How ATMs Deliver Remittances

This interview of Prof. Bernardo Bátiz-Lazo, a member of the CashEssentials’ Steering Committee, was first published on ATMmarketplace and is republished here with the editor’s permission.

The remittance market, in which migrant workers send funds back home to family members, is massive. It was valued at $589 billion in 2021 and grew by a strong 7.3% in 2021 according to the World Bank.

Although migrants use a number of methods to send funds, one popular avenue is cashMoney in physical form such as banknotes and coins. More, due in part to the lack of digital paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More options in many countries. As a result, migrant workers are using methods such as prepaid debit cards, which their family members can then redeem for cash at ATMs, according to research from Bernardo Bátiz-Lazo, professor of fintech history and global trade at the Newcastle Business School, Northumbria University (UK) and research professor at the Faculty of Economics and Business, Universidad Anáhuac and Ignacio González-Correa, independent consultant and graduate student at the Department of Economics, University of California, Davis.

In order to learn more about this trend of ATMs being used for remittancesMoney sent home from emigrants working abroad. More, ATM Marketplace spoke with Bátiz-Lazo and González-Correa in an email interview.

Q.How are ATMs primarily used for remittances?

A. About 90% of family remittances in the Mexico-U.S. corridor start and end in cash. ATMs play a critical role by enabling senders convenient access to cash at the point where they will initiate the transfer. On the Mexican side, there is an increase in the use of N2 (prepaid debit) cards through which beneficiaries can access their balances at convenient locations and times of day. For beneficiaries, this is critical as it diminishes their exposure to crime and theft.

Q.Can you share some statistics about ATMs and remittances?

A.There are some 35 million Mexican migrants in the U.S. today. Of these, some 12.5 million were born in  Mexico.

To the best of our knowledge, data for ATM volume and value is only published annually. There is no breakdown of withdrawals associated with remittances.

As for remittances, despite the increase in U.S. unemployment during the lockdown, the volume and value of world remittances, particularly those to Mexico, continued to grow. In 2020, remittances to Mexico reached $40,601 million; 95% of these originated in the USA. This was their highest point in the previous decade (3.8% of GDP), observing over 10% of GDP in five states (Michoacán, Guerrero, Oaxaca, Zacatecas, and Nayarit).

After observing an annual increase of 19.6% in January 2022, in April 2022, remittances to Mexico reached 24 months of continued and sustained growth, recording $47,180 million or 16.5% annual growth. However, industry participants considered that growth rates oscillating between 20 to 35% of volume (up from a previous average of 4 to 5%) could not exclude the possibility of greater malfeasance in the remittance channel by criminals (and particularly the drug trade) during the pandemic.

As of December 2019, Mexico reported approximately 58 thousand ATMs operating around the country. Multipurpose banks concentrated nearly 98% of the ATMs, with about 56.620 devices. That same year, BBVA Bancomer was the bank with the highest number of ATMs in the country.

Q. I recall hearing bitcoinBitcoin is commonly said to be a cryptocurrency, a digital means of exchange developed by a set of anonymous authors under the pseudonym of Satoshi Nakamoto, which began operating in 2009 as a community project (Wikipedia type), without the relationship or dependency of any government, state, company or body, and whose value (formed by a complicated system of mathematical algorithms and cryptography) is not supported by any central bank or authority. Bitcoins are essentially accounting entries i... More was being used more frequently for remittances. Are we seeing crypto ATMs being used for this purpose?

A. The thing about remittances in the US-MX corridor, and you can extrapolate it to the rest of Latin America and the Caribbean, is that it is mostly done in cash. Just a small part of the remittances uses digital channels (industry participants’ estimations define it as 10% of volume share), and a smaller part of them use digital moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More like cryptocurrencies. There is an undeniable resilience of cash in Mexico and several Latin American countries. So, in this market, we have not seen the use of crypto ATMs for this goal.

Even though some countries have made efforts to widen the use of cryptocurrencies – even as legal tenderMoney that is legally valid for the payment of debts and must be accepted for that purpose when offered. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered (“tendered”) in payment of a debt extinguishes the debt. There is no obligation on the creditor to accept the tendered payment, but the act of tendering the payment in legal tender discharges the debt. More money in El Salvador – these countries still must deal with the fact that people trust cash and how they do not feel comfortable changing to ‘digital things’ when it is about money. For instance, El Salvador would have spent USD 101.5 million to purchase 2,280 bitcoins in early May  2022. In addition, the Salvadoran government has also spent USD180 million to develop the Chivo digital wallet and install 200 bitcoin ATMs. Nevertheless, cash is still preferred in retail payments. Bitcoin usage in everyday transactions remains very low and highly concentrated in the educated, banked, young, and male population (Alvarez, Argente, and van Patten 2022). This is similar to the unsuccessful CoDi, the mobile payments platform developed by Banco de México that has not overcome cash payments in Mexico (CashEssentials 2022b). This behavior is also true for the remittances market, especially in Mexico.

Q.What do you see as the biggest remittance trend?

A.We have identified a few important trends. First, maybe the most remarkable remittances trend is that they have steadily grown over the last decade to become the most important source of foreign exchangeThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More inflows to emerging economies.

Today, in 2022, India, China, and Mexico are the top three destinations for family remittances in US dollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More inflows. Meanwhile, remittances to Haiti, El Salvador, and Honduras observe the highest proportion of their value as a Gross Domestic Product (GDP)A measure of the value of an economy’s total output of goods and services in a specified period. GDP can be broken down by output, expenditure or income components. More percentage, reaching over 20% of the GDP for the two Central American countries. To put these trends in a larger perspective, in the early 2000s, Foreign Direct Investment (FDI) was the primary source of capital inflow to emerging countries, but in 2019 remittances overtook FDI as the most significant inflow of capital to emerging economies.

The second important remittances trend is that they did not plummet during the pandemic. The outbreak of the COVID-19 pandemic led many international institutions to predict a reduction in remittance volume. For example, in April 2020, the World Bank (2020) estimated worldwide remittance volume could fall as much as 19.9% that year, but the estimation failed (World Bank 2020). Even though thousands of immigrants and Latino workers were initially laid off in the U.S., they somehow managed to send money to their families in Mexico and Central America to help fight the pandemic. The reasons that explain these results include the fact that Hispanic employment was one of the fastest sectors to recover lost jobs in the U.S. and large-scale federal and state assistance for unemployed workers (particularly in California).

Third, remittances also have new faces. Remittance growth in 2021 includes approximately 32% of transfers initiated by women migrants (Mexico Institute and Wilson Center 2022). There is also an increasing number of indigenous ethnic group migrants, representing between 6 to 10% of total transfers and aimed at locations which had not been traditionally identified with migrant workers.

Finally, we have found that, at least in the US-MX corridor, cash dominates remittances. This is very similar for many other Latin American countries, but it might be different in Europe and Asia.

For further information, you can find here the paperSee Banknote paper. More The Journey of a Remittance in the US-Mexico Corridor: From My Salary to My Family by Bernardo Batiz-Lazo and Ignacio Gonzálex Correa.

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