Mexico is the second largest recipient of remittances in the world, according to 2021 statistics from the World Bank. Remittances to the nation soared to a record $5.3 billion in July, up 16.5% year-on-year compared to the same period a year earlier. Steady growth presents myriad opportunities for fintech companies.
Not surprisingly, a large number of cryptocurrency companies are setting up shop in Mexico to claim a piece of the burgeoning remittance market.
In the last year alone, around half a dozen crypto giants, including Coinbase, have set up operations in the country.
In February, Coinbase unveiled a cryptocurrency transfer service tailored to US-based customers who wanted to send cryptocurrency remittances to Mexico. The product allowed recipients in Mexico to withdraw their money in pesos.
Since then, other companies have joined the foray. In August, Malaysia-based digital currency exchange Belfrics announced plans to open cryptocurrency transfer operations in Mexico. According to the published statement, the firm will start by launching blockchain wallet and remittance service solutions.
Another notable company that is vying for a piece 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, the collateralized digital currency will help customers navigate volatility and use cryptocurrencies as a store of value.
In addition to new entrants, local Mexican crypto companies such as Bitso, which is one of the largest crypto exchanges in the Latin American nation, are already making moves to improve their reach in an increasingly competitive market.
In November 2021, the Mexican firm established an alliance with the American Circle Solutions. The collaboration allowed the agency to use Circle’s payment system to facilitate cryptocurrency remittances from the United States to Mexico.
Cointelegraph had the opportunity to speak with Eduardo Cruz, head of business operations and business solutions at Bitso, about the factors driving the trend of crypto tables in Mexico. He cited high banking transaction costs, slow settlement times and lack of access to banking facilities as some of the factors pushing the masses towards crypto remittances.
He also highlighted the recent alliances that have helped Mexican crypto companies bring crypto table services closer to national ones around the world, thus boosting their adoption.
“For example, Bitso clients such as Africhange, which recently integrated Canada-Mexico crypto-enabled remittance services with Bitso, and Everest, which allows remittances to be sent from the United States, Europe and Singapore to Mexico, are offering a cheaper and more quick way to send money to Mexico,” he said.
Factors driving the crypto remittance sector in Mexico
One of the biggest factors driving the Mexican cryptocurrency industry today is the huge Mexican population residing in the diaspora. 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 Hispanic people residing in the US today, and Mexicans comprise 61.6% of this population .
If we stick to the figures for 2021, the money sent to Mexico from the United States represented around 94.9% of all remittances, while Mexicans residing in Canada sent USD 231 million in the second quarter of 2022.
In a nutshell, the growing number of Mexicans immigrating to the United States and Canada is driving remittances to new levels, and the high demand is spilling over into the crypto payments industry.
The fall of the Mexican peso and the appearance of a strong dollar have also contributed to the increase in remittances in the last two years.
This phenomenon has occurred in previous crises, such as the 2008 financial crisis, which plunged the Mexican economy into chaos. At times like this, Mexican institutions and investors tend to seek refuge in the dollar, which tends to have greater purchasing power.
In March 2020, when the coronavirus lockdowns began, the purchasing power of the US dollar skyrocketed by roughly 30% in Mexico. At the same time, the average remittance transfer to Mexico increased from $315 to $343.
Today, the availability of cryptocurrencies with the dollar allows Mexicans living in the diaspora to take advantage of the greater purchasing power of the dollar to make investments and purchases in their country of origin, and hence the higher rates of sending remittances.
increased comfort
Blockchain technology removes third-party mediators from transaction processes, leading to lower transaction costs and less time spent when conducting 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 offers investors exposure to the traditional financial and cryptocurrency markets:
“Cryptocurrency companies 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 to 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 remittance solutions are beginning to bridge this gap by allowing citizens in such areas to access their money without having to travel long distances.
In addition, they are able to serve the unbanked. Currently, more than 50% of Mexicans lack a bank account. This makes crypto remittance solutions convenient for citizens of this demographic, as all that is needed to receive funds is a crypto wallet address.
Another reason more Mexicans are embracing the crypto remittance craze is their mistrust of banks. Mexicans living in the diaspora are sometimes subject to redlining, and this has led more people to use crypto remittance solutions.
Dmitry Ivanov, chief marketing officer at CoinsPaid, a crypto payments company, told Cointelegraph that the broader use of crypto remittance networks in Mexico was meant to drive adoption across the board.
“The clear advantage of digital currencies is what is paving the way for their wide adoption in the country and in 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 so far with their charges, and the general comparative inefficiency has made them distrust traditional financial institutions in general. With a little more push regulation, the country’s remittance inflow may be dominated by cryptocurrencies.”
some obstacles
Blockchain remittance solutions offer a number of important benefits to Mexican users, such as faster transfers and reduced transaction fees.
However, they have to overcome some fundamental challenges to dominate the cross-border payments market. The technical nature of cryptocurrency platforms and limited local currency withdrawal options, for example, present some unique challenges that are likely to hold back adoption.
Mexican citizens also continue to prefer the use of cash to make payments. According to McKinsey’s Global Payments Report 2021, Mexico ranked first among countries that are projected to have high use of cash in the next two years.
The research report forecasts that consumer cash payments will account for about 81.5% of all transactions in Mexico by 2025.
This represents a major hurdle for the adoption of cryptocurrencies in the country, despite the increasing numbers of cryptocurrency remittances.
Going forward, it will be interesting to see how techies and crypto evangelists navigate the challenges facing adoption and harness the momentum provided by the burgeoning remittance industry.
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