The Economist, April 19, 2007
Across the Mexican countryside, villages are denuded of their working men but kept alive by their labour. The northward exodus to America numbers about 500,000 people a year. The money sent in the other direction in the form of remittances amounted to about $23 billion in 2006, according to the Bank of Mexico, the country’s central bank, up almost sevenfold in a dozen years. As that number has grown, so others have fallen: the fee for remitting money has dropped from an average of 9.2% in 1999 to 3% in January 2007, according to Bancomer, a Mexican bank.
Under this scheme, people receive an overnight transfer from an American bank account to a Mexican one. The two central banks act as middlemen, taking a cut of just $0.67 no matter what the size of the transaction. Banks then typically charge $2.50-$5 to transfer about $350, says Elizabeth McQuerry of the Fed. All told, the scheme cuts the costs of remittances by half or more. The system is still in its infancy. It handles only 27,000 transactions a month, about 26,000 of which are social-security payments made by the American government to beneficiaries in Mexico. But its popularity should grow. In America 200 banks are now signed up to the service, compared with just six at its launch in 2004. The scheme’s snappier name is also new; its official title is the FedACH International Mexico Service. This attempt at “branding” the system should widen its appeal, says Ms McQuerry.
Do the migrants themselves have accounts to send money from? As many as 70% do, according to a recent report by the Bank of Mexico. This is largely because hundreds of American banks, eager for deposits, will gladly open accounts for people carrying only a Mexican consular identity card, rather than official United States government identification. This allows people to formalise their finances without formalising their immigration status. Bansefi has seen rapid growth, with 3.4m accounts now open, compared with 850,000 in 2001. If banking continues to spread on both sides of the border, Mexico’s villages should continue to benefit from the fruit of their emigrants’ hard work, without it being squeezed along the way.