Mobile payments come to cash-obsessed Mexico
The government’ s new electronic purchase platform faces challenges in a deep-rooted informal economy. By Justin Villamil
The Starbucks in the Buenavista mall, a sleek structure set just beyond Mexico City’s colonial centre, was bustling on a recent weekday morning. Slowing down cashier Monserrat Ruiz: Customers, one after another, whipped out cash — peso bills and, in some cases, small-denomination coins — to pay for their lattes and iced coffees.
It’s an odd notion for anyone who’s grown accustomed to the rapid-fire experience of paying with plastic or a mobile app in US and European cities. But in Mexico, cash is still king. And, if anything, its use keeps growing, the result of a deep-rooted informal economy and an ingrained distrust of major institutions.
Now, the country’s government and big banks are trying to get Mexicans to kick their cash habit.
A national programme called CoDi — short for cobro digital, or digital payment — aims to vastly expand electronic purchases, bring a new client base to financial companies, and, most importantly, help the government crack down on illicit transactions and boost tax collection.
In a country where almost 40% of the population doesn’t have a bank account, such a shift from cash would mean a radical reshaping of the nation’s culture.
“There’s a huge challenge that underlies the Mexican economy, which is the informal sector,” said Christopher Wilson, deputy director of the Wilson Center’s Mexico Institute, a Washington-based think tank.
“People are more likely to receive payment via cash, which means they have less incentive to open up a bank account and they have less incentive to use digital payments.”
Roughly 88% of Mexicans use cash as their primary form of payment, according to data from Minsait, an affiliate of Spanish consultancy Indra.
While electronic money transfers have long existed in the country, they are complicated, often requiring special equipment or even an in-person visit to another bank branch.
Countries have tried to crack down on cash use before, most notably with Indian Prime Minister Narendra Modi’s ban three years ago of high-currency bills, which roiled the economy and caused chaos for businesses.
CoDi, which launched officially on Sept 30, is a far smaller effort, best thought of as the infrastructure upon which Mexico’s banks can build their own apps.
Almost two dozen financial institutions have rolled out full paymentprocessing apps tied to the system, according to information from the central bank, including Banco Santander SA, Citigroup Inc’s Citibanamex and Banco Bilbao Vizcaya Argentaria SA, the country’s largest bank. Six more, including HSBC Holdings Plc, offer just person-to-person payments.
CoDi had an early kick-off with a test launch in three cities, which the banks said was largely a success. Santander, for one, worked with 450 retailers in the areas, including sellers like tortilla vendors and local bodegas that are the epitome of the cash culture.
“The pilot programmes allow us to understand how people react to a form of payment that now isn’t tangible,” said Carlos Marmolejo, the executive director overseeing CoDi’s launch at Santander. “When they saw they could pay with this, that small companies could accept payments with a QR code, it was amazing for them.”
The potential was on display in Tulancingo, a test town about an hour and a half northeast of Mexico City. At a corner store, a 16-year-old named Orlando grabbed a Sprite and strawberry Fanta and scanned his smartphone to pay with CoDi.
“The system is good, and pretty easy,”
Orlando said.
But across other parts of the bustling city centre, the challenges were clear. Cash was readily used to buy everything from fresh tortillas on street corners to live chicks in shop windows.
Publicity for the new payment system was limited, popping up only on small signs outside of the CoDi-using shops themselves and, in one instance, in a Santander branch.
Mexico’s share of cash used in the economy as a share of gross domestic product has risen steadily since 2012, according to Minsait figures. It’s not only because of the cash culture. For people in more far-flung locations with spotty internet coverage, accessing an electronic bank account may not be worth the effort.
“CoDi really is trying to reach the unbanked but is, for all practical purposes, formulated for the banks,” said Liliana Rojas-Suarez, the director of the Latin America Initiative at the Washington-based Center for Global Development. “You have to have a bank account.”
The government is so intent on pushing more people into the banking system that it’s considering a ban on the use of cash to purchase gasoline and pay for toll roads, though a final decision hasn’t been made.
Part of that push may be tied to the government’s efforts to tamp down on the corruption that President Andres Manuel Lopez Obrador has railed against, by limiting tax evasion and money laundering by electronically tracking sales.
But Mexican citizens are also wary of corruption, high bank fees and troubles within the financial system — another part of the reason they stick with cash.
“It’s not that you don’t want to have an account or do more transactions,” said Rojas-Suarez. “It’s that you feel more insecure, you’d rather keep your money with you and not give it to somebody else.”
That’s one reason Martha Jimenez, a customer at the Mexico City Starbucks, uses cash.
She said her bank hit her with unexplained fees and her card was missing money with no explanation.
“I’m distrustful,” Jimenez said as she pulled out a 500-peso bill, about $25, to pay for a thermos of coffee.
For people like Ruiz, the cashier, it’s just a challenge to change habits. Not only do most of her customers use cash — she estimates it’s about 70% — but she typically does as well.
“I wouldn’t have as much control over what I’m spending if I used a bank card,” Ruiz said. “If I spend too much I could get in trouble.”
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People are more likely to receive payment via cash, which means they have less incentive to open up a bank account and they have less incentive to use digital payments. CHRISTOPHER WILSON Deputy director of the Wilson Center’s Mexico Institute