If Mexico had always been a huge market for remittances, the coronavirus pandemic has made it even larger. Crypto companies do not want to miss the opportunity.
In 2021, Mexico was the third-largest recipient of remittances worldwide after China and India. According to the Mexican central bank, the amount of money sent to the country from nationals living abroad reached $51.6 billion in 2021, a 27% increase from 2020.
Almost all, 95%, came from the United States. Analysts suggest last year’s increase was mostly due to the additional income Mexican first-line workers in states like California, Texas and New York were getting. Plus, they were also recipients of U.S. government-backed stimulus checks. In early January, Mexican President Andrés Manuel López Obrador said Mexican immigrants’ remittances have been key to the country’s post-pandemic economic recovery.
About 99% of these remittances were sent through electronic wire transfers. Money orders and cash deposits comprised the remaining 1%, although these might begin to be substituted by crypto-based remittance services. Bitso, Mexico’s largest crypto exchange, says it saw a fourfold increase in cross-border remittances between Q1 2021 and Q1 2022.
For a while now, sending remittances through crypto has been mostly done on these types of exchange platforms. Frida Vargas, head of business sevelopment at Bitso, told CoinDesk the company processed about $1.2 billion in remittances between the U.S. to Mexico in 2020. “Our main users are remittance companies, who use crypto technology to improve and make the remittance sending and collecting process easier,” she said.
However, there’s a new wave of remittance-specific crypto products offered by several companies, including Bitso, and they’re mostly using stablecoins.
“Markets like Latin America will leapfrog into using stablecoins, which are perfect for remittances,” Mohamed Elkastassi, chief strategy officer at Tribal Credit, told CoinDesk. Pegged to a fiat currency, these coins eliminate the risks of price volatility while allowing the benefits of crypto’s other main features: speed and lower fees.
Tribal provides financing and payments services for small and midsized enterprises in emerging markets. Last December, it launched a cross-border B2B payment option facilitated by Bitso that enables the conversion of Mexican pesos to Stellar USDC, which is pegged to the U.S. dollar, for faster and cheaper transactions between Mexico and the U.S.
According to a researcher from the Universidad Iberoamericana de Puebla, Mexican immigrants in the U.S. are wary of using cryptocurrencies to send money back to their homeland because “they change their worth every day.” That’s where stablecoins become handy because they help recipients hedge against any devaluation of their local currency.
For Elkasstawi, massive crypto adoption for remittances is just a matter of time. “In the future, immigrant workers will be paid in stablecoins and merchants will be accepting them as a form of payments.”
In November Bitso also partnered with Circle, a peer-to-peer payments company, to launch a new international wire transfer product called Bitso Shift. It’s designed for small businesses and freelancers, allowing them to change their dollars into stablecoins, send them to Mexico and be collected in Mexican pesos. The service charges $12 for every $1,000 sent, and no fee for collecting.
Tribal’s Elkasstawi said the reason why stablecoins have not been massively adopted for remittances is that users still depend on actual cash to spend the money they receive. This is especially true in Mexico, where 86% of all transactions are still in cash. But that already might be changing.
In mid-February, Coinbase (COIN) announced a new cash-out service across 37,000 establishments in the country. These include the 20,000 branches of Oxxo, the country’s largest convenience store chain, as well as other supermarkets and department stores.
It began as a free service, but it now charges a fee for every transaction that’s “25% to 50% lower than traditional cross-border payment solutions,” according to the exchange. Coinbase also allows users in Mexico to convert and invest their balance into over 100 cryptocurrencies, including Circle’s USDC stablecoin if they choose not to cash out.
Coinbase’s cash-out product seems to compete directly with Western Union in terms of accessibility. The company has created an app that allows collecting or sending money transfers from Oxxo stores. Western Union fees range between $8 to $37.
Users seem eager to ditch traditional remittance services and adopt crypto to get their money from abroad. “With long lines and plenty of ID requirements, it seemed like a crime to get U.S. dollars from Western Union,” Moises Martinez, a 25-year-old criminologist living in Mexico, told CoinDesk. “I know the paperwork is part of the security protocols, but I just wanted to get my money in my account.”
As an alternative, Martinez turned to crypto. His father, then living in the U.S., paid for his son’s entire college tuition in bitcoin, using Coinbase to send him the currency. Martinez cashed out using Taurus, a Mexico-based crypto exchange that launched a Visa debit card in 2020.
Even though Martinez’s father is back in Mexico, his son still uses alternatives to the traditional financial system like other crypto services or neobanks. Martinez still has relatives in the U.S. that rely on companies like Western Union (which was founded in 1851). “I get them: they’re used to that service and it is reliable,” he says. This might still delay massive crypto adoption for remittances between the U.S. and Mexico.
But for now, as Elkasstawi says, at least users are seeing that crypto gives them more options to manage their money.