Following the sudden closure of Western Union by Fidelity Bank earlier this month, the remaining money transfer businesses in the Cayman Islands face the possibility of closing unless they can make new banking arrangements by the end of August, according to the companies and government.
Cayman National, which handles payments for the three remaining remittance companies on island, sent a letter to the parent companies of the local branches for Jamaican National, MoneyGram and Fast-Funds, giving them notice to find a new bank, according to two of the companies.
Financial Services Minister Wayne Panton said Friday that he did not think the cash transfer companies would have to shut down.
Mr. Panton said Cayman National had originally given the companies until the end of this month, but the deadline has been pushed back to the end of August as the companies figure out an arrangement to keep the remittance services operating.
“While any commercial decisions regarding money-services businesses are a matter for the businesses and the banks to make themselves, Government and [the Cayman Islands Monetary Authority] are arranging these discussions in order to address concerns on both sides, with the aim of ensuring that options remain open to consumers,” Mr. Panton said in a statement Friday.
Many expatriate workers rely on services like MoneyGram to transfer cash. The transfers are inexpensive, usually costing under $5 or $10, and do not require either the sender or the receiver to have a bank account. Wire transfers from banks typically cost more than $20, and even then the person on the receiving end has to have a bank account to get the money.
Last year, workers in Cayman sent about $180 million back to their home countries as remittances through money transfers.
Most of that money, about $110 million, went to Jamaica, according to data published by the Cayman Islands Monetary Authority. About $23 million went to the Philippines, and more than $12 million each went to the United States and Honduras.
Cayman National Bank declined to comment on the possibility of ending the deal with the money transfer companies.
According to Mr. Panton, the correspondent bank that took the bulk of the cash deposits from Cayman National said it was no longer going to be handling the bulk cash business.
Brett Hill, CEO of Fidelity Bank’s Cayman Islands operations, said the money transfer business has become riskier in recent years with concerns over terrorism financing and money laundering through cash transfers. With the higher risk and the regulations to move money through the U.S., the cost has gone up, but the price has gone down.
The board of directors for the Bahamas-based Fidelity Group voted July 17 to close the Western Union counters that the bank operated in the Bahamas, Turks and Caicos and the Cayman Islands. The Western Union branches closed the next day.
“It’s getting harder and harder to bank this business,” Mr. Hill said. “Banks are trying to de-risk,” he said, and the Western Union business was becoming a smaller and smaller portion of Fidelity’s business. Western Union had eight branches in the Cayman Islands, mainly in grocery stores.
MoneyGram has seven branches in Cayman, and Jamaican National has two counters.
Leesa Kow, general manager for JN Money Services, which runs the Jamaican National cash transfers, said Cayman National sent a letter to her company and the others saying the bank would no longer handle their transactions. Money transfer companies need a registered local bank as part of the transfer.
There’s a stigma for banks, Ms. Kow said, because of the due diligence the transfer companies and banks have to go through to ensure they are not sending money to terrorist organizations or unwittingly helping with a money laundering scheme.
“I understand the concerns,” she said, “but the industry cannot survive without a banking relationship.”
Ms. Kow and a representative from Financial Integrated Services, which operates MoneyGram, said that Cayman National Bank had been the only local bank willing to work with the transfer companies.
“There are serious implications for this country if immigrant workers can’t send money home,” Ms. Kow said.
Customers at MoneyGram last week, none of whom wanted to speak on the record, expressed surprise and concern over the Western Union closing and the potential that the other money transfer services could close as well.
Arturo Ursua, the honorary Philippines consul in Cayman, said companies like Western Union “are a very important part of how Filipinos here send funds to families back home.” He said most Philippines expats in Cayman live payday to payday without a bank account, sending cash home regularly to support their families.
“Many depend on these remittance services,” he said.