New Report Reveals Significant Upsurge In The Use Of Cryptocurrency In Remittances Across The Globe

The survey revealed 20 countries receiving most remittances from the U.S. in 2017. The top ten countries represented on this list are in order, Mexico, China, India, Philippines, Vietnam, Guatemala, Nigeria, El Salvador, Dominican Republic and Honduras. Unsurprisingly, the breakdown of these remittances shows family taking the highest percentage at 76.8 percent.

Related:

El Salvador’s New Bitcoin Plan Could Cost Money Providers Like Western Union And Others $400 Million A Year, Says President Bukele

Crypto’s Growing Influence And Possibility For Disruption

Clovr’s breakdown of money transfer methods shows that roughly half of all surveyed people indicated that they use PayPal and money transfer services like Western Union, compared to 15.8 percent who use cryptocurrency, 25.7 percent who use traditional bank wire transfers or credit union, 12.2 percent who use prepaid cards, 11.8 percent who use check or money order via mail, 11.5 percent who use check or money order online, 8.9 percent who use cash via mail, 6.1 percent who use traditional wire transfer via post office, and 1.9 percent who use other methods.

To illustrate the potential of cryptocurrency to create substantial disruption in the space due to its low cost and speed, the study revealed that in order to send $500 abroad, banks charge $52.05 on the average, compared to $30.75 for money transfer operators, $34.05 for the post office and $16 for mobile operators.

Customer satisfaction was pegged at 93.3 percent for online services, 84.1 percent at money transfer services and 73.3 percent with traditional wire transfer, via bank or credit union.

In line with other existing data on cryptocurrency use, the study shows a significant gender knowledge gap on the subject of cryptocurrencies among non-users as men continue to dominate crypto adoption. The study concludes that the money transfer industry is “ripe for disruption” through the introduction of cryptocurrency-based solutions, which could potentially offer a cheaper and faster way to transfer funds.

An Excerpt From The Report Reads:

People sending money home after they’ve migrated from other countries to the United States is a practice that will likely continue far into the future… As individuals look to make sure that as much of every dollar they send can make it back – as close to a one-to-one match as possible – digital payment options, like those presented by cryptocurrencies, can pique the interest of customers.

Updated: 1-8-2021

Mexicans In U.S. Sent Record Remittances Despite Covid-19 Pandemic

Unexpected surge in amounts forwarded home shows resilience in U.S. construction and agriculture.

Mexicans working in the U.S. sent record amounts of money to relatives back home last year, illustrating the resilience of the U.S. economy despite the shutdowns imposed to fight the pandemic.

The surge in remittances, which surprised analysts and migrants alike, provided a lifeline for many poorer Mexicans in the midst of the country’s biggest economic slump in decades.

Remittances rose 11% to $36.9 billion in the first 11 months of the year, more than the record $36.4 billion sent in all of 2019, according to figures released this week by Mexico’s central bank. The average remittance was 4.3% higher at $340, the bank said.

In Guatemala, El Salvador and Honduras—the Central American countries that make up the Northern Triangle—remittances slumped in April but later rebounded, and were up 3.4% from January through October.

After the pandemic caused U.S. unemployment to surge to double-digit levels earlier in 2020, the World Bank and others projected that remittances to Mexico and elsewhere in Latin America would fall close to 20% from 2019, threatening a critical source of income for families that rely on the transfers to make ends meet.

“Even I’m surprised, with so many of my countrymen out of work, above all those that work in restaurants,” said Hermelindo Saldaña, a resident of Santa Ana, Calif., who sends money to his mother in Mexico’s Yucatán state. “But people look for ways to make some money to send.”

Banco Bilbao Vizcaya Argentaria estimates that there are some 39 million people of Mexican origin in the U.S. including immigrants, U.S.-born residents with Mexican parents, and third- or later-generation U.S. citizens of Mexican descent.

Many activities in which migrants are employed didn’t shut down completely in the U.S., such as construction, gardening and agriculture, and a significant number of migrants were eligible for unemployment benefits under the U.S. government’s stimulus plan, said Alfredo Coutiño, the director for Latin America at Moody’s Analytics. And because of the crises in their home countries, migrants faced the need to send more money to their relatives, he added.

The 58-year-old Mr. Saldaña, a painter from the southern Mexican state of Guerrero, said work in construction held up “because people are at home, looking to see what needs to be done.” And migrants who had work were spending less because they couldn’t go out to restaurants or amusement parks, and could send some of those savings home, he added.

MoneyGram International Inc., the Dallas-based money transfer company, said that in a December survey of around 1,500 of its customers, 69% said they sent more money in 2020 than the previous year despite hardships caused by the pandemic.

Most cited increased needs of family and friends in their home countries, particularly to pay for food, housing and healthcare. And six out of 10 customers said they had made greater use of digital tools to send money than before.

Mexican President Andrés Manuel López Obrador, whose government responded to the crisis with only a limited stimulus to keep government debt from swelling, has called the rise in remittances “a kind of social miracle” that helped sustain consumption of basics during the economic downturn. Mexico’s economy is expected to have shrunk 9% last year, its biggest fall since the Great Depression.

A rapid recovery in U.S. employment has also played a role.

Petra Fuentes, a 77-year-old grandmother of 21 in the central Mexican state of Hidalgo, said she stopped receiving remittances between March and May, when her daughter lost her job at a frozen-foods plant in Kentucky.

Transfers resumed after her daughter found work at a plant that makes optical lenses as employment activity picked up in May.

“I pay for my electricity, water and groceries with what my daughter sends me,” Ms. Fuentes said. “When I didn’t receive anything for those months, I had to pay for those with the help that the government gives to people over 70.”

Another contributing factor could be the restrictions on U.S.-Mexico border crossings because of the pandemic, which appears to have prompted migrants to resort to electronic transfers instead of taking cash in person or sending it with relatives or friends. Electronic transfers are more likely to show up in the data.

Border crossings last year were down sharply from 2019, after having steadily increased since the 2008-09 financial crisis.

“People are still crossing the border for business and to see families,” said Mark Lopez, director of global migration and demography research at the Pew Research Center. “That’s still happening, but not to the degree it was before.”

Mr. Lopez sees the resilience of the U.S. economy as a crucial support for remittances.

“I think it’s a U.S. economic story as it reflects the U.S. rebound itself, in employment at least,” he said. “It’s not just Mexican immigrants who might be doing better, but others too.”

Remittances elsewhere also point to the strength of the U.S. recovery. Overall remittances in the Philippines, whose expatriates are more widely spread across continents, were down 0.9% in the first 10 months of the year, but those from the U.S. were up 5.9%. Remittances to the Dominican Republic, which has most of its emigrants in the U.S., rose 13% in the first 10 months of 2020.

Remittances have for years exceeded receipts from oil exports and foreign tourism as a source of foreign currency in Mexico, supporting the country’s finances. Lower oil prices and reduced international travel have made remittances even more important for Mexico.

Coupled with the expected contraction in Mexican economic output, remittances are likely to be equivalent to 3.8% of 2020 gross domestic product, up from 2.9% of GDP in 2019, according to analysts at BBVA.

Remittances should continue to grow this year, though they will likely return to a more consistent moderate growth of about 5%, Mr. Coutiño said.

Updated: 5-30-2021

Migrants Keep Money Flowing Home As Rich Economies Bounce Back

Remittances provide lifeline for poor countries still in the grip of the Covid-19 pandemic.

Over the years, Aiza Bolo, a 36-year-old housewife in the Philippines, has come to depend on the $550 her stepbrother sent her each month from his job in Dubai.

When the pandemic struck and the income from a fruit stand her parents own dried up, her stepbrother began sending as much as $950 a month. That enabled her to keep buying medication for her parents and purchase a laptop and internet connection so that her 13-year-old son could continue his schooling online.

“What Justine sends is more than just money. It is a lifeline for us,” Ms. Bolo said. “There was barely any income during the pandemic, so we all relied on him.”

Funds that migrant workers send home—known as remittances—have long offered millions in the developing world critical support, paying for needs including schooling, shelter and healthcare for relatives back home.

Many of those migrant workers continue to send money back, often despite their own economic difficulties, providing financial cushions in countries where Covid-19 cases are still high, vaccines are slow to arrive and the economy is struggling.

In 2020, global remittances dropped 2.4% to $702 billion from the previous year, less than half the drop recorded in the aftermath of the global financial crisis in 2009, according to the World Bank. Remittances to low- and middle-income countries were particularly resilient, falling 1.6%.

Early in the pandemic, the World Bank had estimated that remittances would decline 20% in 2020. Last autumn, it was predicting a 14% drop for all of 2020.

To be sure, part of the resilience stems from the increased use of formal channels to transfer remittances, which are easier to capture in data than the informal channels many migrants relied on when global travel was easier.

Other drivers behind the strong remittance flows have to do with the large government support programs in rich countries, notably the U.S. and parts of Europe, that have enabled migrant workers there to maintain some financial stability. At the same time, the economic crisis last year—which has yet to abate in many poor countries—pressed some migrants to raise their payments to needy family members.

In a recent survey by MoneyGram International Inc., a money-transfer and cross-border payments company, 70% of respondents said the crisis prompted them to send more remittances back home, said the company’s chief executive officer, Alex Holmes.

“They believe that people in those home markets are more in need this year, and last year, than ever before,” Mr. Holmes said.

In 2020, remittances to Latin America and the Caribbean increased 6.5% from the previous year, fueled by a rapid economic recovery in the U.S. and two hurricanes in Central America that prompted workers abroad to give more financial support than usual, according to the World Bank.

Oscar Andara Guerra, a 43-year-old vegetable vendor in San Pedro Sula, Honduras, said the $300 a month he receives from his mother is essential. His mother, who has been working in the U.S. for more than three decades, also sends money to his siblings.

“She works in cleaning and never, not even during the pandemic, did she stop sending us money,” Mr. Guerra said. “She even helped me buy the bed I sleep in.”

In some parts of the world, households have shifted how they spend remittances as the pandemic forces many families to give priority to basic needs. Government statistics from the Philippines show that the percentage of households relying on remittances to cover education costs dropped from 65% in the last quarter of 2019 to 60% for the same period in 2020.

During that time, fewer households in the Philippines used remittances to purchase cars or add to savings, while more began using the funds to cover medical expenses. The number of households using remittances to buy food and basic necessities hardly changed.

The monthly financial support Ms. Bolo receives from her stepbrother has helped offset her family’s lost income from selling fruit in the market and renting out an apartment that was also purchased with remittances from Ms. Bolo’s stepbrother.

“Even after the strict lockdown was lifted, business was still not the same,” Ms. Bolo said. The pandemic has left the rental apartment empty often, while tenants sometimes failed to pay rent on time, she said.

Not all households receiving remittances have been shielded from the pandemic’s economic blows.

In India’s Kerala state, where one in five households receives remittances, many families saw the flow abruptly stop when deteriorating economic conditions in the Middle East forced migrant workers to return home. One in six migrant workers from India has returned home since the pandemic began, according to S. Irudaya Rajan, chairman at the International Institute of Migration and Development in Kerala.

Biju Matthew, 48, returned home to Kerala in February from Kuwait after his company stopped paying him and two dozen other workers.

“When we went to complain, they asked us to resign, offered to give back our passports and pay for flight tickets back home. We refused to leave,” Mr. Matthew said.

His company later asked the workers to vacate the housing facility it had been providing. When the workers refused again, the firm cut off the electricity supply and refused to give their overtime pay. He stopped sending money home for about half a year before returning.

Now, Mr. Matthew works as a supervisor at a mall in Thiruvananthapuram, Kerala’s capital, earning a little over $200 a month, less than a third of what he earned in Kuwait.

“It feels like my life has been pushed 20 years back,” he said. “All I can think of is surviving the day.”

Updated: 10-21-2021

Crypto Remittances See Adoption, But Volatility May Be A Deal Breaker

The path to mass cryptocurrency adoption passes through remittances, but it may not happen any time soon.

Cryptocurrency adoption has been growing for a number of reasons. In emerging markets, research suggests crypto remittances are a factor, although some argue that the idea of using cryptocurrencies for these transactions is nothing more than a purist’s dream.

The CEO of cryptocurrency derivatives trading platform BitMEX, Alexander Höptner, predicted earlier this month that by the end of next year, at least five countries will have accepted Bitcoin (BTC) as a legal tender, as crypto assets can be faster and cheaper for remittances.

He believes that all five will be developing countries and that they would adopt cryptocurrencies because of the growing need for cheaper and faster cross-border transactions, increasing inflation and growing political issues.

Various other commentators have suggested that Bitcoin and other cryptocurrencies are a solution to the high costs associated with remittance payments, as a cryptocurrency transaction can be much cheaper than a remittance payment while settling in a shorter amount of time.

El Salvador was the first country in the world to adopt Bitcoin as legal tender with the country’s Bitcoin Law officially coming into effect on September 7. The government launched a cryptocurrency wallet called Chivo that uses the Lightning Network, a layer-two scaling solution, to transact. The country has also purchased 700 BTC over time.

Global remittances reached over $689 billion in 2018, and commissions were so high a $49 billion industry grew around them. To crypto proponents, El Salvador is a perfect example of how cryptocurrencies can positively change the world, but to others, volatility and a general lack of trust in the market make cryptocurrency adoption impractical and unadvisable.

Are Cryptocurrencies Banking The Unbanked?

With the Chivo wallet, Bitcoin could effectively help offer financial services to El Salvador’s un- and underbanked population.

The country’s president Nayib Bukele revealed in September 2021 that 2.1 million Salvadorans are actively using the wallet, despite the pushback against the new law that saw protests even burn a Bitcoin ATM machine.

2.1 million Salvadorans are ACTIVELY USING @chivowallet (not downloads).

Chivo is not a bank, but in less than 3 weeks, it now has more users than any bank in El Salvador and is moving fast to have more users that ALL BANKS IN EL SALVADOR combined.

This is wild!#Bitcoin

— Nayib Bukele (@nayibbukele) September 25, 2021

Per his words, Chivo isn’t a bank, but in three weeks gained more users than any bank in the country. That adoption may, however, be related to a $30 in BTC airdrop El Salvador sent to every adult citizen with the government’s wallet app.

Speaking to Cointelegraph, Eric Berman, senior legal editor of U.S. finance at Thomson Reuters Practical Law, said remittances using cryptocurrencies are a “purist’s pipe dream.” While Höptner pointed out that remittances made up 23% of El Salvador’s gross domestic product in 2020, Berman countered that only a fraction of the nation’s businesses has taken a Bitcoin payment and that the government’s cryptocurrency app has been plagued by technical issues.

Berman further added that “most of El Salvador’s $6 billion in annual remittances still comes via money transfers,” as many are wary of the cryptocurrency’s volatility. Because of the volatility’s impracticality, he said, Bitcoin hasn’t been widely adopted as a payment method among merchants, adding:

“This impracticability is magnified exponentially for the disenfranchised and unbanked. No one wants to send mom $100 only to have it be worth $80 by the time it gets to her.”

Berman added that “rather than the populist uprising that BTC purists have been touting for years,” Bitcoin’s adoption has instead been growing thanks to “some perhaps long overdue happy noises from U.S. and global regulators.”

Indeed, the United States Securities and Exchange Commission (SEC) head Gary Gensler has confirmed the regulator won’t ban crypto. In fact, the SEC approved the first Bitcoin futures-linked exchange-traded fund (ETF) in the United States, ProShares’ Bitcoin Strategy ETF, this week.

Bitcoin’s growing adoption and price, Berman suggested, are the result of “institutional enthusiasm that is quite the antithesis of the grassroots movement for the disenfranchised and unbanked that spawned BTC over a decade ago.”

Oleksandr Lutskevych, the founder and CEO of cryptocurrency exchange CEX.IO, seemingly disagrees with Berman’s assessment, saying El Salvador’s adoption highlights Bitcoin as “replacing the traditional, centralized rails used for remittances.”

To Lutskevych, Bitcoin’s infrastructure is being adopted to also promote the transfer of stablecoins on top of its network, ensuring the cryptocurrency’s volatility won’t affect remittances. El Salvador’s move, he said, promotes financial inclusion by helping cut down remittance costs.

Adoption Out Of “Pure Necessity”

In emerging markets, crypto proponents suggest adoption may be a result of “pure necessity,” as the transaction fees paid on most blockchain networks dwarf the fees paid to some remittance vendors.

According to Lutskevych, it’s “abundantly clear in the rationale behind Bukele’s campaign that made BTC legal tender” that the nature of the move was to drive BTC adoption forward through remittances. Lutskevych went on to add further:

“One of the primary reasons why the country passed such legislation was to lower remittance costs, promote financial inclusion and boost GDP by leveraging BTC and its transfer infrastructure to promote financial inclusion.”

Per his words, the adoption of new technology is often the result of “pure necessity,” and that may be the case with Bitcoin and cryptocurrencies in developing nations whose populations are heavily affected by remittance costs, which according to Markus Franke, a partner at cross-border crypto payments firm Celo Labs, averages 6.38% and can often go over 10% of the amount being sent.

Driving his point forward, Lutskevych added that the Chainalysis Global Crypto Adoption Index for 2021 shows that out of the top 20 countries by cryptocurrency adoption, two-thirds are “developing countries with a high percentage of GDP coming from remittances.”

He added that developing countries are now recognizing the value of “BTC’s scalable transfer infrastructure, combined with Bitcoin’s sound money properties and decentralization.”

Lutskevych also noted that Bitcoin’s Lightning Network capacity is up over 25% since El Salvador’s Bitcoin Law came into effect, while the number of payment channels routing payments on the network also moved up significantly and began a “parabolic trend right around the time of the law becoming effective.”

To him, growing peer-to-peer (P2P) trading volumes in countries like Nigeria suggest cryptocurrencies like BTC are playing a role in “getting foreign money into the country.”

Franke added to the line of thought, saying cryptocurrencies can be programmed, allowing for more complex financial operations without third parties. These features, Franke said, have seen remittance giants take an interest in cryptocurrencies.

As an example, he pointed to MoneyGram launching USDC settlement using the Stellar blockchain, and added that the Asian Development Bank has revealed services like Ripple, Mobile Money and bKash helped “deliver faster settlement, greater operational efficiencies and more competitive foreign exchange rates during the COVID-19 pandemic.”

Amr Shady, CEO of business-to-business payment and financing platform Tribal Credit, told Cointelegraph that Mexico could be another example of a country adopting cryptocurrencies for remittances, as estimates have shown they could reduce costs by 50% to 90%.

It All Comes Down To Numbers

If, indeed, five countries do adopt Bitcoin or any other cryptocurrency as legal tender, adoption seems likely going to keep on growing. Emerging markets rely on remittances and the use of stablecoins appears to be a viable solution to the volatility of crypto assets like BTC.

Projects like Facebook’s Novi are already using stablecoins to facilitate cross-border transactions, with the project’s marketing efforts having a heavy focus on remittances. Central bank digital currencies (CBDCs) may offer similar cheap transactions that will help users move money across borders at a low cost.

The problem with these two solutions is the central entities behind them who can easily start discriminating, and for example, geoblock users. Decentralized blockchains are working on scaling to accommodate thousands of transactions per second, bringing down remittance costs.

Add in stablecoins, and the only thing blocking mass crypto adoption could very well be the specific knowledge needed to navigate different blockchains and understand how addresses work.

User-experience improvements have for long been moving addresses and blockchain navigation to the back while helping users focus on payments. Once the use of blockchain technology happens behind the scenes at a low cost, remittances will inevitably turn to crypto. Yet, those transactions may be years away.

Updated: 11-30-2021

A Mexican Crypto Startup Wants To Make Cash Remittances Cheaper

Bitso says it’s helping money transfer services cut the cost of exchanging dollars for pesos.

Even as cryptocurrencies have skyrocketed in price, there’s always been the question of what they can really be used for. One of the stronger use cases is remittances—the cross-border cash transfers that have long been dominated by the likes of Western Union Co. and MoneyGram International Inc. Intuitively, a technology that allows one person to send money to another without an intermediary could make remittances quicker and cheaper.

There are still huge barriers, from the wild volatility of many cryptocurrencies to the complexities of buying them in one country and then converting them back to traditional cash in another.

Bitso, a Mexico City-based crypto trading platform, says it’s making a dent. It estimates it’s helping money transmitters move around 2.5% of the more than $40 billion in remittances flowing across the border from the U.S. to Mexico annually.

Bitso doesn’t offer remittances directly on its crypto trading app, which has more than 2 million users in Latin America. Instead, it’s so far been doing work behind the scenes for money transfer services, which can use Bitso’s API, a technology that shares data among apps or services.

One such company is Bridge21, a U.S. service that says it’s been using crypto for Mexico-bound remittances since 2016. “Depending on the cryptocurrency you use it can take minutes or even seconds to move the money as opposed to days,” says Will Madden, Bridge21’s chief executive officer.

These businesses can collect dollars in the U.S. and then convert it to crypto, which can then be exchanged for pesos to be paid out in Mexico. Bitso’s customers in remittances can use different tokens, but one option is to swap their currencies for the USDC stablecoin, a crypto currency that’s pegged to the U.S. dollar, which means its price is supposed to remain $1 at all times.

In a big chunk of these transactions, users don’t even know their money is being turned into crypto along the way, says Bitso co-founder and CEO Daniel Vogel.

In other words, Bitso hasn’t yet eliminated all the layers of middlemen, though it says it can make things more efficient. “Seventy percent of all remittance flows are cash to cash,” says Santiago Alvarado, Bitso’s head of product for business.

“Unless the first mile and last mile start with a digital wallet or digital bank account, you still have to have that partner that can collect cash and allows for cash pick-up on the other end. Everything else can be done within Bitso.”

Remittances remain a gigantic source of income for the Mexican economy as a whole, representing almost 4% of the country’s gross domestic product. An estimated 95% comes from emigrants in the U.S., who have long relied on relatively expensive remittance services that may operate out of storefronts or desks inside convenience stores.

According to data from the World Bank, the average cost of sending $200 from the U.S. to Mexico in the first quarter of 2021 was $7.29, or 3.65%.

Douglas King, a payments risk expert with the Federal Reserve Bank of Atlanta, says crypto can bring much-needed competition to the industry. “There is potential for continued pressure to bring the cost down,” he says.

The transfer business is expensive because it involves having agents on both sides of the border, as well the costs of foreign exchange, banking relationships, and ensuring ready access to cash in multiple currencies and countries.

Commissions can pile up throughout the transaction. Bitso says it can cut one of the biggest costs—foreign exchange—down to a few tenths of a percentage point, compared with about 2% at some providers.

Bitso is hardly the first company to try to do remittances via crypto—one incumbent has already taken a shot. MoneyGram, one of the largest money-transfer services in the U.S., worked with Ripple Labs Inc. in 2019 to try out a similar approach. It sent some foreign-exchange transactions over Ripple’s network, using a crypto token called XRP as the bridge between traditional currencies.

“The technology works,” says MoneyGram CEO Alex Holmes. “But it was an early product and had a long way to go.” And then Ripple ran into a regulatory snag that Holmes says forced MoneyGram to stop using it.

The U.S. Securities and Exchange Commission alleged that the XRP token was essentially an unregistered security that Ripple sold to raise money for the company. Ripple has disputed that XRP is a security and is fighting the SEC’s lawsuit.

MoneyGram has launched a different crypto partnership, this time with the Stellar Development Foundation, which is intended to allow its consumers to use local currencies to buy USDC stablecoins, or to exchange those tokens for cash. The foundation, which maintains an open-source payments network called Stellar, also worked with Bitso to integrate USDC into its platform.

But MoneyGram’s experience with Ripple points to a challenge for crypto remittances: The regulations around crypto are essentially still being written. On Nov. 1, a group of federal regulators in the U.S., including the Treasury Department and the Federal Reserve, issued a report calling for stricter rules for stablecoins, which are now valued at around $130 billion.

Because such coins are typically designed to be backed by traditional currencies and assets held in reserve, the regulators urged Congress to pass laws to regulate them like banks so as to lessen the risks of panics akin to bank runs.

“The regulations have not caught up, and it’s a total blind spot,” says John Court, who heads regulatory affairs at the Bank Policy Institute, a trade association. He says companies using crypto in remittances should “absolutely be worried” about policymakers looking over their shoulders.

In Mexico, too, crypto has been viewed with skepticism by policymakers. The nation’s central bank has repeatedly said cryptocurrencies aren’t legal tender and that financial institutions can’t allow consumers to buy and sell goods using crypto, though companies are able to use the technology internally.

The Comisión Nacional Bancaria y de Valores, a financial regulator, says in a statement that money transmitters including MoneyGram can’t offer to turn cash into tokens as the company plans to with Stellar.

“We are aware of Mexico’s position and if/when we do expand into the Mexican market, we will do so only after securing required licensure and ensuring the structure is compliant with Mexican law,” a spokesperson for MoneyGram says in a statement.

The CNBV also says that business models being developed though crypto trading platforms aren’t regulated by any financial authority in the country. (Bitso says its crypto business is regulated in Gibraltar, where it has a license.) “Mexico still doesn’t have strong regulation in terms of cryptocurrencies, there’s still a legal void,” says Mario Di Costanzo, the former head of Condusef, Mexico’s consumer protection agency for financial services.

“We also can’t rule out serious problems with money laundering and frauds. Consumers are vulnerable because if there’s ever a problem with a transaction, it’s not entirely clear who would be able to help them, and I don’t see the regulation changing in the short term.”

The fact the remittances cross international borders means that a broad swathe of agencies could enter the fray. “There will be huge push back from regulators on the use of cryptocurrencies” for regular remittances, says Ahmed Ismail, co-founder at Havyn Global, an online platform for digital currencies based in Dubai.

He says there will always be compliance issues, particularly in countries seen as higher risk for money laundering. “But I do see a shift in many businesses in that they want to learn more about cryptocurrencies and naturally we’ll see more crypto-based solutions.”

Updated: 11-30-2021

A Mexican Crypto Startup Wants To Make Cash Remittances Cheaper

Bitso says it’s helping money transfer services cut the cost of exchanging dollars for pesos.

Even as cryptocurrencies have skyrocketed in price, there’s always been the question of what they can really be used for. One of the stronger use cases is remittances—the cross-border cash transfers that have long been dominated by the likes of Western Union Co. and MoneyGram International Inc. Intuitively, a technology that allows one person to send money to another without an intermediary could make remittances quicker and cheaper.

There are still huge barriers, from the wild volatility of many cryptocurrencies to the complexities of buying them in one country and then converting them back to traditional cash in another. Bitso, a Mexico City-based crypto trading platform, says it’s making a dent. It estimates it’s helping money transmitters move around 2.5% of the more than $40 billion in remittances flowing across the border from the U.S. to Mexico annually.

Bitso doesn’t offer remittances directly on its crypto trading app, which has more than 2 million users in Latin America. Instead, it’s so far been doing work behind the scenes for money transfer services, which can use Bitso’s API, a technology that shares data among apps or services.

One such company is Bridge21, a U.S. service that says it’s been using crypto for Mexico-bound remittances since 2016. “Depending on the cryptocurrency you use it can take minutes or even seconds to move the money as opposed to days,” says Will Madden, Bridge21’s chief executive officer.

These businesses can collect dollars in the U.S. and then convert it to crypto, which can then be exchanged for pesos to be paid out in Mexico. Bitso’s customers in remittances can use different tokens, but one option is to swap their currencies for the USDC stablecoin, a crypto currency that’s pegged to the U.S. dollar, which means its price is supposed to remain $1 at all times.

In a big chunk of these transactions, users don’t even know their money is being turned into crypto along the way, says Bitso co-founder and CEO Daniel Vogel.

In other words, Bitso hasn’t yet eliminated all the layers of middlemen, though it says it can make things more efficient. “Seventy percent of all remittance flows are cash to cash,” says Santiago Alvarado, Bitso’s head of product for business. “Unless the first mile and last mile start with a digital wallet or digital bank account, you still have to have that partner that can collect cash and allows for cash pick-up on the other end. Everything else can be done within Bitso.”

Remittances remain a gigantic source of income for the Mexican economy as a whole, representing almost 4% of the country’s gross domestic product. An estimated 95% comes from emigrants in the U.S., who have long relied on relatively expensive remittance services that may operate out of storefronts or desks inside convenience stores. According to data from the World Bank, the average cost of sending $200 from the U.S. to Mexico in the first quarter of 2021 was $7.29, or 3.65%.

Douglas King, a payments risk expert with the Federal Reserve Bank of Atlanta, says crypto can bring much-needed competition to the industry. “There is potential for continued pressure to bring the cost down,” he says.

The transfer business is expensive because it involves having agents on both sides of the border, as well the costs of foreign exchange, banking relationships, and ensuring ready access to cash in multiple currencies and countries. Commissions can pile up throughout the transaction. Bitso says it can cut one of the biggest costs—foreign exchange—down to a few tenths of a percentage point, compared with about 2% at some providers.

Bitso is hardly the first company to try to do remittances via crypto—one incumbent has already taken a shot. MoneyGram, one of the largest money-transfer services in the U.S., worked with Ripple Labs Inc. in 2019 to try out a similar approach. It sent some foreign-exchange transactions over Ripple’s network, using a crypto token called XRP as the bridge between traditional currencies.

“The technology works,” says MoneyGram CEO Alex Holmes. “But it was an early product and had a long way to go.” And then Ripple ran into a regulatory snag that Holmes says forced MoneyGram to stop using it.

The U.S. Securities and Exchange Commission alleged that the XRP token was essentially an unregistered security that Ripple sold to raise money for the company. Ripple has disputed that XRP is a security and is fighting the SEC’s lawsuit.

MoneyGram has launched a different crypto partnership, this time with the Stellar Development Foundation, which is intended to allow its consumers to use local currencies to buy USDC stablecoins, or to exchange those tokens for cash. The foundation, which maintains an open-source payments network called Stellar, also worked with Bitso to integrate USDC into its platform.

But MoneyGram’s experience with Ripple points to a challenge for crypto remittances: The regulations around crypto are essentially still being written. On Nov. 1, a group of federal regulators in the U.S., including the Treasury Department and the Federal Reserve, issued a report calling for stricter rules for stablecoins, which are now valued at around $130 billion.

Because such coins are typically designed to be backed by traditional currencies and assets held in reserve, the regulators urged Congress to pass laws to regulate them like banks so as to lessen the risks of panics akin to bank runs.

“The regulations have not caught up, and it’s a total blind spot,” says John Court, who heads regulatory affairs at the Bank Policy Institute, a trade association. He says companies using crypto in remittances should “absolutely be worried” about policymakers looking over their shoulders.

In Mexico, too, crypto has been viewed with skepticism by policymakers. The nation’s central bank has repeatedly said cryptocurrencies aren’t legal tender and that financial institutions can’t allow consumers to buy and sell goods using crypto, though companies are able to use the technology internally.

The Comisión Nacional Bancaria y de Valores, a financial regulator, says in a statement that money transmitters including MoneyGram can’t offer to turn cash into tokens as the company plans to with Stellar. “We are aware of Mexico’s position and if/when we do expand into the Mexican market, we will do so only after securing required licensure and ensuring the structure is compliant with Mexican law,” a spokesperson for MoneyGram says in a statement.

The CNBV also says that business models being developed though crypto trading platforms aren’t regulated by any financial authority in the country. (Bitso says its crypto business is regulated in Gibraltar, where it has a license.) “Mexico still doesn’t have strong regulation in terms of cryptocurrencies, there’s still a legal void,” says Mario Di Costanzo, the former head of Condusef, Mexico’s consumer protection agency for financial services. “We also can’t rule out serious problems with money laundering and frauds.

Consumers are vulnerable because if there’s ever a problem with a transaction, it’s not entirely clear who would be able to help them, and I don’t see the regulation changing in the short term.”

The fact the remittances cross international borders means that a broad swathe of agencies could enter the fray. “There will be huge push back from regulators on the use of cryptocurrencies” for regular remittances, says Ahmed Ismail, co-founder at Havyn Global, an online platform for digital currencies based in Dubai.

He says there will always be compliance issues, particularly in countries seen as higher risk for money laundering. “But I do see a shift in many businesses in that they want to learn more about cryptocurrencies and naturally we’ll see more crypto-based solutions.”

Updated: 2-1-2022

Mexicans Abroad Sent A Record $52 Billion Back Home Last Year

* Foreign Workers Increased Remittances During The Pandemic
* Growth Of Mexico’s Economy Stalled In Second Half Of 2021

Mexico received a record $51.6 billion in remittances last year, helping to soften the impact on consumers from a stalled economy.

The money sent by Mexican workers abroad jumped 27% compared to 2020, according to central bank figures published Tuesday. That increase was driven by a variety of factors including U.S. stimulus checks to residents, a desire by Mexican workers to assist their struggling families back at home, and money for foreign migrants stuck in Mexico.

“This historic quantity of remittances is not an achievement of the Mexican economy because it is due to the U.S. recovery. In Mexico, the recovery is going slowly,” said Gabriela Siller, director of economic analysis at Banco BASE. “But remittances do help growth because they drive consumption.”

Remittances hit $4.76 billion in December, slightly below the median forecast of economists in a Bloomberg survey.

The recovery of Mexican workers’ employment in the U.S. was better than that of the overall U.S. population, with over 7 million Mexicans employed there by December, according to an analysis by the Mexico City-based Center for Latin American Monetary Studies. Other countries in Latin America, including Colombia and Guatemala, saw similar leaps in contributions from abroad, it said.

“The better-than-expected growth rate for remittances has been seen in almost all parts of the world,” said Dilip Ratha, the head of The Global Knowledge Partnership on Migration and Development, a project of the World Bank, who expects remittances to continue to rise.

“In the next five or ten years, there is no scenario involving a fall in the stock of international migrants. That is going to grow because of income differences and demographic change.”

New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,New Report Reveals Significant,