Remittances remain a major, if not the largest, source of foreign revenue for Mexico. In 2016, the dollar volume for remittances to Mexico jumped 8.8% over the prior year and reached an all-time high of nearly $27 billion — about 95% of those remittances came from the U.S. The U.S.-Mexico corridor is one of the largest remittance sectors in the world, and four key influences are helping to further fuel its significant growth.
Remittances are threaded throughout Mexico’s economic quilt, accounting for nearly 3 percent of the country’s income in 2016. Mexico is expected to be among the top five receiving countries of remittances in 2017, ranking first in Latin America and fourth globally with a predicted $30.5 billion of incoming cash transfers according to World Bank’s recent remittance report. With lower exchange rates, an improved labor market, political interference and the advancement of peer-to-peer (P2P) money transfer apps, the U.S. will continue to be a prime player in Mexico’s remittance market.
The rise of money transfer apps
In 2016, about 98 percent of remittances sent to Mexico were done through electronic transfers. P2P apps and services, such as Tuyyo, are an emerging preference in how people send funds across the border; they’re relatively faster, cheaper and more convenient than bank or wire transfers. Tuyyo is BBVA’s new money transfer app that allows U.S. senders to quickly forward funds to Mexico by phone using a debit or credit card for a flat fee of $5.49 per transfer.
A favorable exchange rate
Furthermore, many U.S. senders are getting more bang for the bucks being sent to Mexico via those money transfer services and apps like Tuyyo. The depreciation of the Mexican peso against the dollar over the course of this year is encouraging Mexicans in the U.S. to remit greater amounts. An appreciating dollar also means sent funds are worth more once they are in the hands of recipients south of the Rio Grande.
As of Nov. 8, the U.S-Mexico currency exchange rate was about 19 pesos per dollar. Currently, the average amount sent to Mexico by U.S. workers is about $1,900 per family annually, according to BBVA Research. Given the referenced exchange rate, that’s about 36,000 pesos a year. That’s a significant amount of income in a country where 7 million workers earn minimum wage and about half of the population lives below the national poverty line. A favorable exchange rate is even more crucial to families affected by Mexico’s recent earthquakes.
More jobs, more transfers
America’s low unemployment rate, which has been trending since last year, may also be contributing to the expanding U.S.-Mexico remittance landscape. The current rate sits at 4.1 percent, a number that has not been seen since 2000. More jobs — perhaps more higher paying jobs — could have created an economic advantage for Mexican migrants and immigrants, enabling them to remit more back to relatives in their homeland.
The political factor
Although traffic flow across the border has slowed down, the amount of funds sent has increased in record-breaking numbers. In the ongoing crackdown on illegal immigrants, the number of undocumented Mexicans living in the U.S. has held steady over the past few years and, in the past year, the number of migrations from Mexico has lagged behind India and China. Fear of removal, related to President Donald Trump’s stand on deportation, has most likely caused many Mexican migrants to send their savings back to Mexico as a safety measure. Also, due to tighter border enforcements under the President’s administration, other migrants are taking precaution and crossing the border less with fear of not being able to return to the U.S. Money that was originally sent to Mexico physically now has to be sent electronically as a remittance.
Also, the spike in Mexico-bound remittances may have been a result of the presidential election last November when President Trump (then presidential-elect) proposed to tax remittances being sent to Mexico as a way of funding for a wall along the U.S.-Mexico border. To avoid a potential taxation, many Mexicans in the U.S. proactively front-loaded funds to Mexico. Last November, money transfers to Mexico saw a year over year increase of 25.1 percent, reaching about $2.4 billion. BBVA Research estimated that in November and December 2016 that Mexico received about $420 million extra in remittances as a result of the President’s message.
Click here for a closer look at BBVA’s research on migration and remittances.
*Tuyyo is a service provided by BBVA Transfer Services, Inc., which is a member of the BBVA Group, and an affiliate of BBVA. BBVA Transfer Services, Inc. is licensed as a money transmitter (NMLS ID: #937914) by the New York State Department of Financial Services, licensed by the Georgia Department of Banking and Finance, License Number 42938, licensed as a foreign transmittal agency by the Massachusetts Division of Banks, License/Registration Number FT937914, licensed as a money transferor by the Rhode Island Division of Banking, and licensed in all other states, as required.