Descubre el futuro de las finanzas en América Latina y el Caribe

The future of finance in LatAm & the Caribbean

O futuro das finanças na América Latina e no Caribe



Remittance margins are falling. Here’s why one wallet still sees a booming opportunity

Jul 24, 2023

By Antony Pinedo



Cross-border payments are less profitable now than they were a few years ago, even as the volume of remittances continues to grow. The commercial director of Mercado Pago México explains the value the digital wallet sees in its remittance alliances and the revenue opportunities these transfers offer


Remittances to Latin America hit US$145 billion in 2022, and it’s no surprise a market that big is brimming with participants. But with increasing numbers of companies entering the sector and driving down transfer fees, finding ways to make the business profitable has become a priority.

Historically, remittance company profits have derived from commissions and the exchange rate. Now, increasing competition means fintechs looking to attract remittance users have to identify other formulas, such as crossovers with other products.

It’s a huge opportunity: Mexico was the world’s second-largest destination for cross-border transfers in 2022, bringing in US$61.1 billion, according to the World Bank. And the scale of the market propelled Mercado Pago to enter the segment by way of alliances with companies operating in the U.S., such as Western Union, Xoom and Félix Pago, that enable its virtual wallet to receive transfers.

“Our objective is to make profits from users through the additional services that we provide them in Mexico,” says Jorge Cabrera, commercial director of Mercado Pago México, in an interview with iupana.

“The person receives [the remittance] and sees that it brings benefits, that they can also be granted a loan, one that they can pay with a debit card that’s later used to receive their salary. In the end, the person ends up very hooked,” he adds.

Mercado Pago has implemented various alliances to bolster its ecosystem, including a partnership with brokerage firm Grupo Bursátil Mexicano (GBM) that enables wallet users to earn a profit by investing their cash digitally. Customers can also use the platform to pay utility bills. In both cases, the services bring in fee revenue for Mercado Pago.

Receiving remittances can help with users’ risk assessments and allow them to access credit, one of the highest margin, market-entry channels.

“People say ‘If I use this money, I can build a credit history.’ And in Mexico we’ve approved more than 10 million lines of credit. So, either you already have credit or you start to generate history in Mercado Pago to eventually gain access to credit,” Cabrera says.

The allure of the Mexican remittance market has also attracted Argentina’s Ualá, which has an alliance with Western Union and has boosted its ecosystem with products such as credit cards.

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Grabbing a slice of the remittance pie

The starting point for putting the entire Mercado Libre digital ecosystem at the service of remittances is to convince the customer to use these other features of the wallet, and it’s something that’s yielding positive results at the regional level.

During the first quarter of the year, Mercado Pago’s payment volume in LatAm rose to US$37 billion from US$25.3 billion in the same period of last year, and the number of unique active users grew 24.5% year-on-year to 45 million.

In Mexico, the option of receiving remittances directly to an electronic wallet challenges cultural and sentimental habits, says the Mercado Pago executive. Withdrawing money from physical channels, such as convenience stores, is a deep-rooted local tradition (something Western Union has also observed).

The loyalty to physical channels is such that Mercado Pago subsidizes fees for 7,000 withdrawal points in Mexico in order to ease the transition to the digital channel and provide greater comfort to end users.

“We’re investing a lot. I would say that it’s an expensive process but Mercado Libre is investing in changing that trend because we know we have to keep pushing for these changes,” Cabrera says.

The appeal of the Mexican market is clear: Remittances increased 10.3% to US$24.7 billion in the first five months of 2023 compared to the same period last year, according to figures from the Bank of Mexico.

To incentivize use of the wallet, Mercado Pago rewards users with US$15 upon receipt of their first remittance and a 10% discount on purchases made at Mercado Libre.

“The offer for what you can do later with that money is there. In other words, you can choose to keep it and use it for payments, or request a loan or spend it at Mercado Libre,” says Cabrera.

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