By Telis Demos
Cross-border payment providers are proving resilient despite increased trade tensions between the U.S. and Mexico.
Money transfers into Mexico from individuals outside the country surged after the U.S. election, highlighting the challenge that the Trump administration might face if it seeks to curb such money flows. The payments, typically by people working in a country away from their families, are known as remittances.
Driven by weakness in the Mexican peso, dollars flowing into Mexico jumped 25% in November from a year prior, the fastest growth rate in a decade, to $2.4 billion, according to the most recent figures from the Bank of Mexico.
The vast majority of that is from Mexico's northern neighbor. Money flowing from the U.S. to Mexico is the largest single remittance corridor in the world, at $25 billion in 2015, according to the latest figures compiled by the World Bank. The second largest is U.S.-to-China, at $16 billion in 2015.
Payments providers say those types of flows are often durable, surviving wars and other disruptions in many countries. And companies that facilitate the most popular form of remittance, involving sending cash through a storefront or kiosk, aren't yet warning of a major slowdown.
President Donald Trump has made strengthening U.S. border physically and economically a central economic policy, and as a candidate proposed blocking remittances as leverage to get Mexico to fund an expanded border wall. More recently, his administration discussed the idea of taxing Mexican imports by 20% as a way to close the trade gap and pay for a wall.
Because Mr. Trump's tough stance on Mexico has sent the peso plunging over the course of2016, transfers of dollars to Mexico were more attractive than ever, because they fetched more of the local currency. Some people also may be sending more money in anticipation of future restrictions.
Even before the election, as the peso dropped, remittances jumped: The second quarter of 2016 saw the biggest U.S.-to-Mexico remittance flow since at least 2013, with the dollars jumping 10% to $6.6 billion, according to the most recent figures from the Mexican central bank.
If that growth pace held up over the course of the year, Mexicans would have sent home about $2 billion more from the U.S. in 2016 than 2015.
Shares of cash-transfer services MoneyGram International Inc. and Western Union Co., which have been under pressure for years because of digital and price competition, rose sharply at the end of 2016, thanks in part to these higher volumes.
U.S.-to-Mexico flows make up about 10% of Moneygram's volume, according tothe company, and about 5% of Western Union's, according to analysts.
MoneyGram Chief Executive W. Alexander Holmes said remittance flows are hard to shut down.
"If you make it too difficult for regular people to send, because you're so concerned about other activity, it goes underground," he said. The company announced Thursday that it was being acquired by China's Ant Financial Services Group.
New tariffs or taxes might not slow the small-business transactions that pass through remittance services either, depending on how the new measures are structured. PayPal Holdings Inc. Chief Executive Dan Schulman, whose company owns remittance service Xoom, noted that tariffs generally don't apply to individual sales of goods under $800, which was raised from $200 in a 2015 law. PayPal's average transaction is about $60, he said.
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(END) Dow Jones Newswires
January 28, 2017 07:15 ET (12:15 GMT)
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