Mexico is seeing an uptick in financial activities, and many companies are swarming as immense potential in the crypto remittance market arise. Cryptocurrencies are an attractive medium for international remittance because of their borderless and decentralised nature. The inherent cost advantages of its underlying blockchain technology have attracted many companies as it offers a possible solution in serving communities seeking to remit funds.
In short, remittance can be defined as the transfer of funds to a distant location. A customer in the origin country pays local currency to a money transfer operator. Then the recipient can collect the money in the destination country’s currency, minus any fees by the money transfer operator. Bitcoin remittance is the most preferred, as they are direct payments between individuals on a peer-to-peer network. Money can be sent by specifying the recipient’s Bitcoin address, and Bitcoin addresses are unique and do not overlap with any other Bitcoin address in the world. In addition, most remittance service providers focus on digital remittance to enhance their business and provide customers with more accessible and quicker transferring services.
Mexico is considered the second largest recipient of remittance; in 2022 alone, about half a dozen crypto giants have set up operations in the country. According to a Cointelegraph article, remittances to the nation jumped to a record $5.3 billion in July, a 16,5% increase year-over-year compared to the same period last year. In February 2022, a crypto transfer service tailored to United States-based clients sending remittances to Mexico was unveiled by Coinbase, allowing its recipients in Mexico to withdraw their money in pesos — their currency. Other companies have since joined the swoop.
In May, Tether joined other companies that wanted shares in the Mexico crypto remittance market. The company launched the MXNT stablecoin, pegged to the Mexican peso, to help customers navigate volatility and use cryptocurrencies as a store of value. According to a published communiqué, the Malaysia-based Belfrics digital currency exchange firm plans to open crypto transfer operations in Mexico. It will start by launching blockchain wallet and remittance service solutions.
Bitso is one of the largest crypto exchanges in the Latin American nation and has already made changes to enhance its reach. In November 2021, Bitso established an alliance with U.S.-based Circle Solution to facilitate the U.S. to Mexico crypto remittances payment system. Head of business and operations and enterprise Solutions at Bitso, Eduardo Cruz, said, “high bank transaction costs, slow settlement times and the lack of access to banking facilities are some factors pushing the masses towards crypto remittance.” He further noted that recent alliances have helped Mexican crypto companies bring crypto remittance services closer to nationals worldwide, thereby boosting their adoption.
How Large Is The Global Remittance Market?
According to research, the global digital remittance market size was estimated at USD 17 88 billion in 2021 and is expected to reach USD 19 65 billion in 2022. Numerous benefits of using digital channels, such as high speed, availability of digital channels at any time, transparency, ease of use, security and others, create opportunities for the remittance market. The rise in mobile-based payments channel cross-border transactions and the decrease in remittance transfer time and these costs propel the remittance market growth. The adoption of banking and financial sectors across the globe fuels the remittance market growth. Furthermore, technological advancement in the digital remittance market is expected to provide lucrative opportunities for the remittance market growth. James Bosworth, the author of the Latin America Risk Report, noted, “remittances are a potential ‘killer app’ for cryptocurrency in emerging markets. There is a huge upside in giving citizens ways to transfer money both within countries and across borders without high fees and bureaucratic red tape. While electronic payments are booming across the hemisphere, too many payment systems and traditional banks operate in gated communities where they do not interact easily or cheaply with each other. Cryptocurrencies are one potential solution to that problem.”
What Drives Crypto Remittance In Mexico?
The number one factor that drives remittance in Mexico is that most Mexicans work outside their country and send money home to support their families. The rise in migrants propels remittance to a new level. Growth in the average amount remitted may be coming from further reducing the cost of transferring remittances due to financial innovations and allowing citizens to access their funds without travelling long distances. According to an expert at Bitsoft 360, crypto remittance stood out during the pandemic as the contraction in remittances became much more significant and provided fewer hurdles. As we advance, remittances will continue to trend upward due to the expected increase in migration and, therefore, in the volumes of transactions.
While we watch crypto navigate and increase in average amounts in the growing remittance industry in Mexico, we will try and keep you updated on any developments regarding this story. Do note that this article is for educational purposes and does not in any way serve as a piece of legal advice.