The coronavirus pandemic caused a drop in remittance payments in much of the world. However, two key markets have remained immune: Latin and South America.
According to Pew Research, in June, the Dominican Republic received 26 percent more remittances than in June 2019. Honduras also saw a 15 percent increase in June 2020. In El Salvador, remittances increased by 10 percent, while Guatemala hit historic record remittances payments in July and August of 2020.
In Mexico, remittances grew to $3.57 billion in August, according to the Bank of Mexico — the second-highest level on record for a single month and 5 percent more than the previous year. Payments in 2020 are up 9 percent compared with 2019 in the country, the fourth-largest recipient of remittance money in the world.
“In spite of the pandemic in the United States and also the collapse of the United States economy, remittances that our countrymen send to their relatives have increased and that reaches 10 million families,” Mexican President Andrés Manuel López Obrador said last year.
New Avenues for Money Transfer
Remittances are a $100 billion industry in Latin America. Traditionally, most of this money has come from the United States and Europe. But in recent years, migration in the region has created new remittance corridors with money originating from countries like Costa Rica and Chile.
The money is needed in order to support many Latin and South American economies. In 2019, remittances made up more than 20 percent of the GDPs of Honduras and El Salvador, 14 percent in Guatemala, and 8 percent in the Dominican Republic.
The demand for remittance is also leading to a boom in tech-based financial services like digital wallets and online transfers that cut costs for senders since traditional remittance services can have fees upwards of 5 percent and, oftentimes, delayed transfers. A 2018 Inter-American Development Bank survey of startups found 285 startups offering payments and remittances. This is nearly one-quarter of all startups in Latin and South America.
Digital wallets and mobile banking penetration are expected to reach 10 percent by 2022. In some countries, penetration of these technologies has already hit 30 percent.
“The growth and maturity undergone by the Latin American Fintech ecosystem over the last year are huge,” said Andrés Fontao, managing partner of Finnovista. “Big international investors, including the Asians, are already targeting the Fintech opportunity and the first regulatory frameworks for Fintech are also being adopted by some governments in the region.”