They are the great unbanked -- millions of Mexican immigrants who send billions of dollars to their native country each year. The battle for their business is hotter than a jalape?o on a July day in Texas. Banks such as Wells Fargo & Co. (WFC) and Bank of America (BAC) now accept ID cards issued by Mexican consulates. They're marketing debit cards that can be used by family members south of the border. And on June 15, financial-services juggernaut Citigroup (C) launched what it bills as the first binational credit card. Says Rebeca Vargas, Citi's head of Hispanic markets: "This is a way for people who live in the U.S. to share their credit with people who live in Mexico."
The market is exploding. According to the Pew Hispanic Center, money transfers from the U.S. to Mexico doubled over the last three years to $13.3 billion in 2003, and they're now greater than the annual direct investment in Mexico by foreigners. The vast majority are made via small check-cashing and loan stores hooked up to wire services such as Western Union (FDC).
Wire transfers are expensive to send and a hassle to collect on the other end. "If you have to take a bus to get your remittance, it's a deterrent," says Anna Paulson, a senior economist at the Federal Reserve Bank in Chicago. But the escalating competition is rapidly bringing down the cost and easing the inconvenience. The fee to wire $400 to Mexico has fallen from $25 to $17 over the past four years, according to Pew. Major banks are pushing debit cards with transfer costs of just $10.
Now, Citi's credit card will cut that cost even further. Citi charges $29 a year for the card, issued with its Mexican subsidiary Grupo Financiero Banamex, the largest bank in Mexico. After opening an account with a Citi-affiliated bank, the U.S. cardholder, who is responsible for the payments, chooses the people in Mexico who get a card -- plus their spending limit. The card is also good for cash withdrawals from ATMs in Mexico. Withdrawals from one of Citi's 4,700 Mexican ATMs cost $5 a pop. Customers without a credit history may have to put $1,000 or so in a money-market account for, say, a year until they have a payment history.
Will the Banamex USA card prove a winner? Industry observers think so. Citi will earn interest on outstanding card balances, making card transactions more profitable than the typical money transfer. And Citi, along with everyone else crowding into this market, is using money transfers as a way of corralling customers for other banking products, such as checking accounts and home and car loans. "This is like the milk in the back of the convenience store," says Daniel Ayala, director of cross-border payments at Wells Fargo. Indeed, the potential is big: Only half of U.S. residents of Mexican descent have bank accounts, vs. 82% of native-born Americans. In Mexico, just 22% of the population has one.
Citi's new card won't be for everyone. Some rural Mexicans may have trouble finding places that take the card. And there is a long history on both sides of the border of handling money transfers entirely in cash. Maria Vasquez, who manages an apartment building in Los Angeles with her husband and sends $300 a month to relatives in Mexico City, says she'll stick to paying $10 at a time to a check-cashing store. "It's better to pay the $10 and that's it," she says. "Then you don't have to deal with banks."
Of course, persuading folks such as Vasquez to sign up is exactly what Citi hopes to do. And that might just mean fewer bus trips for the folks back home.
By Christopher Palmeri in Los Angeles, with Geri Smith in Mexico City