By NEIL HARTNELL
Tribune Business Editor
Fidelity Bank & Trust International says the closure of its near 20-year Western Union franchise is designed to “de-risk” its business, and will not have a material bottom line impact.
Anwer Sunderji, Fidelity’s chairman and chief executive, told Tribune Business that the bank decided to exit the money transmission services market because it was generating too little reward for the risk involved.
With money transmission deemed ‘high risk’ for anti-money laundering purposes, Mr Sunderji said it potentially jeopardised Fidelity’s correspondent relationships with foreign banks.
He explained that compliance costs were ever-increasing for a low margin, high volume business where the regulatory risk simply did not justify the expense.
With Fidelity effectively retrenching back to its banking roots, Mr Sunderji said no Bahamian jobs would be lost as a result of the Western Union exit. Impacted staff will instead be redeployed within its existing network.
“We’re trying to de-risk our business. Money transfer is increasingly under the gun from correspondent banks,” Mr Sunderji told Tribune Business.
“It’s part [the Western Union] closure of a routine evaluation of our business. It’s also based on the fact that the money transmission business is very difficult to bank, because correspondent banks and other banks are risk adverse.
“This is deemed to be a risky business. The compliance costs were also getting excessive, and compliance has a life of its own.”
The Western Union closure, which took effect on Friday, shutters the five locations in New Providence, plus those in Freeport, Abaco and Eleuthera.
“We have no plans to make anyone redundant,” Mr Sunderji told Tribune Business. “Those people who are cashiers and tellers, they’ll be redeployed in our network.
“When we originally took on the franchise, it was being run through the bank. Bank tellers were becoming increasingly involved in handling money transmission, so we had to have separate, standalone locations at each bank.”
The money transmission business has become increasingly competitive in the Bahamas in recent years, due to the expansion of rivals such as Cash N’ Go and Omni Money Transfers and Payments.
These businesses, and Western Union previously, are also competing with the web shops, which are effectively providing money transmission services, too.
Money placed on a player’s web shop account on New Providence can be picked up at one of the operator’s Family Island locations and vice versa. Many observers believe money transmission is a major factor behind the FML Group of Companies and other web shop chains expanding to locations such as Haiti.
Mr Sunderji denied that increased competition was behind Fidelity’s Western Union closure, which also took place simultaneously at its Cayman Islands and Turks & Caicos locations on Friday.
“That’s not a factor,” the Fidelity chief added of the competition. “It’s a low margin, high volume business that’s expensive to manage. We’ve gone back to what we know best, and are de-risking our business.”
As for the web shops, Mr Sunderji said: “We haven’t seen the impact of that on our business. Good luck to them. If they are able to get that business, good for them.”
As for the Western Union exit’s impact on Fidelity’s financials, he reiterated: “It wasn’t a material impact on our bottom line.”
Money transmission services are frequently used by migrant workers, particularly those from countries such as Haiti and Jamaica, to send money to family and friends back home.
The sector’s customers often do not have Bahamas-based bank accounts of their own, and also use money transmission to receive funds. Bahamians, too, make use of such services, given that the fees charged are often lower than in the banking system.
Money transmission, though, has come under scrutiny from international regulatory bodies and standard setters, as it is perceived as more vulnerable to abuse by money launderers and terror financiers than the traditional banking system.
As a result, the sector has upgraded its Know Your Customer (KYC) and due diligence procedures, requiring users to supply passport and other forms of identification, together with the names and addresses of those they are sending monies to.
“We are pleased to have provided Western Union’s services to customers throughout the Caribbean for many years,” said Mr Sunderji in a statement.
“Through Western Union, we have established relationships and allowed families and friends to stay connected from almost anywhere in the world. However, economic times and risks have changed, resulting in this decision to close”.