Wells Fargo's process of establishing new cross-border remittance corridors creates a vital network effect, helping the bank withstand the country-specific problems that are driving rivals out of the business.
"We're not a fair weather banker," says Daniel Ayala, business unit manager in Wells Fargos global remittance services group. "Businesses go through cycles; if you look at [remittance] on a short-term basis it's either really good or really bad, depending on the cycle."
Banks have been abandoning the remittance business because of the heightened regulatory scrutiny and the risk of facilitating money laundering or terrorist financing.
"Yes there's risk, but that's what banks do best," says Ayala. "At any time, there's at least one type of compliance-related review going on" at Wells Fargo, he says.
Partnering with payments companies focused on remittance, such as Western Union and Moneygram, has been a strategy many banks have used, but Ayala says that's just moving the risk from one company to another and that Wells Fargo would rather have control of the risk.
"Banks don't want to reinvent the wheel," he says. "Banks want [Wells Fargo] to white-label our solution."
Earlier this month, Wells Fargo partnered with Philippine National Bank (PNB) to allow customers to send money to more than 600 PNB branches.
Wells Fargo started its remittance business in 1994 with the opening of a corridor in the Philippines. On average, remittances to the Philippines are in the $400 range, Ayala says.
"They key thing about the Philippines [is] it's historically been a significant source of immigration to the Pacific West Coast of the U.S.," says Ayala. Wells Fargo had wanted to partner with PNB for some time, but PNB was in an exclusivity arrangement with another remittance company, he says.
One of the countries suffering the most from the withdrawal of banks from the market is Mexico, which received more than half of the total cross-border remittances that came from the U.S. in 2012. Wells Fargo has been handling remittances to Mexico for about 19 years, and is seeing the market recover from a slowdown that was tied to the U.S. economy.
"In the last four months, Mexico is back in growth mode; banks might start looking at this industry again," Ayala says. And since 2000, the number of remittances in Latin America has more than doubled overall, Ayala says, citing Pew Research.
The San Francisco-based bank also remits via its ExpressSend service to the Dominican Republic, Peru, El Salvador, Guatemala, Honduras, Nicaragua, Ecuador, Colombia, Vietnam, India, and China.
As it expands its offerings, Wells Fargo must try to mitigate its level of exposure in terms of anti-money laundering, terrorist financing, fraud and reputational risk. To do so, Wells Fargo has put in place daily transaction limits and monthly aggregate limits, plus it takes action immediately when it identifies potential problems.
Keeping up with compliance takes a lot of work, so if banks are running a marginal remittance business in just one country they won't be making money, Ayala says.
"Banks that have gotten out [of the remittance business] are the banks that entered it very aggressively and spent millions marketing it a lot and then decide to give away the service at no cost to the consumer," says Ayala. "Some competitors have entered and exited not once but multiple times."
Wells Fargo spent about $3 million and two years revamping its remittance service to comply with laws and regulations, including Dodd-Frank, says Ayala. Most banks departed from the remittance industry between January 2012 and December 2013 after the Dodd-Frank Act took effect.
Wells Fargo sees its remittance business as both a customer acquisition and customer loyalty play. Customers stay with Wells Fargo longer because the bank offers the service and buy more products from the bank than if it didn't have the service, says Ayala.