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Conxto – Regional migration is high among Latin Americans and Caribbean people with around 28.5 million living outside of their native countries. With so many folks residing abroad, sending remittances back home is a standard practice among this dispersed community.
The reality of the situation, though, is that it’s often a convoluted or expensive process. Sometimes a simple transfer involves a six percent charge of the total amount that senders must pay. In the end, friends or family receive less than what you’ve budgeted for.
Fintech innovation and the influx of mobile banking in Latin America could change this, according to a recent report. The InterAmerican Developmental Bank (IDB) and Finnovista recently published an extensive study called Fintech in Latin America 2018: Growth and Consolidation, that shines new light on Latin America’s fintech ecosystem.
In essence, fintech initiatives could make international bank transfers more cost-effective not to mention reduce the hassle.
Based on a supplementary report from the International Monetary Fund (IMF), mobile operators charge an average commission rate of three percent. This is much cheaper compared to six percent from traditional financial providers.
According to the IMF’s chart, we can see that Latin Americans’ use of mobile money transfers is lower compared to other regions. This may be surprising considering the area’s total share of remittances, equating to US$80.5 billion worth of remittances in 2017. What this means is that financial inclusion is still a work in progress.
Remittances play significant roles in a country’s economic development. Nations like El Salvador and Honduras, for example, greatly depend on these external payments since they comprise 15 percent of their GDPs.
Fintech solutions are fortunately growing at fast rates in the region with 61 percent growth in 2018 alone. Specifically, the sector represented 25 percent of VC investments in the region in 2017, according to LAVCA Trend Watch.
As of 2018, there were also 1,166 fintech startups operating in Latin America, according to InterAmerican Developmental Bank (IDB) and Finnovista. That equates to a 66 percent increase from 2017, 463 more to be precise.
The more fintech companies collaborate with mobile networks, transfer companies, and traditional banks, the more improvements we’ll see. Along those lines, improved policies and loosened regulations will unavoidably improve the remittance process for Latin Americans.