Lessons from Mexico
As a new year begins, we naturally anticipate what may transpire, and how it will change the face of the remittance and the mobile financial services industries.   For 2010, there are high hopes that favourable regulations for international money transfer, whether by the “classic” in-person means or via mobile phone, will increasingly extend into more geographies.  The following is an example of a multi-national public-private partnership that has set the tone for a bright future in the US-Mexico remittance corridor through creating a favourable climate over the course of several years.
 

Just as one of the main objectives of government is to help increase the well-being of its citizens, a company is geared to creating profits and assuring the financial well-being of shareholders. Achieving both simultaneously is the objective of any PPP (Public-Private Partnership).   One such case, in the money transfer sector between the US and Mexico, achieved both, by increasing the number of people participating in the financial system.  We draw some lessons from the experiences of the Mexican and US governments who worked with the private sector to bring about success and how this could extend to other countries and sister industries, such as mobile financial services. 

The need for more appropriate regulation is crystal clear to many money transfer operators (MTOs).  One problematic area for example is that remittance services per se do not involve deposit-taking and provide only some of a sender’s overall payment needs; applying heavy prudential requirements to MTOs may therefore be disproportionate to the risk, particularly since the failure of an MTO is unlikely to cause systemic risk for the financial sector. However, government regulators may need to be persuaded to reach conclusions and take actions, which is not always an easy task. Stakeholders need to demonstrate to government entities that change is needed and show its potential benefits. In these times of economic difficulty, it is hard to imagine a better benefit than economic growth and prosperity.

A case in point: the Mexican government was willing to bet that economic growth would come about by stimulating the private sector and created the Partnership for Prosperity (PP). The PP was born in 2002 as a public-private partnership between Mexico and the US government and private sector with one of its main objectives being stimulating the growth of the Mexican private sector.  One of the five main points in the agreement was to increase access to finance, to be achieved (at least in part) by strengthening the remittance market and bringing more remittance senders and receivers into the financial system. To do so, initiatives were undertaken to increase transparency, promote competition, innovation and cooperation and financial education in the money transfer market.

Growing competition, cooperation and entry of new financial products and services have served to decrease the cost of remittances and contributed to the economic development of the community.  Currently, there are money transfer options that cost USD$10 and even some that are less than USD$5. Associations among various financial service companies have increased access to remittance services through inter-depository institutional arrangements and electronic transfers.

Furthering the impact of increasing competition, in October 2005, the US Fed and the Bank of Mexico started the Directo a Mexico campaign. The campaign was designed to promote small and medium-sized banks’ participation in inviting their clients to use the Federal Reserve’s FedACH International Mexico Service when transferring money to Mexico. The joint initiative permits participating US banks to send money to private Mexican banks via ACH of the central bank, creating significant savings for consumers and encouraging Mexicans in the US to open bank accounts.

Savings and credit institutions (SCIs) are beginning to develop a growing role in the remittance market.  In 2002[3], together with National Savings and Financial Services Bank (BANSEFI), 68 SCIs created an alliance called L@ Red de la Gente.[4] This alliance allows the SCIs to participate in the remittance distribution network through contracts negotiated by BANSEFI. Under this scheme, members of L@ Red de la Gente can offer this service to their customers, primarily located in urban and rural poor areas, where the traditional financial institutions do not have a presence and emigration rates are high.
 

Mexico’s mobile value transfer (MVT) market growth potential is great, but the country has yet to fulfill its promise. If you want to learn more about the subject, refer to our website for our recent report on mobile financial services opportunities in Mexico(http://www.mondato.com...).