In a connected world, it’s more commonplace than ever to work abroad. In recent years, money transfer apps have been at the leading edge of tech in the remittance industry. However, newer and more efficient technologies have recently emerged. We explore the use of digital currencies for cross-border money transfers in one of the busiest remittance corridors of the world.
The global volume of remittances is sizable. Worldwide remittances exceed $720 billion annually. At $36 billion per year, Mexico is the third largest remittance recipient in the world. A majority of remittances to Mexico originate in the US. The US-Mexico remittance corridor is one of the five largest in the world. Remittance senders invariably incur some costs for sending money across borders. The World Bank’s Remittance Prices Worldwide Database reports the average global cost of remittances to be as high as 7%. High remittance costs have created vast spaces for alternative low cost remittance channels to enter, sustain, and expand.
Shift to digital
Digital remittances are growing much faster than any other remittance channel. The World Bank’s databases show that a majority of international migrant workers are below the age of 44. These workers send money back to their home countries as remittances. Being tech-savvy and IT-aware, most migrants send remittances online.
Remittance transfers were once dominated by traditional banks. The banks’ high fees generated the motivation for digital entrepreneurs to create new channels, and for millions of users to switch. In 2020 the value of digital remittances exceeded $95.9 billion. This represented a year-on-year increase of 21%. There are now more than 8.5 million senders and recipients of digital remittances. 57% of these users are between the ages of 25 and 44. Today more people send money online than offline.
Remittances are vital for Mexico. According to the World Bank remittances constituted 2.9% of Mexico’s GDP in 2018. Banco de México, the nation’s central bank, estimates the US-Mexico remittance volume to be $35 billion annually. The Spanish financial services company BBVA reports that 98% of remittances to Mexico in 2016 were sent digitally. Payment apps have made remittance transfers faster, cheaper and easier. The appreciation of the USD against the Mexican peso over the past 2 years encouraged Mexicans to remit larger amounts.
Crypto is gaining ground in the remittances space. A leading portal on digital assets reported that in 2019 the digital exchange ‘Bitso’ captured 2% of the market share of US-Mexico remittances. This is a notable achievement by any standards. The use of crypto technologies in remittances is a fairly recent occurrence. Bitso positions itself as a secure digital platform that allows users to buy, sell, and store 10 different kinds of digital currencies including Bitcoin. Bitso links directly to Mexico’s inter-bank payment system. This allows it to facilitate real-time settlements of cross-border transactions. Bitso users can readily liquidate Bitcoins and other cryptocurrencies into Mexican pesos. In the wake of its recent accomplishments, Bitao now hopes to acquire 20% of the US-Mexico remittance corridor in 2020. Given its rising popularity this may very well prove to be a realistic target.
Fintech firms are clawing market shares from big banks in all geographies. Customers are channel agnostic. They naturally gravitate toward service providers who offer more value for money. Platforms such as ‘Bitso’ offer remittance senders a faster, easier, and considerably cheaper option.
Mexico’s banks endorsed a digital channel which employs cryptocurrencies in cross-border transactions. As a result millions of Mexicans will receive more money for every dollar sent from abroad. The challenge of reducing remittance costs worldwide is not one of technology. Digital, app-based, and mobile banking are already available in most countries. The real challenge is of the acceptance of technology by the regulatory powers. With a wider adoption of crypto in remittances the world’s poor stand to receive an additional $48 billion every year. Hopefully the success of Bisto in Mexico will serve as a role model for other important remittance recipient countries.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.