Tanya Fernandes used to go to her localWestern Union to take care of many of herfinancial services needs. She went there to cashchecks, buy money orders, and send moneyhome to her family in Cape Verde, Africa. Shedid not know that she had an option to pay lessfor these services until a family member toldher about a Cape Verdean remittance programavailable at the Citizens Bank branch in theUpham’s Corner section of Dorchester,Massachusetts. Investigating the program, Ms.Fernandes discovered a slew of other tools toconduct her financial affairs.

“This is great. I can send any amount of moneyto my family, and it costs only $10,” saysFernandes. “I’m so glad my uncle told me aboutthis program. I have opened two accounts at thebank, and I am now saving money.”

Ms. Fernandes is not alone. The establishmentof remittance programs by mainstream finan-cial institutions (MFIs) is becoming an impor-tant way of banking the unbanked immigrantpopulation in the United States. Bringing thispopulation and others who lack basic savingsand checking accounts into the conventionalfinancial world is a major goal of the commu-nity development field. It is an important steptowards building individual and community

by George SamuelsFederal Reserve Bank of Boston

BankingImmigrants

UnbankedUnbankedImmigrants

Remittancesthrough

4 c & b

assets to help sustain the economy inthe primarily low- and moderate-income areas where many unbankedimmigrants live. Remittances, themonies that many immigrants sendback to their friends and relatives intheir native countries, represent aninnovative way to bank this population.

While a bank can remit money to prac-tically any other bank in the worldthrough wire transfer, few promote thisservice as a selling point to attract newcustomers. On the other hand, com-mercial service providers, like WesternUnion, widely advertise their remit-tance services. These alternativeproviders typically charge high fees andgenerally do not offer asset-building

tools, such as interest-bearing depositaccounts. Many immigrants are unfa-miliar with the U.S. banking systemand rely solely on these alternativeproviders for their financial needs.As a result, they often pay more for services and miss the opportunity tobuild a solid financial foundation.

Now, MFIs are starting to offer tai-lored remittance programs to targetthese immigrant populations, andthey are doing so for good reason.First, these unbanked persons repre-sent an untapped customer base formany MFIs. Second, the volume ofremittances from the United States toother countries is sizable—close to$35 billion in 2002—and it is expect-ed to increase considerably in thecoming years. Dilip Ratha, aresearcher at the World Bank, notes,“With such large sums of moneybeing remitted, and projectionsshowing that the level will increase,policy leaders and banks are becom-ing very interested.”

Many MFIs, recognizing a businessopportunity in this burgeoning market,are strategically offering competitiveprices to remitters. Attracted by theselow-priced services, many immigrantpopulations are entering the main-stream financial world and are beingexposed to an array of financial servicesand products.

Remittance Programs Differ

While it is not clear how many MFIs areoffering targeted remittance services,several established programs exist,including ones at Citizens Bank, WellsFargo, and a network of credit unions.Most, but not all, programs require cus-tomers to open a bank account in orderto remit funds. Some also require therecipient to open a bank account at thepartnering foreign financial institution.Many remittance programs target oneimmigrant group, as they are typically a partnership between a financial

Who Are the Unbanked?

Why don’t you have a checking account?

Reason Percent

Do not write enough checks to make it worthwhile 28.6

Do not like dealing with banks 22.6

Do not have enough money 14.0

Service charges are too high 10.2

Cannot manage or balance a checking account 6.6

Minimum balance is too high 6.5

Do not need/want a checking account 5.3

Credit problems 3.6

No bank has convenient hours or location 0.4

Other 2.1Source: Federal Reserve Survey of Consumer Finances, 2001.

The unbanked are individuals who do not have a transaction account with a traditional financial institution,like a commercial bank, thrift institution, credit union, or securities operation.Transaction accounts form acomprehensive category comprising checking, savings, and money market deposit accounts, as well as

money market mutual funds and call accounts at brokerage firms. Under this definition, 9 percent of all familiesare unbanked according to the 2001 Federal Reserve Survey of Consumer Finances (FRSCF).

The FRSCF found that most unbanked families have low to moderate incomes and are more likely to be youngand nonwhite. In all, 5 percent of non-Hispanic whites are unbanked, compared with 22 percent of nonwhites andHispanics as a group. Of the families whose income is in the lowest quintile, 31 percent are unbanked.

The table to the right, based on FRSCF data,shows the distribution of reasons why peopledo not hold checking accounts.While this por-tion of the survey deals solely with checkingaccounts, it gives insight into why people maynot have a banking relationship at all. TheFRSCF shows that of the 13 percent of familieswithout a checking account, 50 percent of thesehad held an account in the past. When askedwhy they do not currently have a checkingaccount, nearly 29 percent of the familiesclaimed that they do not write enough checks.Another 23 percent said that they did not likedealing with banks, while 10 percent thoughtservice charges were too high. Fourteen per-cent said they did not have enough money, indi-cating larger financial challenges for a significantportion of these families.

In 2002, close to $35billion in remittances

was sent from theUnited States toother countries.

5 c & b

institution here and one in the remitter’shome country. Yet other programs havenetworks involving financial institutionsin more than one country, allowing morethan one immigrant group to participate.

Setting up a remittance programrequires several steps for MFIs. Theymust first identify a need among theircustomer base and the potential toreach out to others in the surroundingcommunity through their branches or

main office. They must hire bilingualstaff, employing those that speak thelanguages of the targeted immigrantpopulations. They have to conductoutreach and financial education forthe targeted groups through neigh-borhood organizations and branchlocations. Finally, in order to offercompetitive prices, they need to eithertap into an existing remittance net-work or establish a partnership with afinancial institution in the homelandof the targeted immigrant group.

“Having a solid partnership with a corresponding institution and know-ing your community are key to keep-ing costs in line,” says Raymond DeSilva, senior vice president and region-al manager at Citizens Bank and one ofthe leaders in developing his bank’sremittance program. “Normally, itwould cost about $30 to send moneywithout a formal partnership. But withbanks working together, we were ableto lower the cost for our customers to$10. As more players get involved,costs may go down even further.”

The Citizens Bank remittance programthat Ms. Fernandes uses is a partnership

with two banks in Cape Verde : BancoCommercial Atlantico and CaxaEconomica.1 The program allows cus-tomers to remit funds to Cape Verdefrom anywhere Citizens has a branchlocation. Citizens’ central wire depart-ment executes the transfers to the CapeVerdean banks; remitted funds are avail-able to recipients in Cape Verde within24 hours.

The program is popular among theregion’s Cape Verdean populationbecause it costs only $10 to transfer anyamount of money–a substantial savingover alternatives. For example, sending$2,000 to Cape Verde from the WesternUnion office in Dorchester costs $114,or 1040 percent more than the Citizens’program. Additional charges can occurat the point of exchange. According tothe company’s currency exchange poli-cy, “Any difference between the rategiven to consumers and the ratereceived by Western Union will be keptby Western Union.” When all costs aretaken into account, the savings fromusing the Citizens program have enticed

Tanya Fernandes regularly uses Citizens’ remit-tance program to send money to Cape Verde.

1 Dilip Ratha, a researcher at the World Bank, estimatesthat remittances to Cape Verde totaled $80 million, or 14percent of GDP, in 2002.

In 1982, when Victor Montiero first went with his mother to the bank in the Upham’sCorner section of Dorchester, Massachusetts, they did not have a pleasant experience.As Monteiro recalls, “We had to wait almost two hours to get service because no one

spoke our language.” Both natives of Cape Verde, Africa, Victor and his mother speakPortuguese and Crioulo, a blend of Portuguese and West African words. Eventually, the bankfound someone at its Codman Square branch who could translate, but by the time he got toUpham’s Corner to help, Monteiro had already made up his mind. That day, as he and hismother were leaving the bank, he told her,“One day, I will be the manager of this branch, andwe won’t ever have to wait for service again.”

Eighteen years later, Montiero’s dream came true. He is now the branch manager at theUpham’s Corner Citizens Bank branch, and he is keeping that promise to his mother. Ninetypercent of his staff speak the language of his customers, and he is working hard to meet thebanking needs of his community.“Coming from the neighborhood, I already had a good senseof what some of the needs of the community were,” says Montiero.“Nothing is more pleas-ing to me than to see people come into the bank and express their happiness about the services they receive.”

Upham’s Corner is a vibrant commercial district where many in the Dorchester communitygo to shop and use other services. According to 2000 Census data, this neighborhood aloneis home to about 2,900 Cape Verdeans, while the greater Dorchester area accounts foralmost 9 percent of all Cape Verdeans that live in the United States (see table).

Starting a remittance program at the bank has been a key element in providing services to this population. Before the program was introduced in 2000, many of Citizens’ Cape Verdean customers relied on wire transfer service providers to send money toCape Verde. Eventually, recalls Monteiro,“A few customers asked why we couldn’t provide the service. I thought to myself, why not?”

Monteiro brought the idea to his colleagues, and they were receptive.They formed a group that worked with Citizens’ international officeto develop a relationship with a couple of financial institutions in Cape Verde.The end result was a remittance program that costs his cus-tomers only $10 per transaction to send any amount of money to Cape Verde.Today, through word of mouth, many Cape Verdeans in thearea have found out about the remittance program.

“I hear so many stories about how people back home need the money and how it costs so much to send it,” says Monteiro. “Now, I tellthem to come on by and check out our service. People are always pleased that they don’t have to pay an arm and a leg to send money to family members in need.”

Expanding his outreach, Montiero is also working with a local neighborhood group, the Massachusetts Association of Portuguese Speakers,to conduct financial education classes and to introduce the remittance program to others.Yet his network can reach only as far as theseother networks extend. A significant percentage of Cape Verdeans are still relying on fringe providers for their financial needs. Some maynot want to deal with banks, while others may not yet know about the program.

But, according to Tanya Fernandes, a bank customer and frequent user of the remittance program,“Everyone knows Victor. I think it’s onlya matter of time before others hear about it and start using the service.”

A Vision to Provide Banking Services to a Community

Victor Monteiro, branch manager at CitizensBank in Upham’s Corner.

Population with CapeVerdean Ancestry 77,103 64,899 45,125 11,060 6,686 2,913

Percent of Total U.S.Cape Verdean Population 84.2% 58.5% 14.3% 8.7% 3.8%

Cape Verdeans as a Percentof Total Population in Each Geographic Area 0.03% 0.5% 0.7% 1.9% 7.3% 22.2%

U.S. Cape Verdean Population, 2000

Source: U.S.Census Bureau, Boston Redevelopment Authority.

Nation England Massachusetts Boston Dorchester CornerNew Upham’s

7 c & b

Smaller MFIs OfferPrograms throughNetworks

Some smaller MFIs are forming part-nerships in order to offer remittanceprograms. One example is theInternational Remittance Network(IRnet), a network of credit unions thatoffer low cost remittance services totheir immigrant customers. IRnet iscoordinated by the World Council ofCredit Unions, Inc. (WOCCU), anorganization that advocates and pro-vides development services for creditunions around the world.

many Cape Verdean remitters tobecome bank customers.

Citizens decided to implement this tar-geted remittance service after severalcustomers went to the Upham’s Cornerbranch manager and asked him to con-sider doing it. With 53 percent of thebranch’s customers and over 20 percentof the neighborhood being of CapeVerdean descent, the bank saw it as anopportunity to increase business. AsVictor Montiero, a native CapeVerdean and manager of the branch,explains, “It made perfect businesssense. Our customers wanted it, and weknew this was a bigger opportunitybecause of the large Cape Verdean pres-ence in Dorchester.”

In order to participate in the program,remitters must open a bank account atCitizens, and each new account holderreceives one-on-one training at thebranch. Moreover, the remittancerecipients must open an account at oneof the partnering banks in Cape Verde.As a result, both immigrants here inthe United States and their friends andrelatives in Cape Verde are being intro-duced to basic savings and checkingaccounts and have access to the banks’other products like loans, lines of cred-it, and interest-bearing financialinstruments. Since the program startedthree years ago, 1,000 formerlyunbanked Cape Verdean immigrantshave become Citizens customers.

Most of the new account holders arefinding out about the program byword of mouth, a cost saver forCitizens. The bank does not have toadvertise the program and can offernew customers a range of other prod-ucts and services. Delighted with theprogram’s success to date, Citizens isinvestigating ways to offer similar pro-grams to other groups. The bank iscurrently looking at opportunities tobuild partnerships with financial insti-tutions in other countries.

An electronic funds transfer service,IRnet operates in over 40 countriesacross Asia, Africa, Europe, and LatinAmerica. IRnet credit union memberscan access remittance services at over3,000 locations in 36 states and areallowed to send up to $1,000 a day for$10. Currently, 200 credit unions arepart of the network, and money can alsobe sent and picked up at many non-credit union locations that have theIRnet system in place. In New England,the Digital Federal Credit Union inMarlborough, Massachusetts, is part ofthis network.

The Strand Theatre is a landmark in Upham’s Corner, where many residents take advantage of alocal bank’s remittance program to send funds to Cape Verde.

Both immigrantsand their families in Cape Verde arebeing introduced

to the banks’ other products.

8 c & b

In order to use the IRnet service, remit-ters have to be in the “field of member-ship” or a “potential member” of anaffiliated credit union. These defini-tions typically include the immediatefamily and relatives of members, oremployees of a company that has anaffiliated credit union. Recipients inforeign countries, however, are notrequired to hold an account at anIRnet credit union. Still, recipientsare exposed to a credit union’s prod-ucts and services when they pick uptheir funds.

“Once many of the people in the coun-tries we serve see how efficient and safethe remittance service is, they thinkabout other credit union services,” saysDavid Grace, financial services manag-er at WOCCU. “To date, we havebanked 28 percent 2 of the people inCentral America that use our remit-tance service.” The dollars involved aresignificant. According to Grace, “Lastyear, we did a total of $50 million inremittances, $20 million of it toCentral America, and this year thenumber is expected to increase fivefold,to $250 million.”

Reaching Out MakesGood Business Sense

The opportunities for MFIs to tap intounbanked immigrant markets areastounding. As many MFIs havealready figured out, reaching out tothese segments of the population canmake good business sense. Wells Fargo,a financial services company headquar-tered in San Francisco, reports success-ful results from its remittance programcalled InterCuenta Express. Started in1995, the program is a partnershipbetween Wells Fargo and Bancomer,Mexico’s largest bank. The programrequires both remitters and recipientsto open an account with the bank intheir respective countries. These newcustomers are becoming major con-sumers of the banks’ other products.Jane Hennessy, international marketingand product manager at Well Fargo,notes, “Our remittance program cus-tomers use an average of 5.7 of ourproducts, while the figure for our othercustomers is 4.3.”

In their report, Billions in Motion, Suroand his colleagues estimate that closeto $1 billion a year could be saved byU.S. and Central American householdsif remittance fees were lowered to 5percent of the transaction cost. Thesavings are even higher if remittancesto Africa and Asia are taken intoaccount. Putting this money back intoremitters’ pockets could go a long waytoward helping to build communityassets in areas where unbanked immi-grants and their families and friendslive around the world.

Additionally, when recipients in devel-oping countries spend their remittedfunds at local businesses buying food,clothing, and other life necessities, theinflux of capital can spur job creationand economic activity. As Ratha reportsin his 2003 study on worker remittanceflows, remittances to developing coun-tries accounted for 42 percent of thesecountries’ total private capital inflows.

These remittance programs are bring-ing many unbanked into the main-stream financial world and giving themoptions for asset building. Questionsstill exist about the most effective wayto assist unbanked populations, andMFIs may not be the best solution foreach individual. Yet the more informa-tion that people have about theresources available to them, the betterable they will be to make decisionsabout where to go for their financialservices needs. MFI remittance pro-grams are one way to bring this knowl-edge to unbanked immigrants.

George Samuels is a community affairssupervisor at the Federal Reserve Bank of Boston.

ReferencesDeSipio, Louis. 2000. “Sending Money Home . . . ForNow: Remittances and Immigrant Adaptation in theUnited States.” Working Paper Series, Tomas RiveraPolicy Institute (January).

Ratha, Dilip. 2003. “Worker’s Remittances: AnImportant and Stable Source of External DevelopmentFinance.” Global Development Finance 2003: Striving forStability in Development Finance. The International Bankfor Reconstruction and Development and the WorldBank: 157-175.

Suro, Robert. 2002. Billions in Motion: LatinoImmigrants, Remittances and Banking. Pew HispanicCenter and the Multilateral Investment Fund(November 22).

So why aren’t more MFIs offeringremittance services? One reason is thatsome MFIs may not have the demand.Many may not have branches that arelocated in a concentrated immigrantcommunity where they would benefitfrom offering this kind of product.Additionally, many MFIs simply don’tknow about the business opportunitythat this kind of product presents.“This is a targeted operation,” saysHennessy. “You have to be persistent totap into many of these emerging mar-kets, and you don’t want to necessarilypublicize your strategy or any detailedresults. But we certainly work withHispanic media and community groupsto let people know we have a cost effec-tive, safe, and convenient way to sendmoney to Mexico.”

Finally, as discussed earlier, there aresome key steps needed to implement aremittance program, and some MFIsmay not realize that they are doable.“Some banks may not be used to think-ing outside the box because they arecomfortable where they are,” says DeSilva. “Yet there needs to be an empha-sis on the services that an institutioncan bring to a community and help tomake it better, while at the same timebringing in more business.”

MFI programs can also have economicimpacts for individuals and communi-ties here in the United States and indeveloping countries. For one, there is alot of money at stake. “There aretremendous economic implications forthe mostly low-income immigrant peo-ple that use these services,” notesRoberto Suro, director of the PewHispanic Center.

In 2002,remittances to

developing coun-tries accounted for42 percent of thesecountries’ total pri-vate capital inflows.

2 This figure represents 1,800 to 2,000 people based ondata from research by Louis DeSipio of the University ofIllinois on the remittance behavior of Latino immigrants.