The Atlanta Fed recently hosted a conference about one of the fastest-growing markets in global finance: cross-border payments, particularly remittances sent to Latin America. This market is one in which North American banks are eager to gain a larger presence.

The “Payments in the Americas” conference, held in October, addressed various technical and policy issues concerning transferring funds from individuals in one country to another. Issues include the need to lower costs and broaden distribution channels in both sending and receiving countries. But even with these challenges, remittances continue to grow.

Ignored no longer
John B. Taylor, under secretary of the U.S. Treasury for International Affairs, emphasized the importance of cross-border payments in an increasingly interconnected global economy. “Over the past two years alone, remittance flows to developing economies jumped by 20 percent to nearly $100 billion dollars and likely will keep growing,” he said.

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Remittance flows from the United States to Latin America, estimated by the Inter-American Development Bank (IDB) to be $38 billion annually, make up almost a third of the world’s recorded flows. This level of activity has increased during a period of weak economic growth in the United States coming out of the the 2001 recession. For the first time, remittance flows from the United States surpassed net foreign direct investment in Latin America, Taylor added.

Lowering barriers paramount
Policymakers at the conference agreed on the need to lower costs and other barriers to cross-border payments. International transactions typically take longer to execute than domestic payments and often involve hidden or explicit currency conversion charges in addition to transfer fees. But increased competition has lowered payment costs.

The typical remittance users in the United States are unbanked immigrants from Mexico or the Caribbean who want to send money home to relatives. Donald F. Terry, manager of the Multilateral Investment Fund of the IDB, described the growth of remittances, which followed an increase in immigration to the United States over the past decade. “The system of remittances had been hidden in plain view for generations and is now coming out of the shadows,” he said. “People are moving north by the millions, and money is moving south by the billions.”

Conference participants shared views on a broad range of issues, underscoring the consensus that the remittances market has evolved rapidly in recent years and attracted a great deal of attention among major financial institutions. Among the other conference topics:

Carol Clark of the Chicago Fed discussed emerging standards in global payments.
Aman Verjee of Paypal described the strategy behind the rapidly growing Internet-based payment system.
Henrik Parl of Eurogiro Network and Enoch Ch’ng of the Monetary Authority of Singapore discussed the growing markets for cross-border payments in Europe and Southeast Asia, respectively.
Larry Schulz of the Atlanta Fed described the lessons learned from the launch of automated clearinghouse (ACH) service to Canada, and Francisco Solís Robleda of Banco de México offered his perspective on the recent development of FedACH Service to Mexico.

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