The Mexican government is hoping FinTechs will make sending cash home for Mexican families living abroad more affordable.
Deputy Finance Minister Arturo Herrera said the government believes that the popularity of money transfer apps could force banks and Western Union to bring down their prices. Right now, the commission charged — along with foreign exchange — takes an average of 8 percent out of every remittance. Herrera said that needs to 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,” Herrera told Reuters in a recent interview. “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.”
Slashing those costs would help many of Mexico’s poorest citizens. The government says 24 million Mexicans currently live in the United States, and they are the largest source of money sent home. In fact, Mexicans sent a record $33.5 billion in remittances last year, a 10.5 percent boost from 2017.
There are 75 startups now in Mexico specializing in payments and remittances, while apps like Remitly and Xoom have become more popular in the country.
But there is no telling how long it will take for the technology to have an impact on cross-border transaction fees. With that in mind, Herrera said the Finance Ministry is set to share additional ideas at the annual Banking Convention next month.
And Mexico isn’t just receiving money. According to Western Union, the country’s residents sent $806 million abroad to countries including the U.S., Argentina, Canada, Ecuador and Colombia. In September, Western Union launched its app in Mexico, enabling customers in that country to send digital money transfers to more than 200 countries and territories.