Mexico is the second largest recipient of remittances in the world, according to 2021 World Bank statistics. Remittances to the country hit a record $5.3 billion in July, a 16.5% year-on-year increase from the same period last year. Steady growth presents myriad opportunities for fintech companies.
Unsurprisingly, many crypto companies are moving into Mexico to claim a share of the booming remittance market.
In the past year alone, around half a dozen crypto giants, including Coinbase, have set up operations in the country.
In February, Coinbase unveiled a crypto transfer service tailored to US-based customers looking to send crypto funds to Mexico. The product allowed recipients in Mexico to withdraw their money in pesos.
Other companies have since joined the foray. In August, Malaysia-based digital currency exchange Belfrics announced plans to open crypto transfer operations in Mexico. According to the released statement, the company will start by launching blockchain wallet and remittance service solutions.
Another notable company jostling for a share of the Mexican crypto remittance market is Tether. In May, the crypto firm launched the MXNT stablecoin, which is pegged to the Mexican peso. According to the company, backed digital currency will help customers navigate volatility and use cryptocurrencies as a store of value.
Along with the new entrants, local Mexican crypto companies such as Bitso, which is one of the largest crypto exchanges in the Latin American nation, are already taking steps to increase their reach in an increasingly competitive market.
In November 2021, the Mexican firm entered into an alliance with the American company Circle Solutions. The collaboration allowed the agency to use Circle’s payment system to facilitate crypto remittances from the United States to Mexico.
Cointelegraph had the opportunity to speak with Eduardo Cruz, Head of Business Operations and Enterprise Solutions at Bitso, about the factors driving the trend of crypto remittances in Mexico. He cited high banking transaction costs, slow settlement times, and lack of access to banking services as some of the factors pushing the masses towards crypto remittances.
He also highlighted recent alliances that have helped Mexican crypto companies bring crypto money transfer services closer to nationals around the world, boosting their adoption.
“For example, Bitso customers such as Africhange, which recently integrated Canada-Mexico crypto money transfer services with Bitso, and Everest, which enables money transfers from the US, Europe and Singapore to Mexico, offer a cheaper and faster way to send money to Mexico,” he said.
Drivers of Mexico’s Crypto Remittance Industry
The huge Mexican population residing in the diaspora is one of the main drivers of the Mexican crypto remittance industry. Currently, the United States and Canada have the largest number of Mexican immigrants.
According to data released by the US Census Bureau in 2020, there are approximately 62.1 million Hispanics residing in the United States today, with Mexicans comprising 61.6% of this population.
According to 2021 figures, money sent to Mexico from the United States accounted for approximately 94.9% of all remittances, while Mexicans residing in Canada sent $231 million in the second quarter of 2022.
In a nutshell, the growing number of Mexicans migrating to the United States and Canada is pushing remittances to new levels, and the strong demand is spilling over to the crypto payments industry.
The decline of the Mexican peso and the emergence of a strong dollar have also contributed to the surge in remittances over the past two years.
Recent: Smart contract-based insurance shows promise, but can it scale?
This phenomenon has occurred in previous crises, such as the 2008 financial crisis, which plunged the Mexican economy into turmoil. At times like this, Mexican institutions and investors generally tend to take refuge in the greenback, which generally has higher purchasing power.
In March 2020, when the coronavirus-related lockdowns began, the purchasing power of the US dollar jumped about 30% in Mexico. At the same time, the average transfer of funds to Mexico rose from $315 to $343.
Today, the availability of dollar-pegged cryptocurrencies allows Mexicans living in the diaspora to take advantage of the increased purchasing power of the USD to make investments and purchases in their home country, where higher remittance rates.
Blockchain technology eliminates third-party mediators from transaction processes, reducing transaction costs and reducing the time spent on remittance transactions.
Cointelegraph sat down with Structure.fi Chairman and Co-Founder Bryan Hernandez to discuss the impact of these factors on the Mexican remittance market. His company operates a mobile trading platform that offers investors exposure to traditional and crypto financial markets:
“Crypto companies see a huge opportunity here to streamline (conventional money transfer) processes using blockchain technology. Thanks to cryptography, cross-border payments can be made directly with little or no fees instantly.
In Mexico, many financial institutions are also located far from rural areas, making it difficult for locals to access financial services. Crypto money transfer solutions are beginning to bridge this gap by allowing citizens in these areas to access their money without having to travel long distances.
Moreover, they are able to serve the unbanked. As it stands, more than 50% of Mexicans don’t have a bank account. This makes crypto money transfer solutions convenient for citizens of this demographic, as all that is needed to receive funds is a crypto wallet address.
Another reason why more and more Mexicans are embracing the crypto funds transfer fad is their distrust of banks. Mexicans living in the diaspora are sometimes subject to redlining practices, which has led to more people using crypto money transfer solutions.
Dmitry Ivanov, chief marketing officer at CoinsPaid – a crypto payments company – told Cointelegraph that the wider use of crypto remittance networks in Mexico can only boost overall adoption.
“The clear advantage of digital currencies is what paves the way for their widespread adoption in the country and in the Latin American world as a whole,” he said, adding:
“The benefits gained from digital currencies have made Mexicans see how banks have been exploiting their fees until now, and the general comparative inefficiency has made them wary of traditional financial institutions in general. With a little more regulatory pressure, the country’s remittances could be dominated by cryptocurrencies.
Blockchain remittance solutions offer a host of significant benefits to Mexican users, such as fast transfers and lower transaction fees.
However, they must overcome some fundamental challenges to dominate the cross-border payments market. The technical nature of crypto platforms and limited local currency withdrawal options, for example, present unique challenges that can slow adoption.
Mexican citizens also still prefer to use cash to make payments. According to the McKinsey Global Payments 2021 report, Mexico was ranked first among countries expected to have high cash usage over the next two years.
Recent: For HODL or having kids? Bitcoin IVF babies paid with BTC profits
The research report predicts that consumer cash payments will represent approximately 81.5% of all transactions in Mexico by 2025.
This presents a major barrier to crypto adoption in the country, despite rising crypto remittance figures.
Going forward, it will be interesting to see how tech and crypto-savvy evangelists rise to the challenges of adoption and capitalize on the momentum provided by the growing remittance industry.