The news: Cryptocurrency exchange Coinbase launched a pilot that lets users send crypto remittances to people in Mexico and eventually other markets, per a blog post.
Here’s how it works: Through the Coinbase app, users can send cryptos to people in Mexico instantly and—through March 31—free of charge.
- Customers can use a redemption code generated by the app to cash out at more than 37,000 retail locations throughout Mexico. After March 31, Coinbase will charge recipients a cash-out fee it says will be cheaper than traditional remittance services.
- Recipients can also convert their balance into more than 100 cryptos, a feature Coinbase already offers.
Why it’s worth watching: Cryptocurrencies and blockchain technology are poised to disrupt the remittance market. They offer two key benefits:
Lower costs. In Q3 2021, the global average cost of sending remittances was 6.30% of the overall payment, according to the World Bank. But blockchain-based remittances can be 40% to 80% cheaper because they eliminate intermediaries in the payment process, per Deloitte. The technology also brings down the risk of exchange rate volatility, which can cut costs further.
Faster payments. Remittance incumbents like Western Union take an average of two to three days to deliver payments based on the type of transfer. Blockchain-based cross-border payments firm Ripple, by comparison, can settle transactions in three to five seconds.
Coinbase’s opportunity: The firm can use its blockchain expertise to enter the lucrative and quickly digitizing remittance sector.
Coinbase’s remittance offering could position it ahead of the curve as incumbents sharpen their digital focus. MoneyGram said its sale to private equity firm Madison Dearborn Partners will help it beef up its digital presence, which may include cryptos given its recent tie-up with Stellar Development Foundation. And Western Union is also ramping up digital capabilities to attract more customers. Coinbase can capitalize on its digital-native remittance offering as consumers lean into digital transfers.
And starting off in Mexico is a wise choice given the market’s size and consumers’ embrace of digital currencies. Mexico’s remittance inflow will grow 9.4% year over year in 2022—the second-fastest growth rate globally—to hit $56.24 billion, per Insider Intelligence forecasts. And Coinbase is well-positioned to capture some of that growth, which might bring in new users. Mexico-based crypto remittance provider Bitso says it supports up to 7% of the remittances from the US to Mexico, which might indicate demand for Coinbase’s latest offering.
Related content: Check out our “Global Remittances Forecast 2022” report to learn about the cryptocurrency use case and Mexico’s growth potential.