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  • Writer's pictureJaime González Gasque

Fintech transforms the remittance market in Latin America

Fintechs are creating superior experiences and significantly reducing costs in a traditionally underperforming market.

The remittance market has been a vital component for Latin American economies, facilitating important money flows between countries in the region and nations such as the United States. This constant movement has led to the proliferation of platforms and companies that satisfy the high demand of this segment. The emergence of fintech and its faster and cheaper solutions have boosted this market.

"Fintech has radically transformed the remittance market in Latin America, offering more agile and efficient solutions to address the challenges associated with cross-border money transfers," stated a recent report from Pomelo, a financial market analysis company.

In this article you can see the relevance of fintech in the Latin American remittance market, highlighting industry success stories that offer innovative solutions in the region. Additionally, it reveals how companies can take advantage of this thriving segment to launch their own businesses.

Remittances, a service that facilitates the sending and receiving of money between people or companies located in different countries, have experienced a significant evolution thanks to fintech. Previously, this process involved visiting the offices of specialized companies, entailing delays of several days and additional commissions for the conversion of funds, added to the costs of the service.

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According to the World Bank, remittances are a crucial source of income for households in low- and middle-income countries, with a significant impact on improving the nutrition and education of children in disadvantaged households. Additionally, these transfers can be vital tools for people with foreign income who need to use those funds in their countries of residence.

Fortunately, the emergence of more cost-efficient and faster digital solutions, such as mobile applications, digital accounts associated with cards and cryptocurrencies, has transformed the remittance industry. These alternatives represent significant savings for senders and receivers, in addition to accelerating the speed of transactions, allowing money to reach its destination in minutes instead of days.

X-ray of the Remittance Market in Latin America

Latin America is the second region that receives the most remittances in the world, according to data from the World Bank. In 2022 it recorded revenues of USD 142 billion, an increase of 9.3% compared to the previous year. This growth was driven by the increase in employment of Latino migrants in the United States and the post-pandemic economic recovery.

Despite this growth, the average cost to send USD 200 to Latin America was 5.8% at the end of 2022, more than doubling the goal set in the Sustainable Development Goals. Traditional banks and post offices have higher fees, while digital solutions offer more competitive rates, although they represent less than 1% of the total volume of remittances sent.

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"Mexico leads with approximately 42% of remittances received in the region, followed by Guatemala and Colombia in third place," commented Enrique Fadul, Biz Dev Lead of the Andean region at Pomelo.

The Economic Impact and Opportunities in the Remittance Market

Remittances play a crucial role in the economic development of the region, improving the living conditions of recipient families by allocating these funds to basic needs such as food, housing, health and education. Furthermore, they have the potential to boost domestic demand and reduce economic inequality in the region.

"Fintech companies are building superior experiences and significantly reducing costs in a market where traditional experiences are often poor," said Juan Fantoni, Co-founder & CCO of Pomelo.

Business Opportunities and Leverage in Fintech for the Remittance Market

With the expected growth in remittance flows due to international migration and globalization, companies have a golden opportunity to enter this market. Fintech companies offer modern technological infrastructures that streamline the sending of remittances, allowing scalability and compliance with local regulations.

The integration of modern technologies, such as APIs, facilitates the complementation of external services to remittance platforms, providing a comprehensive experience for users. Credit, debit or prepaid cards, incorporated into blockchain-based solutions, offer additional benefits to recipients by receiving money in real time and accessing businesses and ATMs.

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"The remittance market in Latin America will continue to expand and play a fundamental role in the financial landscape," concluded Juan Fantoni, Co-founder & CCO of Pomelo.

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