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12/18/2013

Migrant Banking in Europe - Beyond Capturing Remittances (1/2)

In the context of increased client turnover and a mature retail banking market, ethnic banking presents an attractive growth opportunity for European banks. "Europe 2020", the EU's growth strategy defined by the European Commission for the coming decade, emphasizes the important role that active migrant workers and migrant entrepreneurs will play in maintaining GDP growth and filling the shortfall in the supply of skilled workers.

Throughout the last years immigration flows into Europe have grown consistently, a trend that is projected to continue as such. This is also the case for Belgium, where today approximately one out of eight inhabitants is of foreign origin.

This figure suggest that immigrants represent a non-negligible source of demand for banking and financial services. In the remainder of this article we will provide an overview of the money transfer business and its main actors. We will also have a look at the broader retail banking needs of migrants along with the players that have actively been targeting this segment.

Remittances: booming business

Money remittances, broadly defined as cross-border person-to-person payments of relatively low value, are the primary financial activity carried out by migrants. In 2013, worldwide migrants sent $414 billion overseas and a recent forecast indicates this figure will likely surpass $500 billion by 2016. The Belgian remittance market has been estimated to be at 5.8 $billion in 2012, up 21% compared to 2010. The figure below shows us the principal receiving corridors from several European countries .

Today, Europe host several types of Remittance Service Providers (RSP) and a wide array of different transfer mechanisms. As shown in the remittance value chain below, the remittance transfer process generally takes place in three steps:

  1. Capturing and sending;
  2. Clearing and settlement;
  3. Receiving and disbursing.

Income from remittances comes under a form of direct and indirect fees along the transfer process:


The remittance value chain

Remittance players: the central role of banks

The remittance market has historically been dominated by money transfer operators (MTOs) (e.g. Western Union and MoneyGram) and financial institutions like banks and Credit Unions. However, the advent of the new technologies has stimulated the entrance of new players like telecom and electronic money providers, and spurred the proliferation of innovative remittance mechanisms (e.g. mobile money transfers, pre-loadable prepaid cards, internet-based transfers, etc.). Nevertheless, we believe banks will maintain and strengthen their central role in the remittance market, and this for several reasons:

  1. Many non-banking RSPs wanting to offer innovative transfer products, may benefit from joining forces with banks as these hold characteristics that can be indispensable to be successful in global payments (cf. figure 2).
  2. The increasing bancarization of immigrants in both sending and receiving countries, seems to be helping banks to acquire market share in both countries as this mitigates the MTOs' distribution network advantages.
  3. In latest years, several host and home country banks have been strengthening their presence abroad, allowing them to leverage their international branch network in offering competitive remittance services across the globe. Some examples:
    • Increasing foreign expansion of European banks through Greenfield operations and acquisitions (e.g. Deutsche bank's expansion in Turkey, )
    • Strategic alliances between home and host country banks (e.g. the partnership between Attijariwafa bank and La Banque Postale in order to gain market share on the France-Morocco corridor)
    • The European market entry of Home-country banks (e.g. the Moroccan bank Chaabi bank and the Chinese ICI, developed a branch network in Europe in order to be closer to their target customers).

Sia Partners


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