El Salvador’s Remittance Market Booms: A Look at the Trends and Challenges

The Dominant Player: United States

A staggering 90% of remittances sent to El Salvador come from the United States, with an average transfer amount of $170 per recipient, ten times a year. This influx of foreign cash has made El Salvador one of the most competitive money transfer markets in Latin America.

Market Players and Trends

Large banks such as Banco Agrícola, Banco del Comercio, and Western Union have established branches in the US to facilitate transfers, while companies like Gigante Express and Moneygram also offer their services. According to a recent report by the Superintendencia del Sistema Financiero (SupFin), nearly 50% of remitters use money transfer companies, while a third opt for banks.

Mobile Phones: The New Frontier

However, despite the dominance of traditional banking channels, mobile phones are becoming increasingly popular as a means of transferring funds. El Salvador’s mobile phone penetration rate is an impressive 94%, with over 6.5 million active lines in use.

Challenges and Opportunities for Remittance Recipients

But what does this mean for remittance recipients? According to statistics from the government agency for statistics, 23% of them have bank accounts and 37% know how to use an ATM machine. While this may indicate a growing familiarity with banking services, there is still room for improvement.

Regulatory Environment: Complex but Evolving

The regulatory environment for branchless banking in El Salvador is complex, with multiple agencies involved in supervising financial institutions. The BCR (Banco Central de Reserva) has a broad mandate to maintain stability and liquidity of the financial system, promote the development of an efficient competitive financial system, and foster the normal functioning of payment systems.

A draft law currently being discussed in the executive branch aims to modify the regulatory authority of both SupFin and BCR, transferring most regulatory topics from the BCR to SupFin. The law would also give the BCRA (Banco Central de Reserva) greater authority over payment systems and a few other areas.

Looking Ahead

As El Salvador’s remittance market continues to grow, it will be interesting to see how this complex regulatory environment evolves and whether mobile phones will play an increasingly important role in facilitating transfers. With its high mobile phone penetration rate, El Salvador is well-positioned to capitalize on the potential of branchless banking and mobile payments.