Report to the Congress on the Use of the ACH System and Other Payment
Mechanisms for Remittance Transfers to Foreign Countries
A remittance transfer is an electronic transfer of funds--requested by a consumer located in the United States--to a consumer or business in a foreign country; the transfer is initiated by a remittance-transfer provider, such as a depository institution.6
In practice, remittance transfers are often payments originated by foreign-born individuals who send money regularly to family members in their countries of origin. The Bureau of Economic Analysis (BEA) estimates that, over the past five years, annual remittances ranging from $36.3 billion to $38.5 billion were sent by foreign-born residents in the United States to households abroad.7
As mentioned in the Board's July 2011 ACH remittances report, U.S.-based consumers have a number of possible channels for sending remittance transfers, and the method chosen may depend on a variety of factors, including the relative convenience and accessibility of the method, the speed with which funds are available in the destination country, and whether the method requires the sender and recipient to have access to accounts at depository institutions.
Consumers have historically chosen to send remittance transfers largely through money transfer operators such as Western Union and MoneyGram, which generally own proprietary, "closed-loop" payment systems and operate largely outside of conventional depository institutions. These operators commonly facilitate the transmission of money, through consumers either visiting brick-and-mortar agent locations in areas heavily populated with foreign-born individuals or through telephone or Internet requests.
Less commonly, consumers send remittance transfers through depository institutions, which generally use "open-loop" payment systems such as wire-transfer systems, correspondent banking channels, and ACH networks. Wire transfers are an option when both the sender and receiver have access to accounts at depository institutions, and such transfers are the primary method used by depository institutions to send funds internationally.8
The ACH system--a system that clears and settles batched electronic transfers for participating depository institutions--has supported transmission of remittances for more than a decade. The originating institution combines the payment instructions from its various customers and sends them in a batch to an ACH operator--the Reserve Banks' FedACH or The Clearing House's Electronic Payments Network (EPN)--for processing. The operator then sorts and delivers the payments to receiving institutions. IATs are conducted through an interface with other foreign payment systems.
This interface is commonly established through an "originating gateway operator" in the originator's country and a "receiving gateway operator" in the receiver's country. In the United States, the gateway operator can be a depository institution or, with appropriate agreements in place, an ACH operator.9
6. "Remittance transfer" is defined in section 919(g)(2) of the Electronic Fund Transfer Act, as amended by section 1073(a) of the Dodd-Frank Act. Return to text
7. See Bureau of Economic Analysis, "Personal Transfers, 1992:I-2012:IV," (www.bea.gov/international/pdf/personal_transfers.pdf). The BEA's data suggest that the total value of remittances has grown more slowly since 2008 than in prior years. The BEA's definition of an international remittance differs from the definition in Dodd-Frank Act section 1073(a). In particular, the BEA's definition excludes remittance transfers sent to businesses, and it is not limited to remittances sent in electronic form. Return to text
8. The Reserve Banks, which served an approximate 58 percent share of the U.S. interbank wire-transfer market in 2012, estimate that about 5,000 wire transfers per day processed by the Reserve Banks' Fedwire Funds Service might constitute remittance transfers and that the median amount of a consumer-initiated wire transfer processed by the service is about $6,500. The Reserve Banks' estimate is based on a manual analysis of a sample of 500 wire transfers processed by the Fedwire Funds Service in May 2011. Data were not available regarding the number of wire transfers processed by the Clearing House Interbank Payments System that could be classified as remittance transfers. Return to text
9. The ACH rules published by the National Automated Clearing House Association (NACHA) establish requirements for any U.S. depository institution or ACH operator that assumes the role of gateway operator. The rules set forth criteria for what constitutes an IAT, and they require all payments meeting the criteria to carry certain information, such as the name of the ultimate beneficiary, and to follow a specific format (which includes a code that indicates the payment is an IAT). NACHA (www.nacha.org ) publishes annually the NACHA Operating Rules and Guidelines that apply to the ACH network. Return to text