stored-value card is being used for international money transfers, according to Jenny Parris, Ceridian spokesperson, describing it as a “non-traditional application for a product that’s been in the market a long time.”
There is a $200 limit on the cards, Parris said.
MoneyGram, which is moving its headquarters from St. Louis Park to Dallas next month, describes its customers as “unbanked or under-banked” consumers, who use money orders, bank-to-bank transfers or remittances to send funds both within a country and from one country to another.
The largest corridor of fund transfers is within the United States, according to its spokesperson, Lori O’Briant. She said many of the company’s customers don’t have a traditional banking relationship because they don’t trust institutions in their homeland or, if they are in a host country illegally, opening a bank account is not an option.
The United States is the largest source of remittances globally, according to the World Bank, with India, China, the Philippines and Mexico by far the largest recipients.
The global financial crisis and resulting unemployment not only slowed cross-border movement of workers but also caused officially recorded remittance flows to developing countries to fall 6 percent last year to $316 billion. The World Bank estimated that remittance flows to developing countries are expected to increase by 6.2 percent in 2010 and 7.1 percent in 2011.
Remittance flows to developing countries declined in 2009, to recover at a modest pace in 2010 and 2011
“Future remittances flows may be affected by additional factors such as tighter immigration controls and unpredictable exchange rate movements,” said World Bank economist Dilip Ratha, who tracks migration and remittance flows. “Even during a crisis in the migrant destination countries, remittances tend to be resilient. They don’t fall as much as private capital flows.”
While an expensive method of transferring funds for some families and poorer countries, remittances from those abroad can be amajor source of income and foreign exchange earnings.
The cost of remittances can vary, depending on the origin and destination, and includes not just a fee at both origin and destination but also can include a currency exchange differential. Of the major destinations for remittances from the United States, India at 3.4 percent on average was lowest, while China at 6.97 percent was highest in the third quarter of this year, according to a World Bank website tracking costs.
“We are excited to introduce this new product category, which we believe will allow our customers to have another convenient way to send money with MoneyGram,” said Tim Summers, the company’s vice president and global head of strategic partnerships in announcing the news. “We are thrilled about this proposed product and believe that it benefits not only the consumer, who will be able to conduct a transfer at their convenience, but also our agents with a convenient way to offer money transfer services,” added Summers.
“Partnering with MoneyGram to process prepaid transactions associated with MoneyGram’s money transfer service is an exciting opportunity for us,” said Ralph Rolen, executive vice president and general manager of Ceridian Stored Value Solutions in the announcment. “We know this will be a successful business relationship and a benefit to MoneyGram’s customers.”
MoneyGram plans for the money transfer services to be offered in multiple denominations in local currency and expects it to be available in stores by the first quarter of 2011.
An alternative money-transfer method made headlines earlier this year when the FBI arrested 14 individuals, including two Rochester, Minn., residents for “providing material support to the al Shabaab terrorist group in Somalia.” The indictment alleges that funds were transferred to al Shabaab through the hawala money-remittance system. The hawala is an informal network of brokers operating primarily in the Middle East, North Africa, the Horn of Africa and South Asia.