Why crypto transfer companies are flocking to Mexico

Mexico is the second largest recipient of remittances in the world, according to World Bank statistics from 2021. Remittances to the nation rose to a record $5.3 billion in July, up 16.5% year-on-year compared to the same period last year . The steady growth offers countless opportunities for fintech companies.

Unsurprisingly, loads of crypto companies are setting up shop in Mexico to claim a share of the growing money transfer market.

In 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 for US-based customers looking to send crypto transfers to Mexico. The product allowed recipients in Mexico to withdraw their money in pesos.

Other companies have since joined the venture. In August, Malaysia-based Belfrics digital currency exchange announced plans to open crypto transfer operations in Mexico. According to the published communication, the firm will start by launching blockchain wallet and remittance services.

Another notable company vying for a share of the Mexican crypto transfer market is Tether. In May, crypto company MXNT launched its stablecoin, which is pegged to the Mexican peso. According to the company, the secured digital currency will help customers navigate volatility and use cryptocurrencies as a store of value.

Besides the 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 increase 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 crypto transfers from the US to Mexico.

Cointelegraph had the opportunity to speak with Eduardo Cruz, Head of Business Operations and Enterprise Solutions at Bitso, about the factors driving the development of crypto transfers in Mexico. He cited high bank transaction costs, slow settlement times and lack of access to banking facilities as some of the factors pushing the masses towards crypto transfers.

He also highlighted recent alliances that have helped Mexican crypto companies bring crypto transfer services closer to citizens around the world, thereby increasing their use.

“For example, Bitso’s customers like Africhange, which recently integrated Canada-Mexico crypto-powered transfer services into Bitso, and Everest, which enables transfers from the US, Europe and Singapore to Mexico, offer a cheaper and faster way to send money to Mexico,” he said.

Factors Driving the Mexican Crypto Transfer Sector

One of the biggest factors driving the Mexican crypto remittance sector today is the huge Mexican population living in the diaspora. Currently, the United States 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 living in the United States today, with Mexicans making up 61.6% of this population.

As of 2021 figures, money sent to Mexico from the United States accounted for approximately 94.9% of all remittances, while Mexicans residing in Canada sent $231 million in the second quarter of 2022.

In a nutshell, the growing number of Mexicans migrating to the US and Canada is pushing remittances to new levels, and the high demand is spilling over into the crypto payment industry.

The decline of the Mexican peso and the rise of a strong dollar have also contributed to the increase in remittances over the past couple of years.

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This phenomenon has occurred in previous crises, such as the financial crisis of 2008, which threw the Mexican economy into turmoil. In times like this, Mexican institutions and investors usually tend to seek refuge in the dollar, which usually has a higher purchasing power.

In March 2020, when the coronavirus lockdown began, the purchasing power of the US dollar increased by about 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 take advantage of the increased purchasing power of the USD to make investments and purchases in their home country, hence the higher remittance rates.

Greater convenience

Blockchain technology eliminates third-party intermediaries from transaction processes, leading to lower transaction costs and less time spent when making remittance transactions.

Cointelegraph spoke 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 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 or no fees instantly.”

In Mexico, many financial institutions are also located far from rural areas, and this makes it difficult for the local population to access financial services. Crypto transfer solutions are beginning to close this gap by enabling residents in such areas to access their money without having to travel long distances.

Also, they are able to serve the unbanked. As things stand, over 50% of Mexicans lack a bank account. This makes crypto transfer solutions convenient for residents of this demographic, as all that is 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 transfer solutions.

Dmitry Ivanov, head of marketing at CoinsPaid – a crypto payment company – told Cointelegraph that the wider use of crypto transfer networks in Mexico was bound to increase adoption overall.

“The clear advantage of digital currencies is what paves the way for their broad-based adoption in the country and the Latin American world as a whole,” he said, adding:

“The benefits of digital currencies have made Mexicans see how exploitative banks have been so far with their fees, and the overall comparative inefficiency has made them distrust traditional financial institutions in general. With a little more regulatory pressure, the country’s remittances could be dominated by cryptocurrencies .”

A few obstacles

Blockchain remittance solutions provide a number of important benefits to Mexican users, such as fast transfers and lower transaction fees.

However, they must overcome some fundamental challenges to dominate the cross-border payment market. The technical nature of crypto platforms, and limited local currency withdrawal options, for example, present some unique challenges that are likely to slow adoption.

Mexican citizens also still prefer to use cash to make payments. According to the McKinsey Global Payments Report for 2021, Mexico was ranked at the top among countries expected to have high cash usage in the next couple of years.

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The research report estimates that cash payments by consumers will account for approximately 81.5% of all transactions in Mexico by 2025.

This poses a major obstacle to crypto adoption in the country, despite rising crypto transfer numbers.

Going forward, it will be interesting to see how the tech savvy and crypto evangelists navigate the challenges facing adoption and capitalize on the momentum of the growing money transfer industry.