Scotia weighs in on legacy FX spreads, testing digital wallet

Scotia Group Jamaica Limited, SGJ, operator of Jamaica’s second largest bank, said on Monday that the handling of US cash was costly, resulting in the partial pass-through of the expense to customers in the form of foreign exchange spreads.

“The managing of US dollar cash is particularly expensive,” said Scotia Group President and CEO Audrey Tugwell Henry, in response to questions from the Financial Gleaner during the banking group’s quarterly earnings briefing.

“If we do not hold US dollar cash in the country, then we have to remit the excess,” Tugwell Henry said.

The Bank of Jamaica, which regulates the banking sector, said last month that while there were eight to 10 international banks that provide correspondent banking services to Jamaican institutions, only Bank of America facilitated the physical movement of cash in and out of the country. The result is an uncompetitive pricing regime.

The central bank expects Jamaica’s removal from the Financial Action Task Force grey list to result in more foreign banks being willing to enter the space, and that competition would likely open up in the remitting of cash. Jamaica was initially placed on the FATF’s list of jurisdictions with weak anti-money laundering and counter-terrorism financing frameworks in 2020, but its correspondent banking troubles started years earlier.

Currently, local banks are charged 10 to 20 US cents on each dollar they send to Bank of America, which translate to around $16 to $32 in Jamaican currency at current exchange rates.

“It is not cheap,” said Tugwell Henry.

“There is an operating expense built into how we manage the spreads — the cost of buying and selling US. That’s manifested in the spreads,” she said.

The core costs include security and a price built in by the correspondent bank for the receipt of that cash, she said.

“It means physically taking the cash out of Jamaica and remitting it to our corresponding bank in the USA,” she said.

Scotia Group made a net profit of $5.4 billion for the third quarter ending July, reflecting a seven per cent improvement, compared to the same quarter in 2023. Its five business segments grew in the quarter when compared with year-earlier levels, despite a choppy economy.

Amid the announcement of the bank’s financial results, and its prospects, Scotia Group also revealed plans to offer Apple Pay and Samsung Pay by next year to widen digital wallet acceptance. The bank plans to integrate Apple Pay and Samsung Pay wallets with local bank cards next year.

Bank staff are testing the service internally with Scotia credit cards, and eventually will widen it to debit cards.

“It is something we are piloting internally with staff members. But until the formal agreement is reached with Apple to launch in the country, we are not able to make it available to the public,” said SGJ Head of Retail Banking and Small Business, Caribbean North and Central, Perrin Gayle, during the online briefing on Monday.

“The same will happen with Samsung Pay, which will come at a later date as well.”

Large wallet provider PayPal is still largely absent from Jamaica for linking with local bank accounts.

Scotia Group said it was up PayPal to reach out to local banks.

“PayPal may have determined that they may not like to enter into this type of arrangement where payment comes directly into the region, versus remaining with US banking partners or other partners,” said Gayle.

Scotiabank in Canada, home base of the Scotiabank international network, facilitates Apple Pay, Google Pay, and Samsung Pay for contactless and tap payments in-store and online.

Gayle said Google Pay was not yet planned for local acceptance.

“There is nothing wrong with Jamaica from a macro level, but it means we have to start the process to bring in new international payment systems to the market, and we are just still not there yet,” Tugwell Henry added.

“We are looking at international payment systems outside of just traditional wire transfers, and, in time, those will come to the market,” she said.

PayPal facilitated half of the online shopping purchases, according to online scanning app Capital One Research, in 2023. Apple Pay held a 14 per cent share, while Stripe held 8.0 per cent. The positions flipped for in-store payments, with Apple Pay surpassing PayPal and other fintech providers, the research indicated.

steven.jackson@gleanerjm.com