The Cuban remittance market has been transformed rapidly in the last 8 years. At present, remittances to Cuba no longer fulfill only the traditional role of providing financial support that solves the problem of consumption of food, footwear and clothing of thousands of Cuban families, a very common occurrence in the period 1993-2008.
The evolution of the remittance market to Cuba, its transformation, diversification and growth has been directly influenced by market conditions in each of its stages. These conditions have been determined both by internal factors (market with many restrictions), and external factors affecting the Cuban economy (US embargo). The dynamics of the remittance market in Cuba has been and will continue to be very dependent on the state of the relationship between Cuba and the United States, as more than 90% of the Cuban remittance-sending diaspora is settled in the United States.
The evolution of remittances that arrive in Cuba can be divided into three stages framed by developments in the domestic market and the lifting of external restrictions by the US government. See Figure 1.
Figure 1. Evolution of shipments of remittances to Cuba, 2000-2025P
Source: Havana Consulting Group
During the second stage, which began in 2009, the use of remittances went beyond basic consumption needs to cover other needs of Cubans living on the island, such as: communications (paying for cell phones or covering the costs of an Internet account), financing vacations, investments for a business, purchase of spare parts for cars, payment of repairs of cars, payment of private tutors to cover the costs of training for entrance examinations of students to university, purchase of houses, purchase of cars and other necessities. See Figure 2.
Figure 2. Evolution of the uses of remittances in the Cuban market since 2000 and its trend until 2025
Source: Havana Consulting Group
The channels used for sending remittances have also become a way for Cubans in the island to receive payments for room rentals to tourists for remote work such as: business consultancies on legal or economic issues, design work, creation of mobile application, translations, book editing work, thesis tutorials, computer program design, website design, specialized articles on economics, culture, medicine, payments for works of art, etc.
It should be noted that payment for these commercial transactions is being made using the channels usually used to send remittances. Therefore, an interesting process of overlap is occurring between "technically formal" remittances and the transfer of hundreds of millions of dollars that come from "purely commercial" transactions, which are transferred through remittances because there is no channel available for formal payments for these transactions.
This new scenario has resulted from the window opened by the policy outlined by former President Barack Obama towards Cuba and the lack of formal collection mechanisms that the Cuban government could put in the hands of Cuban entrepreneurs. By eliminating the restrictions on sending remittances to Cuba and at the same time opening up to the private sector, many business opportunities arose that required a payment channel. The fastest and least complicated way to carry out these payments is to use the means used for remittances, either official means (shipping agencies) or informal ones (mules, friends and family members who travel frequently to the island). Above all, taking into account that 90% of remittance transactions are made from the United States, a country with whom banking relationships with Cuban banks are very limited, even though President Barack Obama relaxed the restrictions on financial services with Cuba at the beginning of 2016. Reality shows that because of the embargo, US banks are afraid of entering into transactions with Cuban banks, due to the high fines that some of them have received for being involved in financial transactions with Cuban entities.[i]
Only two American banks are licensed to carry out transactions with Cuban entities, the Stonegate Bank and the Banco Popular de Puerto Rico (BPPR). Both banks can issue MasterCard cards to be used in point of sale terminals in stores, hotels and restaurants operated by companies of the Cuban state. They can also be used to withdraw money from ATMs.[ii]
In the period 2009-2016, remittances grew by 2 billion dollars compared to the previous stage, framed in the period 1993-2008. In just 8 years, the highest priority uses of remittances went from 6 activities to 14. See Figure 2.
What is to come in the next years
In the coming years it is expected that the use of remittances will continue to expand to new modalities. Internet access in homes will gradually become one of the business with the highest number of monthly transactions from abroad, as the service expands throughout the island, the infrastructure is developed, and prices become cheaper. A process similar to that of cellular telephony, which now has more than 4.3 million customers.
Similarly, it is expected that the digitalization of the collection of payments for household electricity and water services will be the next items that will enter into this type of transactions. This will generate transactions from abroad, especially to help retired and pensioner Cubans, who in 2016 were approximately 1.7 million with an average pension of 277 CUP, about 11.08 USD at the official exchange rate[iii]. By 2030 it is expected that there will be more than 3 million pensioners.
There is also tremendous potential for the use of remittances to pay for cruise vacations as gifts from Cuban Americans to their relatives on the island. It is foreseeable that in the short and medium term, Cubans will be able to take cruise trips departing from the island itself, given that Cuba is being inserted into the Caribbean cruise market in the coming years. Currently, many Cubans enjoy their vacations paid by relatives living abroad in hotels at the main tourist poles of the country. Adding a cruise option to the list of vacation offers will undoubtedly be well received by Cubans.
Other modalities that could quickly enter the list are the purchase of cars in the retail market and the purchase of homes from real estate companies. As is known, cars currently circulating in Cuba in the hands of the population are scarce, and in most cases are more than 30 years old, one of the several reasons why the transportation system is bogged down in an eternal crisis.[iv]
It is expected that in the next few years there will be a change in the pricing policy in the retail market and massive opportunities will open up for the sale of cars, taking into account that a middle class has already emerged on the island with more than 1 million of Cubans staying annually in the same hotels as tourists and almost 800,000 traveling abroad[v]. In addition, more than 2 million Cubans live abroad, with a portion of them being able to finance the purchase of a new vehicle or use for their families on the island.
In the case of housing, Cuba currently has a deficit of 880,000 housing units, which is one of the most critical problems of Cuban society[vi]. It is foreseeable that at any moment the state will create joint companies for the construction of houses to rent or sell them in a real estate market aimed at the Cuban population governed by supply and demand. In fact, there are currently million-dollar investments of this type, but aimed at foreign buyers.
Finally, in this large list of uses of remittances, they could also satisfy the payment of cable or satellite television service, still largely absent in the Cuban market, but which would undoubtedly be a gold mine once the market is opened up to the population. Currently in Cuba's portfolio for new investments there is a project for cable television to launch pay TV in the country, with the aim of offering cultural and entertainment products. Cuba currently has 3.8 million households which do not have this type of service. The opportunity for this project to start working in the medium term is high; many Cuban emigrants would pay for their families on the island to enjoy this service.
In the absence of banking channels, remittances lead in payment channels to the island
The growth of the private sector in Cuba in the last 8 years has given a gigantic boost to commercial transactions that are made through the remittances payment channels. The Airbnb house and room rentals portal made transactions for 40 million dollars from April 2015 to April 2017. The portal has more than 32,000 offers of accommodations spread across 70 cities and towns on the island. These transactions are made through the remittance company VaCuba individually to each owner of the property.
The demand for accommodations in Cuba has continued to grow. So far in 2017, Cuba is the ninth most popular country on Airbnb for American tourists, ahead of Australia, Germany, Holland and Thailand, among other countries. In 2016, more than 12% of Americans who traveled to Cuba stayed at places they arranged through Airbnb. Of the 32,000 Cuban properties included on the platform, around 18,000 of them are located in Havana. An average of 70,000 tourists arrive on the island annually with accommodation arranged through Airbnb[vii].
But transactions for payment for accommodations also come through the giant Western Union, which operates on the island since 1999 and can now send remittances to Cuba from anywhere in the world.[viii]
Western Union is used not only to pay for transactions for hundreds of Cuban accommodation rentals. Money is also sent to pay for passages of relatives who are invited to visit their relatives abroad, mainly the USA; for the payment of commercial transactions corresponding to jobs that are done remotely, and purchases of items, real estate and cars that are paid by monthly installments agreed between seller and buyer.
Another form of transaction that has grown dramatically is the payment of cell phone recharges to the island. The most popular platform is Cuballama, which has a portfolio of around 1 million customers and has become the main platform for telephone recharges to Cuba through the Internet.[ix]
According to data published by ETECSA, in December 2014 around 400,000 recharge transactions were made for cellular telephony; in December 2015 the number was a little more than twice the previous year, when it reached the figure of 836,854 transactions, which represented a volume of 124 million dollars[x]. See Figure 3.
It is expected that in the coming years the number of recharges will continue to increase, given the growth of cell phones on the island.
Currently, the market niche of online payments to satisfy communications services to Cuba is being dominated by companies IDT and Transfer To, which act as hubs that control the transactions of the refill payments made over the Internet. Both companies in 2015 had the leadership among the top-ups, with an estimated 144,000 and 150,000 monthly transactions, respectively[i]. See Figure 4.
It is predictable then, that in the coming months/years these companies will also make incursions into Internet account reloads for homes, a service that began to be offered to the Cuban population in some regions of the country recently[ii]. In addition, these companies could venture into other services such as electronic wallet, a service that has not yet entered the Cuban market, but whose success can already be envisioned.
Figure 4. Leading companies in the segment of online payments of communication services in the Cuban market, 2014-2016
Source: Havana Consulting Group, based on data published by ETECSA at the IMTC Cuba 2016 convention and interviews with executives of these companies.
Likewise, the top-ups for Internet accounts are also increasing, which is another route of transactions generated by the Cuban remittance market. This service began in October 2015, and in May 2016 there were 50,902 transactions. See Figure 5
Figure 5. Reload operations of nauta accounts from abroad, October 2015-May 2016
Source: Havana Consulting Group, based on data published by ETECSA
Remittances have also ventured into the Cuban tourist sector. Another route that transactions take is through online payments of lodging in the country's hotels, made by Cubans residing abroad to invite their relatives on the island, mainly from the USA.
In a study conducted by HCG in 2014, it was found that 37% of Cuban-Americans who traveled to the island stayed at hotels with their relatives living on the island at least one weekend, mainly at the Varadero tourism pole, the keys north of Villa Clara and in Guardalavaca, Holguín. This trend has been increasing. It is currently estimated that around 45% of Cuban-Americans who travel to the island stay in a hotel with their relatives on the island for two or three days. Other emigrants choose to pay online for their families' vacation without making the trip.
Currently transfers between US banks and Cuban banks are not allowed. The remittances that are sent by agencies use banks from third countries -- usually in Canada, Europe or South America -- to carry out the transactions. In Cuba there are 5.7 million savings accounts of which 50% is linked to a magnetic card. However, Cubans have limited access to tools that allow them to receive money directly into their bank accounts, or make online payments, except for debit cards issued by FINCIMEX to receive remittances from Canada, Mexico or Europe, which are not linked to the aforementioned savings accounts that currently exist on the island.
There is a great opportunity for Cuban banks to insert themselves in remittance payment networks and to create formal channels so that Cuban entrepreneurs can carry out commercial transactions through banks. As the Cuban banking system manages to computerize its services and the population has access to applications that facilitate online payments, the payment channels will be transformed and adjusted to market dynamics.
Daily thousands of transactions occur related to the increasing diversity of the use that is given to remittances sent to Cuba and commercial transactions that use established payment channels for remittances that lack a formal channel to carry them out.
For the next 8 years this article has identified 7 new modalities of uses of remittances, in addition to the 14 already existing. It is expected that these modalities will have a strong impact on the market and represent a great business opportunity for Cuban banking.
The Cuban banking system requires a large investment in infrastructure, updating of its technology and digitalization of payment processes to be able to insert itself in the dynamic financial services business. More than half a million Cuban entrepreneurs in the private sector generate thousands of daily transactions that do not pass through Cuban banks because the conditions for this do not exist. One group uses the payment networks of remittance agencies and others use informal channels. Cuban banks fail in earning tens of millions of dollars every year because they do not have the adequate infrastructure to offer these services. Without a doubt, this is a great investment opportunity in Cuba for banks and companies specialized in providing infrastructure and technology to banking networks.
 Morales, Emilio. “Informe anual sobre remesas a Cuba”. 2014.
 Domínguez Cruz, Ana María. “El sistema bancario cubano por dentro. Una banca en constante perfeccionamiento y con miras al futuro”. Junio 2016. http://www.cubahora.cu/economia/el-sistema-bancario-cubano-por-dentro
[i] Morales, Emilio. “Technology transforms the remittances market”. THCG Business Report, October 2016 Nº 5, THCG & Tech.
[ii] EFE. “Cuba empieza a comercializar internet en los hogares a precios exorbitantes”. El Nuevo Herald. Marzo 2017. http://www.elnuevoherald.com/noticias/mundo/america-latina/cuba-es/article139748413.html
[i] 14ymedio. “Bancos de EE UU “tienen miedo” de hacer negocios con Cuba”. Septiembre 2016. http://www.14ymedio.com/nacional/Cuba-negocios-bancos-EE_UU-Departamento_del_Tesoro-sanciones-comercio_0_2069793008.html
[ii] Morales Menéndez, Benjamín. “Banco Popular opera en Cuba”. ELNUevodia.com. Junio 2016. https://www.elnuevodia.com/negocios/banca/nota/bancopopularoperaencuba-2215248/
[iii] Mesa-Lago, Carmelo. “Social Welfare and Structural Reforms in Cuba, 2006-2017,” in Cuba in Transition, Washington DC, ASCE, Vol. 28 2017.
[iv] Pérez Villanueva, Omar Everleny. “Cars old chrome bright hopes”. THCG Business Report, October 2016 Nº 6, THCG & Tech.
[v] Morales, Emilio. “Thaw and reforms create a middle class and new balance of power in Cuban economy”. THCG Business Report, June 2017 Nº 3, THCG & Tech.
[vi] EFE. "Reportan en Cuba un déficit de más de 880.000 viviendas al cierre de 2016”. CIBERCUBA”. Julio 2017. https://www.cibercuba.com/noticias/2017-07-12-u141144-e146802-cuba-muestra-deficit-880000-viviendas-al-cierre-2016
[vii] UNIVISION y EFE. “Los cubanos ganaron unos 40 millones de dólares en dos años con Airbnb”. Junio 2017. http://www.univision.com/miami/wltv/noticias/america-latina/los-cubanos-ganaron-unos-40-millones-de-dolares-en-dos-anos-con-airbnb
[viii] EFE. “Western Union anuncia servicio de envío de remesas a Cuba desde todo el mundo”. CUBANET. Marzo 2016. https://www.cubanet.org/noticias/western-union-anuncia-servicio-de-envio-de-remesas-a-cuba-desde-todo-el-mundo/
[ix] Beltrán, Federico. “Cuballama responde a acusaciones de fraude, hechas por ETECSA”. CIBERCUBA. Noviembre 2016. https://www.cibercuba.com/noticias/2016-11-21-u146802-cuballama-responde-acusaciones-fraude-hechas-ETECSA
[x] THCG Business Intelligence Unit. “The mobile telephone market: captive and lucrative”. THCG Business Report, December 2016 Nº 6, THCG & TECH.