Mexico is the second-largest recipient of remittances in the world, according to 2021 World Bank statistics. Remittances to the nation jumped to a record $5.3 billion in July, which is a 16.5% year-over-year increase compared to the same period last year. The steady growth presents myriad opportunities for fintech companies.
Not surprisingly, droves of crypto companies are setting up shop in Mexico to claim a share of the burgeoning remittance market.
Over the past year alone, about half a dozen crypto giants, including Coinbase, have set up operations in the country.
In February, Coinbase unveiled a crypto transfer service tailored to United States-based clients looking to send crypto remittances to Mexico. The product enabled recipients in Mexico to withdraw their money in pesos.
Other companies have since joined the foray. In August, the Malaysia-based Belfriks digital currency exchange announced plans to open crypto transfer operations in Mexico. According to the published communique, the firm will start by launching blockchain wallet and remittance service solutions.
Another notable company that is jostling for a share of the Mexican crypto remittance market is Tether. In May, the crypto company launched the MXNT stablecoin, which is pegged to the Mexican peso. According to the enterprise, the collateralized digital currency will help customers to navigate volatility and use cryptocurrencies as a store of value.
Besides new entrants, local Mexican crypto companies such as Bitso, which one of the largest crypto exchanges in the Latin American nation, are already making moves to enhance their reach in an increasingly competitive market.
In November 2021, the Mexican firm established an alliance with US-based Circle Solutions. The collaboration allowed the agency to use Circle’s payment system to facilitate US-to-Mexico crypto remittances.
Cointelegraph had the opportunity to speak with Eduardo Cruz, head of business operations and enterprise solutions at Bitso, about the factors driving the crypto remittance trend in Mexico. He cited high bank transaction costs, slow settlement times and the lack of access to banking facilities as some of the factors pushing the masses toward crypto remittances.
He also highlighted recent alliances that have helped Mexican crypto companies bring crypto remittance services closer to nationals around the world, thereby boosting their adoption.
“For example, Bitso’s clients such as Africhange, which recently integrated Canada–Mexico crypto-powered remittance services to Bitso, and Everest, which enables remittances from the United States, Europe and Singapore into Mexico, are offering a cheaper and faster way to send money to Mexico,” he said.
Factors driving the Mexican crypto remittance sector
One of the biggest factors driving the Mexican crypto remittance sector today is the huge Mexican population residing in the diaspora. Presently, the US and Canada have the highest number of Mexican immigrants.
According to data released by the US Census Bureau in 2020, there are approximately 62.1 million Hispanic people residing in the US today, with Mexicans comprising 61.6% of this population.
Going by 2021 numbers, money sent to Mexico from the US accounted for about 94.9% of all remittances, while Mexicans residing in Canada sent $231 million in the second quarter of 2022.
In a nutshell, the rising number of Mexicans migrating to the US and Canada is pushing remittances to new levels, and the high 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 spike in remittances over the past couple of years.
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This phenomenon has occurred in previous crises, such as the 2008 financial crisis, which plunged the Mexican economy into turmoil. In times like this, Mexican institutions and investors usually tend to seek refuge in the greenback, which typically has a higher buying power.
In March 2020, when the coronavirus lockdowns began, the US dollar’s purchasing power jumped by approximately 30% in Mexico. At the same time, the average remittance transfer to Mexico increased from $315 to $343.
Today, the availability of dollar-pegged cryptocurrencies allows Mexicans living in the diaspora to leverage the heightened buying power of the USD to make investments and purchases in their home country, hence the higher remittance rates.
Blockchain technology eliminates third-party mediators from transaction processes, which leads to lower transaction costs and less time used when undertaking remittance transactions.
Cointelegraph caught up with Structure.fi president 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 gives investors exposure to traditional and crypto financial markets:
“Crypto businesses see a huge opportunity here to streamline (conventional money transfer) processes using blockchain technology. Using crypto, cross-border payments can be made directly with little or no fees instantaneously.”
In Mexico, many financial institutions are also located far away from rural areas, and this makes it hard for the locals to access financial services. Crypto remittance solutions are beginning to close this gap by enabling citizens in such areas to access their money without having to travel long distances.
Moreover, they are able to serve the unbanked. As things stand, over 50% of Mexicans lack a bank account. This makes crypto remittance solutions convenient for citizens in this demographic, as all that’s needed to receive funds is a crypto wallet address.
Another reason why more Mexicans are embracing the crypto remittance fad is their distrust of banks. Mexicans living in the diaspora are sometimes subjected to redlining practices, and this has led to more people using crypto remittance solutions.
Dmitry Ivanov, chief marketing officer at CoinsPaid — a crypto payments firm — told Cointelegraph that the wider use of crypto remittance networks in Mexico was bound to boost adoption overall.
“The clear advantage of digital currencies is what is paving the way for their broad-based adoption in the country and the Latin American world as a whole,” he said, adding:
“The benefits derived from digital currencies have made Mexicans see how exploitative banks have been thus far with their charges, and the general comparative inefficiency has made them distrust traditional financial institutions in general. With a little more regulatory push, the country’s remittance inflow may be dominated by cryptocurrencies.”
A few hurdles
Blockchain remittance solutions provide a raft of important benefits to Mexican users, such as fast transfers and lower transaction fees.
However, they have to 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 some unique challenges that are likely to slow down adoption.
Mexican citizens also still prefer using cash to make payments. According to the 2021 McKinsey Global Payments Report, Mexico was ranked top among countries projected to have high cash usage over the next couple of years.
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The research report forecasts that consumer cash payments will account for about 81.5% of all transactions in Mexico by 2025.
This presents a major hurdle for crypto adoption in the country, despite rising crypto remittance figures.
Going forward, it will be interesting to see how the tech-savvy and crypto evangelists navigate the challenges facing adoption and take advantage of the momentum provided by the growing remittances industry.