Mexico - Bitso’s Mexico model is beating Bukele’s El Salvador model on cross-border payments
Bitso wants to increase remittance revenues to USD$2 billion in 2022 and expand to other parts of Latin America.
In September, 2021, Mexican crypto exchange Bitso was among a handful of tech firms involved in the rollout of president Nayib Bukele’s Chivo Wallet. The firm was right to be interested in a tool for facilitating remittances.
Bitso wants to lead in the area of cross-border payments and El Salvador’s diaspora sends home USD$5.9 billion in remittances, roughly 24% of the country’s GDP. Laying down the first crypto payment rails for El Salvador would make sense.
Yet Bitso is not making money in El Salvador. Instead, Bitso is making its money in Mexico. Bitso founder Daniel Vogel claims his firm did USD$1 billion in cross border crypto transaction volume during the first six months of 2022. He expects Bitso to post a total of USD$2 billion in 2022.
What’s interesting about this is the contrast between Bukele’s hyped-up Bitcoin economy and Mexico’s low-profile arena. The former should theoretically be the best place to do business. After all, El Salvador has a Bitcoin legalization law and attractive terms for companies who want to set up. Mexico, on the other hand, suffers from vague regulations regarding crypto and banking, AMLO is not behind crypto, and there is no crypto law. And yet, this latter jurisdiction is where Bitso is making big money.
Last year, Mexico received $51.6 billion in remittances. If Bitso processes $2bn in 2022 that means it's capturing 3.8% of the market. It wants to raise that number to 10% by 2023, meaning (assuming remittances stay relatively stable and assuming Bitso reaches its goal) Bitso will process around $5 billion in remittance transactions during the year 2023.
The other important part of Bitso’s Mexico strategy is that most remittances already move across the border via electronic payments. According to BBVA, 99% of Mexico’s remittance volume obeyed electronic payment rails. That means that Mexican users will likely adopt crypto rails faster than Salvadorans, many of whom still pick up cash physically at Western Union and MoneyGram.
There are several companies who could compete with Bitso in the cross-border space. For example, Coinbase in February 2022 partnered with Remitly and began a crypto cash-out remittance policy for Mexicans who receive cash from their relatives in the US. After March, the fees on those transfers cost around 3.5% to 5.25%, according to Coinbase. It’s entirely imaginable that US exchanges like Kraken or Gemini could expand to Mexico as well. Gemini is already in Colombia.
Bukele tried to onboard users to Chivo using a USD$30 airdrop and a centralized, public-sponsored digital wallet. The thinking, according to Bukele and his team, was that Chivo would be the main remittance tool for Salvadorans sending money back home. But as of April 2022, the Central Bank of El Salvador said only 1.6% of El Salvador’s total remittances were conducted via Chivo. That’s approximately USD$39.4 million. Assuming that Chivo processes around USD$120 million in remittances per year, that’s 6% of Bitso’s Mexico revenue.
Bitso is proving that a more nuanced, laissez-faire approach of partnering with remittance firms drives much more volume than Bukele’s central command Chivo policy. It’s likely the Mexican model - not the Salvadoran one - will be the one that becomes replicated across Latin America.