Bitcoin adoption accelerating in Mexico

As the eleventh most-populous country in the world, with a population of over 120 million, the World Bank classifies half of Mexicans as “poor” and says that they are generally “Barred from access to formal financial assets.”

“The poor rely on a variety of alternatives to formal banking services,” explains the World Bank. Savings are typically held in cash, and informal borrowing from family, friends, and unregulated lenders is extremely common. Banking is thought of as a tool for the rich in much of Mexico, while Banks in Mexico, “do not aggressively pursue low‐income clients.”

Daniel Vogel, the Co-founder and President of Mexican bitcoin exchange Bitso, claims “around 80M of the 120M people that live in Mexico lack access to basic financial services like bank accounts and credit cards. However, there are over 100M cell lines in the country.”

“People have found a way to leverage their cellphones and Bitcoin to gain access to financial services they were previously shunned away from. These include things like e-commerce payments via Bitcoin (there is no alternative if you don’t have a credit card), savings/investments (it’s impossible to invest small amounts of money in the Mexican Stock Exchange or to have a USD denominated bank account in Mexico.)”
— – Daniel Vogel, Bitso President

The Mexican economy has been slowing down over the last year, with the Peso losing half its value compared  to the dollar since 2013. The US Presidential election has had an accelerating effect on both the economic downturn and the devaluation of the Peso. President-elect Donald Trump campaigned with a firm stance of deporting illegal immigrants and forcing Mexico to build a border wall.  His win in the 2016 presidential election spurred a further downturn in the Peso.

On Tuesday, Ford Motor Company announced their decision to halt production on a major Auto plant in Mexico and relocate those jobs to Michigan, “due to Trump’s policies,” according to Fox news. “Thank you to Ford for scrapping a new plant in Mexico and creating 700 new jobs in the U.S. This is just the beginning – much more to follow,” Trump tweeted on Wednesday.

Trump also promised to halt remittances to Mexico during his campaign, until his infamous wall has been paid for. The threat has recently been scaring Mexicans into sending home larger-than-normal amounts. “We have started to see more and more people leveraging the Bitcoin network to send remittances to Mexico,” Bitso’s Vogel told BNC.

“The remittance channel to Mexico is very significant,” the company President explained, “with over 27 billion USD sent every year, there are always new players approaching us looking to improve or build new remittance offerings.” Although the exchange co-founder estimates current bitcoin volumes are “still less than 0.1%” of the total market, it is growing. “This is still minuscule compared to the amount processed by traditional remitters, but an interesting area that is seeing strong growth.”

“We have been busy building tools and partnerships to enable faster and lower cost remittances to Mexico in a fully compliant way.”
— – Vogel

The peso is already the 18th most-traded currency for bitcoin today, and Mexico has two prominent local bitcoin exchanges. Vogel’s Bitso and Volabit both offer their own live exchanges, wallets, and merchant services. Several smaller exchanges and LocalBitcoins also operate in the area, while many Bitcoin startups are offering complimentary services to give Mexicans an alternative banking solution. Vogel gives credit to “Companies like Purse, BitWage, BitPay, and many others who have started to look into Mexico as an opportunity of growth for their businesses.”

While the Mexican central bank issued a warning about bitcoins to customers in 2014, “There was never a bitcoin ban in Mexico,” Vogel states. Further clarifications were made in 2015, when the government clarified that an existing ban on large transactions using cash also applies to Bitcoin.

The Mexican government then released an official financial inclusion strategy, in June 2016.  The regulations included a provision to make it easier for FinTech startups to operate, instigating a FinTech reform, “which will give the ecosystem an extra boost as more legal certainty will be added,” Vogel states.

“Bitso has been self-regulating and has established several best practices in terms of customer on-boarding, KYC, AML/CTF among others. We have presented and talked to regulators and authorities about our concerns and what we believe needs to be included in the reform.”
— – Vogel

Bitso recently completed a $2.5 million seed fundraising round. Mexican VC firms Variv Capital and Xochi Ventures both partook, demonstrating that Mexico has it’s own VC scene interested in Bitcoin. US investors included MONEXgroup, the Digital Currency Group (DCG), FundersClub, Bitcoin Capital, and Blockchain Tech Limited.

Vogel explained that the funds will be used to build, “an even stronger team,” and, “to make it easier for the underbanked in Mexico to gain access to financial services.” However, beefing up remittances is a key part of the plan as well. “We are also very interested in developing solutions for cross-border payments. Part of the funds will also go into regulatory lobbying.” The regional exchange had record volumes in November, and then again in December of 2016.