- Remittances represent the second source of income in dollars for the country, after having reached a record level in 2021.
- The low banking penetration in Mexico represents a very large business opportunity for both companies.
- Remittances are expected to continue to grow this year, as they have for eight years, but the threat of a recession in the US could be a risk.
The American international money transfer company Western Union (NYSE:WU) and the Argentine electronic commerce firm MercadoLibre (NASDAQ:MELI) announced a commercial alliance to send digital remittances to Mexico.
Remittances have become one of the most important sources of foreign currency income for sustaining the Mexican economy. In May, it hit a record $5.17 billion.
This is largely due to the recovery of the United States economy, which has had a positive impact on the Mexican workforce, the main destination for migrants from the Latin American country.
The growing demand for employment in all economic sectors in the US, the large number of Mexican migrants who live and work in the richest nation in the world and the significant increase in wages for workers, have increased money transfers to Mexico.
Around 70% of remittances transferred to the Latin American nation are collected in cash. The level of banking in Mexico is still very low, since more than half of its population (more than 60 million inhabitants) does not have an account.
A time saver for people
Mexicans living abroad will be able to transfer money to their relatives in Mexico through Western Union. While residents in Mexico will be able to receive payments sent through Mercado Pago, which serves as the financial arm of MercadoLibre, the two companies explained on Wednesday.
"The amount of time we save people who don't have to go to a physical location to pick up the remittance, we think that's an important advantage, and... you don't have to carry that cash from one place to another," said the director of Payment Market in Mexico, Pedro Rivas. Mercado Pago has managed to expand its services in the country thanks to a wide network of stores that accept its payment system. In addition to local companies, also international chains such as McDonald’s, Starbucks (NASDAQ:SBUX) and Domino’s Pizza do it.
During 2021, Mexicans received a little more than 51.5 billion dollars in remittances. For eight years, most of these remittances that are sent from the US have been growing consecutively.
Remittances surpassed tourism and foreign investment
Currently, remittances have become the second source of foreign currency income to the country. So much so that they have already surpassed foreign direct investment and income from the tourism industry.
In 2022, remittances are expected to increase another 16% and reach a historical record of $60,000 million, as indicated by the President of Mexico, Andrés Manuel López Obrador. But nothing is certain given the threats of recession looming over the US economy.
On this, the research director of the Mexican firm Banco Base, Gabriela Siller, noted that "In the first half of 2022 there are several negative signs for U.S. economic growth, which represent a downside risk for remittances."
