The new Mastercard report focuses on key trends and opportunities to digitize remittance transfers in Latin America and the Caribbean where cross-border money transfers grow by 10% annually.
On March 21, Mastercard released a whitepaper on the state of remittances in Latin America, revealing that cross-border payments in the region have grown more than twice as fast as the overall global level (10% annually since 2014 compared to 4% globally).
According to Mastercard statistics, formal remittance volume in Latin America reached $146 billion in 2022, twice as much as a decade ago, illustrating a significant 25x growth over the past 30 years.
The firm forecasts that 2023 might have marked a turning point when cash remittances reached their historical peak, to start gradually declining in favor of digital options in the future. It believes that 2024 will bring the remittance sector greater speed, simplicity and security while digital remittances will begin to outpace physical cash cross-border transactions.
It is expected that accelerated digitalization in Latin America could generate about $20 billion in digital remittances by 2026. It might be especially significant for the United States – Mexico remittance corridor which is the single largest cross-border payment pipeline in the world, with a 2023 volume of US$65 billion.
The report revealed both the impact of remittances on the population’s well-being in Latin America and the Caribbean and challenges to the segment growth.
It is estimated that 800 million people worldwide (or about one in 10 global citizens) live in households that receive international remittances. In El Salvador, 2 out of every 10 families who receive remittances live in poverty. That makes them highly dependent on the remittance inflow for their survival. In Guatemala, at least 1 in 3 households also depend on remittances as their main source of income, while in Honduras, 50% of all households also receive substantial remittances.
Since many countries in Latin America experience high inflation and political instability, they often utilize fintech and blockchain rails to boost the remittance system and avoid the problems that arise from traditional banking methods. As we have earlier reported, Latin America contributed to 9.1% of the global 2022 crypto transaction value, with remittances and high inflation being the highest drivers of adoption.
The main substantial challenges that limit full digitalization and adoption of digital remittances include a lack of transparency, trust and security in the system, as well as poor digital user experiences, and slow transaction speeds. According to the Mastercard Borderless Payment 2023 global report, more than one-third of those surveyed said their families that receive remittances back home have limited options to access the money they send, and nearly 25% of respondents agree that their family members must travel a long way to access the sent funds.
To empower digital remittance adoption, fintech providers may enable faster customer onboarding and reduced processing time with digitalized KYC tools, share educational information and encourage customer engagement with post-transaction points, miles, discounts, gift cards, and/or other benefits, enable receivers to use the money both digitally or in cash, and transparently communicate pricing structure.
