Operations / Policy / Products & Services / Nov 29 '16
Not the Time to Look Away
If change is our only constant, then uncertainty is our atmosphere.
I don't say that to fear-monger or even to sensationalize current events in our industry. It's just that now is not the time for credit unions to turn a blind eye to change due to the uncertainty that may surround it. Now is not safe to say, "that's not our business, let's just focus on serving our members." Because what you do now, how you serve your members today, will impact who your members will be and how you will be able to serve their needs in the not-that-far-off future.
Earlier this month we talked about credit union opportunities and philosophical obligations to be there at the ready to serve emerging and underserved markets.
Now it's time that credit unions (if you're not doing so already) pay attention to indirectly related market changes. Now more than ever before, leaders in the industry need to keep a finger on the pulse of every nuanced development in the financial landscape and play the long game in thinking through the eventual impacts it could have on current members, future members and the health of your credit union and entire industry.
Remittances Market Size and Need
The market for remittances—small, regular money transfers to migrants’ home countries—is enormous. Most credit unions are not in the direct business of running foreign remittances, however this is not a reason to stay out of the conversation around this important service. Nor is it reason to neglect the fact that the need for this service exists and will continue to exist whether credit unions are part of it or not.
Permanent and temporary migrants make up 13.3% of the population in the United States. They’ve traveled from their countries of origin to pursue job opportunities, increase their earning potential, or seek refuge. Some of what they earn is sent to help family members back home. In 2015 migrants sent over $601 billion USD from their host to home countries, worldwide, according to the World Bank.
Transfers specific from the U.S. to Mexico was $24 billion in 2015, according to Pew Trust, the largest single portion of Mexico's foreign income that year. Additionally, current estimates put the unregulated remittance market at 1.5 times larger than the World Bank figure.
President-elect Donald Trump’s proposal to suspend U.S. remittances to Mexico for infrastructure spending purposes could cause a major disruption to the Mexican economy. And Mexican-American members of credit unions across the country may be significantly impacted.
The impact on Mexican-American members of credit unions who send money to networks in Mexico could be impacted in a number of ways.
First, these credit union members may utilize unregulated remittance markets at higher levels resulting in higher costs and less cash flow on their personal balance sheets.
Second, these credit union members may have more acute cash flow needs resulting in short-term credit needs. Here at Filene, we're working together with credit unions to research, test and develop a variety of these types of loans in our Financial Empowerment Incubator, including an ITIN Lending Program (Non-Citizen Lending) which could help ameliorate the situation.
Third, these credit union members may leave the U.S. (and their credit union membership) to pursue economic opportunities elsewhere.
Credit unions have largely stayed on the sidelines when talking about the remittance market; however, the indirect impacts on credit unions and their members should not be overlooked should this proposal become reality.
A Different Take
For credit unions in the US and Canada that are currently offering remittance services to their members, or wanting to explore beginning to offer the service, we have recently released a report that makes the case for the unique opportunity credit unions have to enter the remittance market through partnerships and new product offerings.
Remittances are an opportunity for credit unions to attract new members and offer an essential financial service at lower-than-existing rates. To seize this opportunity, credit unions need to leverage their high-touch member services and their willingness to innovate and embrace new technologies.
To move forward successfully, credit unions would need to do several things well:
- Think from the recipient’s perspective: A credit union needs to understand how, when, and where recipients want to receive money transfers.
- Choose the right partners: Drawing from their knowledge of recipient preferences, credit unions must choose the appropriate distribution networks or financial institutions to connect with for transferring and distributing funds.
- Build a deep level of trust among senders: Credit unions offering remittance products need to deepen relationships with local migrant communities. They must make a concerted effort to understand the culture and financial needs of those communities, and brand and market their products accordingly.
Not the Time to Look Away
Whether your credit union is involved in remittance services, ever was or ever will be, the credit union industry can no longer afford to focus on only the now, only the direct impacts to their business lines, regulation, and serving members today. In today's complex, exciting, evolving and uncertain financial landscape, keeping your eye on all indirect impacts may prove to be as essential as catering to your direct business impacts.