Fintech To Help Send More Money
The new government of Mexico is trying to reduce the cost that Mexicans abroad pay in order to send money to their families at home. They are hoping the competition from fintechs would encourage the banks and financial service providers such as Western Union to reduce fees and improve the exchange rates.
Recently, the Deputy Finance Minister Arturo Herrera said in an interview with Reuters, that the government did not plan to put new regulations on the country’s one of the largest sources of foreign currency that is remittances which is also a lifeline for millions of its poor families.
Herrera, who is also the former World Bank executive expected that the increasing use of money transfer apps would help in bringing down the cost of sending remittances. Also, currently, the foreign exchange rates and the commission charged together takes about 8 percent on an average on remittances that according to Herrera should be brought down to 5 percent.
“That is to say, the cost of transactions must come down by about 40 percent. That is something the fintechs are probably in a better position to do than traditional actors such as banks,” said Herrera. “Their great advantage is that they can operate in a more efficient and direct way and at lower costs, which should lead to lower commissions.”
Banking Costs: A Sensitive Issue In Mexico
Bringing down the cost of financial services like remittances, according to Herrera would assist in helping the neediest of the nation which is the primary focus of the administration of President Andres Manuel Lopez Obrador, who took the office on 1st December.
Another serious issue here is the fact that banking costs are a sensitive issue in Mexico as last year when Lopez Obrador ruling MORENA party introduced a bill to limit banking fees, it triggered a selloff in the stock market and Mr. President distanced himself from the bill, while, other changes were better received.
Later on, Lopez Obrador had reportedly tried to calm the investors’ nerves by clearing that no modifications will be made to the legal framework in relation with financial, fiscal and economic matters, in the first three years of his tenure.
A Billion Dollar Remittance Market
The government says, the 24 million Mexicans that live in the United States is its largest source of money that is sent home. According to the Mexican central bank, Mexicans sent a record $33.5 billion in remittances in 2018 which is a 10.5 percent surge from the year earlier. As per the data from fintech platform Finnovista, Mexico is already home to over 70 startups that specializes in payments and remittances while remittance apps are gaining popularity.
As a result, Herrera said Western Union and banks would have to make their services cheaper in order to compete with these money transfer apps. “I wish we could make it happen immediately,” he said.
Turning to fintechs is part of the government's broader strategy that aims at decreasing the use of cash in Mexico, said Herrera. An additional measure would be revealed by the Finance Ministry at the annual Banking Convention in March.
This could present a big opportunity to Ripple for potential partnerships as its products enable speedy and cost-efficient cross-border settlements.
As one Ripple enthusiast said,
“One of ripples xrapid partner is precisely Bitso, the largest Mexican crypto exchange that has really cool apps for payment settlement.”
Moreover, Western Union is already pilot testing with Ripple for Mexico and the USA. WU’s competitor Moneygram is also in partnership with Ripple and testing payments with XRP. Now, in light of these measures, it can be expected that Ripple has more partnerships coming in the near future.