September 2016
Authors: Cases Comyn, José Ignacio; Font, Joan; Gonzalez, Amparo; Izaguirre, María et Ali.
Every year, migrants from Latin American and Caribbean countries in Spain send billions of Euros to their countries of origin. These money transfers not only help many families with important expenses that ensure a higher quality of life, but also constitute an important vehicle for improving the financial inclusion of cross-border households in Spain and abroad.
Against this backdrop, the specific purpose of the report is to guide the main players that provide money transfer services in Spain so that they can improve and innovate their products and, ultimately, contribute to strengthening the financial inclusion of both the Latin American migrant population and their families in the receiving and sending countries.
The analysis is based on data from an original survey applied between July and September 2015 to 2,005 migrants of a pre-selection of six nationalities, potential remittance senders, residing in Spain. These nationalities are Bolivia, Colombia, Ecuador, Paraguay, Peru and Dominican Republic. The face-to-face interviews of the survey were carried out in recruitment points in Madrid, Barcelona and Valencia, capitals of the autonomous communities with the highest percentage of representation of the pre-selected nationalities.
The contingent of migrants, that is, the group of people born in another country and residing in Spain, who come from South America, Central America and the Caribbean has increased very significantly since the end of the 1990s. In 2014, the National Institute of Statistics estimated that 2,308,686 people, corresponding to 5% of the total population and 37% of the foreign-born, belonged to this group in Spain.
The recent economic crisis has hit the migrant population harder than the native population, especially men. As a result, in addition to the traditional concentration in lower-skilled and lower-paid jobs, there is now greater difficulty in finding employment. This has led to a slight increase in the return to the country of origin.
At present, people from Ecuador (438,979) constitute the largest group and the third largest of all migrants, behind those from Morocco (774,549) and Romania (726,142). This country is followed by Colombia (363,667), Argentina (259,870), Peru (191,706) and Bolivia (177,149).
177,149. Compared to the rest of the migrant groups, Latin Americans stand out for their significant contribution of women.
Remittance payments sent abroad from Spain increased until 2007 in parallel with the increase in the migrant population in the country. The process was encouraged, in part, by the strength of the euro since its introduction in 2002, but this trend was interrupted after 2008 as a result of the decline in flows, growing unemployment among workers of immigrant origin and the relative weakening of the euro against the dollar. All this was a reflection of the deep economic crisis that affected the world economy in general, and the European and Spanish economies in particular.
The vast majority of Latin American migrants in Spain have secondary education, but both they and those with higher education find it difficult to validate their degrees and gain access to skilled jobs. Twenty-two percent of the migrants interviewed are unemployed, and low-skilled services (catering, personal care, domestic staff, etc.) account for 60% of those who have a job. As a result, their incomes are lower than those of the Spanish-born population (almost 25% earn less than €600 per month, compared to 17% among natives) and their ability to accumulate capital is limited (55% spent it all in the year prior to the survey).
Regarding the mode of savings, 32% of the sample analyzed saved something in the bank during the year prior to the survey, while the equivalent percentage in the total population residing in Spain was, in 2014, 48% (2014 Global Findex data from the World Bank for Spain).
Despite the above, in general there is a high level of banking penetration among the migrant population in LAC: 86% have an account in Spain, a figure that is not far from the 98% achieved among the total population. Twenty percent have a bank account in Spain and in their country of origin. Among LAC migrants who have a bank account, men who have been residing in Spain for more years, who are employed and who have already acquired nationality are more frequent;
Beyond the high level of banking penetration revealed by the possession of a current account, consumption of financial products among Latin American migrants is limited; the most widespread financial service is the debit card (61%, compared to 83% among the total population), followed by the credit card (25%), life insurance (17%) and loans (12%).
In 2015, the share of remitters represented 69%, twenty points higher than estimated in 2007. On the other hand, non-remitters (24%) justified the fact that they had not sent money in the last year because their relatives in the country of origin did not need it.
Latin American migrants in Spain have been residing in the country for an average of 10 years and most have already reunited their nuclear family (partner and children). Therefore, the main recipients of remittances at origin are their parents (55%) and, to a lesser extent, siblings (34%).
The profile of the migrant who is most likely to send money (or be a remitter) is between 30 and 45 years of age, has been residing in the country for more than 10 years, has a partner in Spain, is employed, has a low level of education, has a bank account (both in Spain and in the country of origin) and has the capacity to save, so that sending remittances is strongly associated with the level of banking penetration. Similarly, the fact of having a parent, son or daughter, or sibling in the country of origin is a factor that increases the probability of sending money, especially if the economic capacity of these relatives is perceived as insufficient.
The average frequency of money transfers is 5 or 6 times a year, with peaks on specific dates, such as Christmas, Mother's Day or the start of the school year. The average amount is around €1,000 per year (€180 per remittance, on average). If origin is taken into account, Peruvians and Colombians seem to send somewhat higher amounts than average, while Bolivians and Dominicans send the least.
Migrants who have been in Spain for more than 7 years, the most educated, those with bank accounts and those with savings are the ones who send the most money back to their country of birth. The amount sent also increases when the economic situation of relatives is complicated. Conversely, when the relatives to whom remittances are sent have a bank account, the overall amount sent decreases.
More than 70% of remitters use a single mode of remittance, mostly a remittance company (84%). In contrast, only 12% use the bank, which appears to be the most common channel for those who have relatives with a bank account in the country of origin and also when the migrants themselves have a bank account there. As expected, the combination of both modes of remittance (business and bank) is the most common option among those who combine different modes. The use of postal remittances (money orders) or of "trusted" persons is in the absolute minority.
As for the reasons why respondents say they prefer one mode of remittance or another, the most common is speed as the most important reason for their choice (around 30% of respondents mention this regardless of the method chosen), followed by security. As can be seen in Figure 13, cost is a much more important reason for those who choose the remittance company (15% of those who use it mention it as one of the two main reasons for having chosen it as a channel) than for the rest, especially for those who opt for sending by post or through people they trust.
On average, remittance fees represented approximately 3.8% of the amount, a value that rises to 5.2% and 4.7% in the case that the channel used was other trusted persons or money order, respectively. As can be seen, the migrants who chose these two channels were precisely those who least valued the cost of remittance in selecting the preferred channel. In contrast, according to the results in Table 14, the most economical channel appears to be the bank transfer through an ATM (with associated costs of only 2.7% of the amount of the remittance), followed by the bank transfer made in person (3.6%).
It is striking that, although the cheapest remittance method, according to those interviewed, is ATM transfers, they do not enjoy greater acceptance among Latin American remitters in Spain, especially bearing in mind the high level of banking penetration of this population in our country. In fact, as stated in previous interviews, banking institutions are trying to promote the sending of money through this means with a lower remittance fee, in order to compete with the timetable of payment institutions. However, despite this and the fact that cost is one of the reasons mentioned to explain the use of one or the other channel, it is striking how little use it has, which could be due to the lack of information on a system that is relatively new or to the payment agents in the country of destination.
More sophisticated statistical analyses indicate that there are no significant differences between the different origin groups studied with respect to the preferred and used mode of remittance, with the sole exception of Dominicans, who are less likely to use the bank than the remittance company, and Colombians, who are less inclined to use the money order.
By age, the youngest (under 30) and oldest (over 60) are the least likely to use a bank for their remittances versus a remittance company, while being over 45 is associated with a higher likelihood of using a more traditional method such as a money order, rather than the remittance company. Similarly, the use of trusted people versus the remittance company is more likely among migrants with lower educational attainment, lower digital development (basic mobile rather than smartphone) and lower savings capacity, confirming what was noted during the pre-survey interviews.
As for the method of receipt at origin, the most common method is cash withdrawal at a bank (56%), followed by a non-bank (37%) and home delivery (20%).
Money transfers seem to be the predominant option for larger and more frequent current expenses, while payments from Spain are more common for the purchase of low-cost services or occasional expenses (travel, airline tickets, etc.).
New technologies are having a low impact on the money transfer sector among Latin Americans in Spain and their incorporation into the remittance market depends fundamentally on the country to which the money is sent, due to the extent and depth of the new technologies in the receiving country. For example, remote payments are particularly frequent among Dominicans and Paraguayans, but also among those who have been living in Spain for more years and among those who do not have higher education or Spanish nationality.
On the other hand, with regard to money transfers, not only the use of the Internet and, specifically, the cell phone, represent a channel yet to be developed among this population, but also the sending and withdrawal at ATMs. Despite the fact that the cost of sending money through ATMs is the cheapest of all the channels explored, according to those interviewed, its use is still very much in the minority; the same is true of withdrawals by family members at home.
Finally, as we have mentioned above, the level of banking penetration of the migrant population in Spain is already very high; however, it is worth highlighting the opportunities for banking penetration of this population in their respective countries of origin. These are not only those who do not have a bank account in any country but, above all, those who have an account in Spain but do not have one in origin, 67% of the total sample, which makes their potential interest in opening bank accounts in origin very likely if sufficiently advantageous conditions were offered to them and their relatives, who are often elderly and for whom the new technologies may not represent an attractive or viable option.
As for the method of receipt at origin, the most common method is cash withdrawal at a bank (56%), followed by a non-bank (37%) and home delivery (20%).