Introduction to the Remittance Market in the US-Mexico Corridor
Over the past 25 years, the cost of sending remittances from the United States to Mexico has gradually decreased. According to data from Mexico’s Federal Consumer Prosecutor’s Office (Profeco), in 2000, sending $350 cost an average of $12. By 2014, this cost had dropped to $7.60, and by 2024, the average was less than $5.
Market Structure and Competition
The US-Mexico remittance market is highly competitive, with numerous providers such as retail stores, pharmacies, self-service kiosks, online platforms, mobile apps, Fintech companies, and more. There are multiple money transfer companies facilitating transfers between the two countries, along with numerous payout points and methods to deliver remittances to Mexican households, including department stores, pharmacies, supermarkets, bank account deposits, prepaid cards, and Fintech solutions.
Cost Variations and Current Market Dynamics
Cash deliveries in physical US stores for pickup at Mexican commercial establishments can cost between $8 and $12 for a $350 remittance. However, bank account or mobile app transfers in the US to deposit into a Mexican bank account can cost around $5, thanks to numerous mobile apps and Fintech companies offering this service, provided both the sender and recipient have bank or digital accounts.
Proposed Remittance Tax and Its Potential Consequences
A proposed 3.5% tax on remittances in the US would increase the cost of sending $350 from $5 to $17.25, a nearly 250% rise. This substantial increase might encourage the growth of informal and unregulated remittance channels to avoid paying the tax, limiting the revenue-generating potential of this proposal.
Impact on Consumers and the Market
This seemingly targeted policy aimed at undocumented migrants could inadvertently disrupt the secure, regulated, and highly competitive remittance market. With prices already at minimal levels, any further price increase would primarily affect consumers with fewer alternatives—in this case, undocumented Mexican migrants in the US and their families in Mexico.
Key Questions and Answers
- What is the current state of the US-Mexico remittance market? The market has become highly competitive with numerous providers and low costs, thanks to digital revolution, global financial system integration, and the large size of this market—the world’s largest remittance corridor with over 12 million Mexican migrants and 28 million second- and third-generation individuals.
- How would a proposed 3.5% remittance tax affect the market? The tax would increase the cost of sending $350 from $5 to $17.25, potentially fostering the growth of informal remittance channels to circumvent the tax.
- Who would be most affected by this policy change? Undocumented Mexican migrants in the US and their families in Mexico, who already face limited alternatives, would bear the brunt of this policy change.
*The author is a senior economist at BBVA Mexico.
