Money remittances are big business. Official statistics are unreliable, but we estimate that every year immigrants in North America and Europe send more than $60 billion to their home countries (Exhibit 1), transmitting the funds largely through small and informal neighborhood players. Just over half of all global remittances originate in the United States, and 65 percent of that money goes to Latin America.¹ Our research, which covers the region, suggests that banks and other major financial institutions should consider getting into this high-margin business (Exhibit 2), where they have a better position for serving the needs of customers than do the mostly small businesses that now compete in this market.

Many immigrants are dissatisfied not only with the reliability and speed of the present informal remittance networks but also with the exorbitant fees they charge: 6 to 15 percent of the remitted amount for the transaction, as well as a hefty exchange rate margin of 3 to 5 percent. When sending money back home, most immigrants—often on the recommendation of an elder in their tightly knit communities—take the cash to a neighborhood agent located, for instance, in a convenience store. These agents, mostly representing small remittance...