Western Union fuel private enterprise in Cuba

Unlike other destinations where remittances are used primarily for household expenses, the main motivation for sending money to the island via Western Union now is to help start or expand small private businesses, according to the Englewood, CO-based company.

Cuba is in the process of eliminating hundreds of thousands of workers from state payrolls and now allows self-employment in 201 categories. There are nearly 500,000 Cuban cuentapropistas, or those who work for themselves, and funds from U.S. relatives have been a lifeline in getting small businesses off the ground.

As part of the effort, Cuba also is turning some businesses, such as state-run barber shops, beauty salons and some restaurants, over to employees to run as cooperatives.

It’s difficult to assess how much money is being sent annually to Cuba because it’s a highly informal market. Visitors often carry cash to their families or hire “mules” who ferry money and goods to Cuba on a regular basis.

“Today, in reality, our main competition is the black market,” said Almeida. But he said Western Union imposes formality and controls on the money-transfer business. “We know how much money is going; we know who is sending,” he said.

But Western Union declined to quantify the amount of Cuban money transfers it handles annually or the increase it has seen since new rules to allow more remittances have gone into effect.

Emilio Morales, president of The Havana Consulting Group, estimates overall remittances sent to the island from the United States in 2013 at $2.8 billion and 2014 remittances at $3.13 billion. In 2015, he is projecting an 8.6 percent increase in remittances to $3.99 billion.

Western Union, which began as a telegraph company in 1851, completed 255 million consumer-to-consumer transactions worldwide last year and transferred $85 billion between consumers.

The Obama administration has progressively liberalized remittances rules. In 2009, all restrictions on family travel and family remittances to Cuba were lifted. Then in 2011, new rules allowed any American to send $500 per quarter to qualified Cubans on the island.

As part of the opening toward Cuba that President Barack Obama announced in December, the amount of non-family remittances that could be sent increased from $500 per quarter to $2,000 quarterly. When the limits were increased, Almeida said, “individuals began to send more” but he declined to say how much more.

Under a special affidavit from the Office of Foreign Assets Control, the company began serving Cuba in 1995 with a network of only 36 locations. In the beginning, it only sent money to Cuba from Florida. The company wasn’t active in Cuba before the 1959 Revolution, Almeida said.

Now Western Union has a network of 420 offices across the island. Using the infrastructure of Fincimex, the financial services subsidiary of Cuban conglomerate Cimex, Western Union now facilitates money transfers to 16 provinces and 168 municipalities at locations ranging from exchange houses and gas stations to government-owned Tiendas Panamericanas.

“We had to make a significant investment in systems to track all the transactions in the way the [U.S.] government wanted,” said Almeida. “It is not easy for someone to enter this market.”

While Florida still accounts for more than two-thirds of the volume of Western Union money transfers to Cuba, remittances are now sent to the island from all 50 states and Puerto Rico.

But, Almeida said, Western Union knows that the Cuban diaspora has spread around the globe and is sending money to the island from Spain, Panama, Mexico and other countries via other channels. It wants to facilitate those money transfers as well, but its current license only allows it to send remittances to Cuba from the United States and Puerto Rico. The company has formally requested the U.S. government to allow it to handle remittances to Cuba from foreign countries, said Almeida.

“I firmly believe remittances can accelerate tremendously the pace of change in Cuba and we could accelerate that much more if we could make transfers not only from the United States but also from the diaspora in other countries,” Almeida said.

When a customer in Hialeah or Miami decides to send money to Cuba and goes to a Western Union location, Almeida said, recipients can have their money in a matter of minutes. Sometimes the customer is still on the phone telling the recipient that money has been sent and the number to claim it when the transfer arrives.

“The majority of the money is picked up on the same day; it is a very instant thing,” said Almeida. “The money goes straight to the household there; it is not touched by the government.”

Western Union uses the Cuban Convertible Peso (CUC) rate of 1-1 for the remittances it handles.

What enables the system to work efficiently is that Western Union can piggyback on the infrastructure of Fincimex, the largest financial services company in Cuba. “The signing of Fincimex was critical. We can link their infrastructure to our infrastructure. We could never do this without Fincimex,” Almeida said.

The sender pays a fee that varies depending on the amount of money sent. Western Union takes its profit from the fee and also pays commissions to its local agent and to Fincimex. “We never charge the receiver,” Almeida said.