Why is it So Hard to Send Money to Mexico?
May 3, 2017
The following article, by Veem CEO Marwan Forzley, appeared today’s Payments Journal. Look for more of this four-part series in the coming weeks.
The U.S.-Mexico payments flow is one of the largest corridors for sending money in the world. You’d think it would be easy to do business in this thriving trade flow—so why is sending money to Mexico so hard?
U.S. Trade with Mexico is Booming
There were $25.2 billion cross-border payments between the U.S. and Mexico in 2015, with the U.S.-China corridor a distant second at $16.3 billion. Moreover, U.S.-Mexico payments are 190x greater than Canada-Mexico payments, another very distant second in Mexican cross-border payments. With such a large and growing flow of payments between our two countries, why is it still so hard for international money transfers to be conducted?
Our two very large economies are deeply interwoven. U.S. goods and services trade with Mexico totaled $583 billion in 2015. Mexico, in fact, is the U.S.’s 2nd largest goods export market.
When businesses are transferring money to Mexico, what are they importing? While auto parts dominate most U.S. imports from Mexico at $51.6 billion per year, there are a host of other goods and services pouring into the U.S. from Mexico including:
- $2.1 billion worth of rubber and rubber articles
- $2.4 billion in apparel
- $3.5 billion in beverages, spirits and vinegar
- $5.5 billion in vegetables
- $3.9 billing in fruits and nuts
SMBs account for a significant portion of Mexican imports. Small business America continues to tap Mexican manufacturers to service U.S. demand for apparel, food and beverage, artisan crafts and furniture items not manufactured here—lucrative markets with margins up to 700%.
So why is it still so hard to send money to Mexico?
Anti-money laundering laws
Because of significant cross-border smuggling of bulk currency from drug transactions, Mexico remains one of the most challenging money laundering jurisdictions. Several foreign banks have cut ties with Mexican counterparts in recent years after having paid more than $2 billion for lapses including the failure to flag suspicious transactions—a process known as “de-risking”. Transferring dollars through the U.S. has become harder after U.S. regulators and law enforcers cracked down on banks that don’t flag transfers linked to Mexican drug cartels or other criminal activity. As it stands, the onus is on Mexican lenders to convince their U.S. counterparts that they have strong anti-money laundering controls and protocols so U.S. businesses can send money to Mexico confidently. If your business is in the construction, jewellery, or auto retail industry, be aware that these industries are considered high risk for money laundering.
Mexico has complicated financial sectors and regulations with multiple regulating bodies in the mix. The four key ones are:
- Comisión Nacional Bancaria y de Valores (CNBV)—National Banking and Securities Commission
- Comisión de Seguros y Fianzas (CNSF)—National Insurance and Surety Commission
- Comisión Nacional de Sistemas de Ahorro para el Retiro (CONSAR)—National Commission for the Pension System
- Secretaría de Hacienda y Crédito Público (SHCP)—Secretariat of Finance and Public Credit
Be aware that Mexico applies Know Your Customer (KYC) policies—local regulations require businesses to rank their customers as either low or high risk, deferring much of the responsibility to the business owner.
Unfortunately for most SMBs, global payments are cumbersome and expensive. When they send money to Mexico—even though it’s right next door—it’s just as complex as sending it anywhere else. International business payments to Mexico go through domestic and international clearing houses and currency exchange rates—which may happen at the beginning or the end of the process. Each of these links in the chain adds confusion and fees, and there’s no way to track payment to its recipient.
But remember, U.S. businesses overcome these challenges and send money to Mexico all the time—a lot of it. The U.S.-Mexico payments flow is one of the largest corridors for sending money in the world. Many businesses engaged in cross-border trade with Mexico are making a handsome go of it, and Veem is here to help you do the same. We developed our global payments platform with small businesses in mind; to make it easier and less costly for you to send money to Mexico and over 60 other countries.
Here’s a handy list of additional resources for help doing business with Mexico.
Resources for Navigating U.S.-Mexican Trade
Country Commercial Guide for Mexico—detailed information on market conditions, purchasing power, consumer trends, distribution channels, and more from The International Trade Administration. A free copy is available by choosing Mexico from the drop down at BuyUSAInfo.net
The Small Business Administration—financing packages to help U.S. exporters expand overseas including Export Express Loan Program, Export Working Capital, International Trade Loans, and SBA and EX-IM Bank Co-Guarantee program.
U.S. Export-Import Bank—assistance in financing the export of U.S. goods and services to international markets including working capital guarantees (pre-export financing), export credit insurance, and loan guarantees and direct loans (buyer financing), and more.
The U.S. Trade and Development Agency—technical assistance, feasibility studies, training, orientation visits and business workshops that support the development of a modern infrastructure and a fair and open trading environment.