Regulation Just One of Many Issues Complicating Remittance
The large and growing need for affordable remittance transfer services represents an equally large business opportunity for credit unions. This is especially true for those U.S. cooperatives serving Hispanic members with family in Latin America.
Once the domain of Latin mom-and-pop shops, remittance services have in recent years become accessible to Hispanic and other consumers through their local credit unions.
Beyond simply allowing consumers another choice, providing remittance services also gives credit unions the chance to deliver more-comprehensive financial services to a largely underserved population. In fact, remittance services are so successful that Coopera has made it a best-practice solution for credit unions looking to invest in the youngest, largest and fastest-growing segment of the U.S. population.
It’s important to understand remittances aren’t necessarily a tool for attracting new Hispanic members. Credit unions should view these services more as a value-added tool to increase the depth of their product suites. Credit unions with comprehensive programs ultimately complete more remittances than those without a similarly robust program.
And according to a report by the World Council of Credit Unions and Coopera, while credit unions that offer remittances to non-members will likely have higher remittance volumes than credit unions that only serve members, processes need to be put in place to ensure that cross-selling occurs and potential members learn about the benefits of belonging to a credit union.
“Providing remittance services for our Hispanic members is crucial,” said Traci Stiles, business development manager for Des Moines Metro Credit Union. “If we want Hispanics to view credit unions as their primary financial institution and gain their business, we must offer the products they need at a competitive price, such as remittance services.”
Unfortunately, several recent occurrences have complicated remittance transfer services, putting many credit unions in a difficult position.
First, the Consumer Federal Protection Bureau targeted remittance transfers as one of several financial services in need of regulation to protect consumers. As a result, providers who conduct more than 100 remittance transfers annually must meet additional requirements, specifically in the area of updated disclosures. These regulations become law on Feb. 7, 2013.
Due to a perceived burden to comply, several remittance transfer providers have ceased operations. And because many credit unions relied on these providers for their own remittance service offerings, quite a few cooperatives have found themselves in the market for new provider partners.
Second, as of June 2012, IRNet, WOCCU’s platform for remittances, ceased accepting new credit union applications in the United States. The council has recently announced a new relationship with Pa-Go Mobile Inc. and mFunds Global Payment Solutions Inc. for remittance services to Latin America.
Third, selecting a remittance transfer provider partner is not a simple process. Due to the wide range in services – everything from geographies served to hours of operation – choosing the best fit for a credit union’s local Hispanic community can be overwhelming.
Before settling on a partner, credit unions must first understand their typical member’s need, their country of origin and the available locations within the typical recipient’s country. As well, the credit union must examine its own local market competition to provide the most competitive offering. What other local organizations are providing remittance services? What are they charging? What are their hours of operation, etc.?
As a result of increased regulations and the change in provider endorsements, the huge need for remittance transfers still exists, yet fulfilling that need has become intensely complicated.
Making matters worse, one of the largest remittance transfer days, Dec. 25, is just around the corner. Second only to Mother’s Day, Christmas provides a huge opportunity for credit unions to offer remittance services. The upcoming holiday has created urgency for many credit unions that have found themselves without a provider partner in recent months.
One alternative currently under investigation is the use of person-to-person payment platforms, such as PayPal or Dwolla, an online, social and location-based payments platform supported by Coopera’s sister company The Members Group.
However, it’s important to understand international P2P transfers are not allowed today. So for this option to move forward, several organizations must come together to research the options and to work with the appropriate parties to change existing rules, technologies and operations.
A second, more viable, alternative capturing the attention of credit unions now is the reloadable prepaid card. When issued to a Hispanic cardholder in the U.S. alongside a secondary card for a family member in Latin America, reloadable prepaid cards like the Coopera Card give cardholders an affordable and accessible option for sending money outside the country.
What’s more, reloadable prepaid cards do not require compliance with the CFPB’s Feb. 7 remittance transfer disclosure requirements.
While compliance with new laws will carry a cost, this cost often will fall on the shoulders of the service providers with which credit unions partner to make remittance transfers available to members. These credit unions must keep in mind, however, the credit union is ultimately responsible for providing the appropriate disclosures. So, credit unions must be in close communication now with their providers to understand what changes are being made to ensure compliance with the law come Feb. 7, 2013.
Although complicated, an international money transfer tool will continue to be a best-practice for credit unions’ Hispanic outreach and service strategies. Therefore, it’s vital for these cooperatives to prioritize the research, due diligence and formation of strategic partnerships to continue (or to begin) providing this crucial service.
With the CFPB regulations still a few months away, and a fluctuating remittance provider marketplace, there are likely to be more changes in the near future. But for those credit unions uncomfortable with the “wait and see” approach, reloadable prepaid cards provide a “right now” alternative – one that allows them to continue serving the critical Hispanic market today.