A whitepaper on the status of cross-border payments, or remittances, in Latin America has been published by Mastercard. Remittances are crucial for enhancing the region’s financial inclusion, growing economies, and reducing poverty because they frequently provide low- and middle-class residents with a reliable source of income.
Approximately one in ten people, or 800 million people globally, live in households that receive remittances from abroad, according to the UN. Remittances have increased more quickly in Latin America than anywhere else in the world (10% yearly growth since 2014 compared to 4% worldwide).
Latin America’s formal remittance volume reached US$146 billion in 2022, more than doubling from a decade earlier and growing at a rate of 25 times over the previous 30 years. Forecasts indicate that 2024 will bring about a change toward increased speed, ease of use, and security as digital remittances start to surpass the transfer of physical currency across borders. Digital remittances have been growing in Latin America as a result of several years of accelerated digitalization, high mobile penetration, increased internet access, and a decline in the number of unbanked and underbanked people. By 2026, these trends are predicted to produce an additional US$20 billion in digital remittances as they continue to influence Latin America’s digital agenda.
In recent years, traditional providers have enabled digitalization and ushered in new players to the industry, including fintech, digital wallets, blockchain companies, and other technology companies, responding to the trends seen in the Latin American remittances industry:
- The United States – Mexico corridor is the single largest remittance pipeline in the world, with a 2023 volume of US$65 billion.
- In El Salvador, 2 out of every 10 families who receive remittances live in poverty.
- In Guatemala, at least 1 in 3 households count remittances as their main source of income.
- In Honduras, remittance recipients represent just about 50% of all households.
- In South America, inflation and political instability in the region are drivers of migration and remittance flows, which often utilize fintech and blockchain rails to avoid the problems that arise when using the traditional system.
Pain points to adoption
Despite the massive volume and positive impact of remittances, the industry still faces substantial challenges that limit full digitalization and adoption, including lack of transparency, trust and security in the system, poor digital user experiences, and slow transaction speeds. Additionally, dealing with regulation is perhaps one of the most acute issues, given the lack of legal, regulatory, and operational consistency across global jurisdictions.
A financial exclusion gap also still exists affecting underserved or unbanked communities. According to the Mastercard Borderless Payment 2023 global report, more than one-third of those surveyed said their families back home have limited options to access the money they send, and nearly one in four agree their family must travel a long way to access their funds.
This reveals financial and digital exclusion, as well as underdeveloped financial and digital infrastructure (e.g. lack of 4G coverage, low smartphone penetration, and absence of banks or remittance retail agents) present in the region.
Preparing for the future of remittances
To meet consumer demands and accomplish the necessary digital advancements to empower remittance adoption, companies and providers need to:
- Adapt digital solutions to a cash environment. Remittance companies should enable receivers to use the money how they want—digitally or in cash.
- Provide transaction transparency and safety while also eliminating concerns. Companies should communicate pricing clearly before they execute a transaction, as well as indicate the expected timing for settlement.
- Build trust through regulatory compliance and digital innovation. Companies should enable faster customer onboarding and reduced processing time with digitalized KYC (know your customer) tools.
- Provide rewards to loyal customers and financial education. Providers should share educational information and offer post-transaction points, miles, discounts, gift cards, and/or other benefits.
- Provide everyday value and clear convenience over cash. Providers should emphasize the convenience of digital payments and demonstrate why digital remittances and cross-border services deliver more everyday value.
Mastercard’s technology and innovative solutions enable its customers to move money and data quickly and securely. Using Mastercard’s portfolio of international money transfer solutions, Mastercard Move, participating financial institutions can offer their customers international payments to over 180 markets, including a global payout network of over 150 currencies that reaches 95% of the world’s banked population. Mastercard Move reaches nearly 10 billion endpoints worldwide, including bank accounts, card, wallet, and cash payout locations. The portfolio combines the power of Mastercard’s existing and future money movement capabilities including Mastercard Send and Mastercard Cross-Border services.