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Immigrant populations spur budding banking industry

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San Diego's proximity to the international border puts it squarely on the doorstep of tourism and commerce with Mexico. And, it is also well positioned to benefit from another burgeoning industry: the transfer of money sent home to Mexico and Central America by migrants in the United States.

A study by the Multilateral Investment Fund estimates that remittances to Mexico will total $23.4 billion in 2007, a slight increase over the previous year.

According to the U.S. Census and the Pew Hispanic Center, the total Mexican immigrant population of the United States is 10.4 million, and 64 percent of the adult population sends money back to family members, with the average person transferring $3,550 a year.

These big dollars make a lot of sense to banks and financial services companies, which view these money transfers as a growing global business estimated to be nearly $300 billion a year. Some of the nation's biggest banks are going up against other financial services companies that have been around since the days of the Pony Express.

Two big banks - Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC) - are aggressively trying to attract the business of customers who regularly send money back to their native countries.

"Most Latin American and Asian countries have significantly large unbanked consumer populations, and eliminating the bank account requirement for the receiving country makes it much easier for recipients to get their money," said Daniel Ayala, head of Wells Fargo's Global Remittance Services.

Starting in August, the bank began offering its customers free or discounted transfer services that make money available the next day in countries that include Mexico, El Salvador, Guatemala, China, Vietnam, India and the Philippines.

"It's only fair that people sending money know how much their relatives will be able to pick up and when the funds will be available," said Betsy Cavendish, executive of Appleseed, a public interest law firm that endorses improved financial services for consumers.

Bank of America began waiving remittance fees for its customers in 2005 and other financial institutions have followed suit. According to the Census Bureau, there were more than 40 million Hispanic people in the United States in 2004, representing 14 percent of the population. By the year 2050 it is estimated that a quarter of the nation's population will be Hispanic.

"Our Hispanic customers told us that they wanted lower transfer fees, money to be paid in cash over the counter in Mexico, and a broader distribution network convenient to their family and friends. We listened and responded," said Diane Morais of Bank of America.

While these banks and other institutions are trying to gather a bigger piece of the money transfer pie, they are also stepping up their marketing efforts for other financial services.

However, some companies are staying focused on the transfer services.

Western Union got into the money transfer business way bank in 1871 and today operates a network of 312,000 outlets in more than 200 countries. In the face of new competition, it has recently expanded its operations in Mexico.

In July, WU announced it has added another 587 money transfer locations in Mexico by expanding its relationship with Grupo Elektra, a leading retail and financial services company.

"We remain committed to offering additional locations to our customers in Mexico, and this agreement extends our in-country reach while strengthening our unmatched global agent network," said Liz Alicia Velez, vice president of Latin American operations at Western Union.

With the additions, the company now has 13,700 transfer locations in Mexico. But, according to one analyst, political problems could create a headwind to WU earnings growth.

"Western Union has experienced a slowing of the U.S.-to-Mexico business, hurt by uncertainty in immigration policy, and, we believe, sluggish U.S. construction activity," said Zaineb Bokhari, an analyst with Standard & Poor's.

"WE believe WU's market leadership and geographic diversity will enable it to weather headwinds related to future immigration policy changes," he added. S&P has a Hold rating on Western Union stock, which is trading slightly above $19 a share, midway in its 52-week trading range.

WU isn't the only player in the money transfer business, but it surely is the biggest. Its largest competitor, MoneyGram International, has a network about a third of the size of Western Union.

But there seems to be plenty of room for growth.

"Approximately 190 million people worldwide live outside the country of origin. Primarily, immigrants flow from poorer to wealthier countries seeking better opportunities," said Brett Horn, a Morningstar analyst. "When these immigrants leave their home country, they often leave family behind that needs to be supported. The best way to send money back home is through money transfers, such as MoneyGram."

He has a Buy rating on MoneyGram shares, which trade near $22, close to the bottom end of its trading range.

While it has often been said that money makes the world go around, it could also be stated that money going around the world is creating growing opportunities for banks and other financial services companies.

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