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Wells Fargo Looking for a Cut of India’s Rich Remittance Market

| June 18, 2012
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By Charla Bear

Wells Fargo wants a bigger piece of the billions of dollars Indian expatriates will send home this year. The bank just announced it’s dramatically expanded its remittance service for Indian customers.

It can be a long, complicated process to send funds toIndia. Just ask Veera Srinivasan, one of a quarter-million Indian expats in the Bay Area. He sends money to his parents at least once a year.

“I have to use online transfer to a local bank inIndiain order to transfer locally there,” he says. “So, it’s a pain.”

Wells Fargo has teamed up with India’s second-largest bank, HDFC, to streamline the process. Customers can now send money directly to 5,200 branches and more than 16,000 ATMs inIndia, which includes those of Wells Fargo’s existing partner ICICI Bank.

What’s In It for Wells Fargo

Daniel Ayala, executive vice president of Wells Fargo, says the service expansion is a money-maker for the banks and a big help for consumers.

“Our customers in the Bay Area are increasingly of Indian decent and we understand that for these customers, sending money back home is one of their top priorities,” he says. “The amount of money they send on average exceeds the $1,400 to $1,500 range.”

For most of those transactions, Wells Fargo will charge a $5 to $7 fee, plus make some money off the currency exchange. Ayala would not say how much the bank stands to make, but admits there is a differential between the retail rate that Wells Fargo offers to customers and the wholesale rate that it gets from the bank in India.

Even with the cut going to the banks, sending remittances through the new partnership will still be cheap relative to many wire transfer services. Western Union remains the dominant remittance service, with more than 50,000 locations inIndia. It charges more than four times Wells Fargo’s fees.

Why now?

Muzaffar Chishti, director of the Migration Policy Institute at the New York University School of Law, says the timing of the deal shows how banks are racing to cash in on record high remittances to India. The World Bank estimates money transfers to the country will hit $70 billion this year.

Chishti points to three main reasons for the spike:

  • The rupee has devalued considerably against the dollar. So, if you’re sending dollars toIndia, it gives you a greater ability to buy things than six months ago.
  • The Reserve Bank of India (RBI) has started allowing accounts of non-resident Indians to have the same interest rates as domestic depositors. Some of these accounts could bear as much as 9% return annually. That’s a big jump from what depositors could make in US banks.
  • RBI also recently changed its rules to allow people to send up to 30 remittances per year as opposed to the 12 it used to permit.

Promise and pitfalls of a new market

“For Wells Fargo, it’s using it as a foothold to enter the Indian market,” he says. “I think it’s clearly using it as a way to test the Indian market and if it works well for it, you’ll see a larger role.”

He says one potential challenge for Wells Fargo is that a lot of people in India don’t have bank accounts because most of them live in rural areas.

“Institutions like the Indian Postal Office, which has branches in literally every village, much more than any domestic bank could, have an advantage,” he says.

“People are more used to going to a post office in rural areas than going to a bank. Wells Fargo is relying on the reach of the HDFC. It will have to see how that reach works out for its international opportunities.”

Worldwide, Indian expatriates are expected to send $70 billion to their home country this year.

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