Mexico moving closer to a cashless economy

Industry executives said at a central bank event on Monday in Mexico City that Mexico is ready for a mostly cashless economy by 2025.

The comments came in light of next month’s launch of the landmark  QR-code and NFC (near-field communication) powered CoDi payment platform.

Business leaders who believe cash could disappear from the economy include Laura Cruz of Mastercard Mexico and Luz Adriana Ramírez, CEO of Visa Mexico.

CoDi forms part of a coordinated effort toward financial inclusion and transformation into a cashless economy.

In pilot programs since April, all banks in Mexico with over 3,000 accounts are required to have the system integrated by September 30.

In an update, Carlos Rojo, the president of Mexico’s banking association, ABM, said at the event that 12 banks are participating in the advanced pilot testing in three local markets, while 27 banks (of 51 operating in Mexico) have made “important advances in their development for its incorporation.”

Ramírez said that the transition to digital payments has reached an inflection point with 5bn mobile phone users and 25bn connected devices worldwide, adding that apart from CoDi, cashless payment is spreading rapidly through digital banks, digital wallets, and even delivery services like Rappi.

She pointed to major accomplishments already with financial inclusion like the Saldazo debit card partnership between Citibanamex, Visa and convenience store chain OXXO – which doesn’t require customers to set foot into a bank branch. Of the 8mn cardholders, 42% said the Sardazo card was their first banking experience ever. 

ABM’s Rojo also mentioned the need to complete secondary legislation on fintech regulation and incentivizing digital transactions, and criticized Mexico’s lack of a digital population registry, a shared biometric database or unique electronic signatures.

BIGTECHS WEIGH IN 

Also at the event, Uzma Makhdumi, head of payments partnerships at Google, and Leena Im, of global payment policy with Facebook, stressed that tech giants are seeking partnerships with incumbent banks and regulators as they move into finance.

“Our objective is to partner with the financial ecosystem. We are good at technology, but we are not good at banking, that’s not our forte,” said Google’s Makhdumi, discussing Google Pay at the event.

“We build platforms that are scalable globally. And banking is very localized with local regulators. In our minds we have to partner with the existing ecosystem,” added Makhdumi. “We have to partner with the governments, we have to partner with the financial institutions, and we have to partner with the merchants, to enable a win-win for everyone.”

She said, “for merchants in order to really displace cash – we’re talking about moving from informal to formal, from cash to digital – you need consumers to want to use digital payments and you want merchants to want to accept digital payments, and when you do that, banks benefit because they are actually able to see the transaction.”

Facebook’s Im said partnerships are vital for a key element linking payments to financial inclusion, which is reaching the last mile users in rural areas.

The key, said Im, is “understanding user behavior and understanding the ecosystem, because that has to happen. We will never go in and say this is a product that worked elsewhere and just transplant, it must be locally adapted." 

Asked how global firms like Facebook could bring digital payments to areas with limited connectivity, Im said, “one way we’ve thought through this is partnering with some of our connectivity and telco access teams and the partners they have out in the field [to discuss how] we think about rural areas, from the US or any part of the world.”

She added, “there is this need for partnerships across different entities in those spaces and to tackle that problem together, because it can’t just be a telecom issue or internet issue. We have to think about what is that enabling environment.” 

CASH ISN’T FREE 

Makhdumi referred to hidden costs in using cash, saying, “there’s a perception from merchants that cash is free, but it’s not really. Think about the overhead of counting your cash, the overhead of securing that cash.”

Beyond this, added the Google executive, another cost comes through business management when trying to track cash transactions on pen and paper and build a credit history, for example. 

BENEFITS

With CoDi in the pipeline, Makhdumi noted that Mexican “regulators are more progressive than in many markets.”

She also lauded “SPEI [central bank interbank electronic payment system] rails, which is a huge asset, because there are many countries around the world that do not have interbank rails,” as the US’ FedNow system is still years away from launching.

“You already have the interbank rails in the form of SPEI. You are already contemplating using that to make payments simple and easy through CoDi and beyond,” said Makhdumi. “In addition, the president [Andrés Manuel López Obrador] has made it very clear that financial and social and digital inclusion is part of his agenda, and that’s very helpful overall.”

For the future, “these two together will help propel the market forward, as everyone in the ecosystem tries to work together to move toward a model where transactions are taking place digitally but they are also taking place in a way that you can regulate and oversee.”