Cashless payments have gained significant momentum, modernizing global finance and changing the way individuals and businesses handle day-to-day transactions. Mexico, a country known for its vibrant economy, flourishing commerce, and rapidly growing tech industry, is one prominent example of how declining cash usage can completely transform the local payments landscape.
In this overview, we delve into the key drivers behind this major shift ongoing in Mexico and discuss whether the increasing demand for digital payments has the potential to lead the country to a cashless society in the foreseeable future. Keep reading not to miss out on all the valuable insights!
This impressive shift is driven by a combination of such factors as:
Notably, as a part of Mexico’s National Financial Inclusion Policy, the Ministry of Finance permits digital payments in sectors like healthcare and hospitality, while the central bank promotes the adoption of Cobro Digital (CoDi), its proprietary real-time mobile payments platform, in the retail sphere.
The policy’s ultimate target is to ensure that no less than 77% of Mexico’s population uses at least one financial product by 2024. With such ambitious objectives fueled by the major trends listed above, it is clear to see why cash in Mexico is being gradually replaced by more modern alternatives. But how do the locals feel about such initiatives?
Despite cash still being a crucial part of the Mexican payments ecosystem, the overall sentiment toward modernized payments in the country is generally positive, as illustrated by the following figures:
What’s more, digital payments are also being actively embraced by local businesses, as they are perceived as an effective way to enhance company operations and drive growth.
Notably, a study conducted by Visa Mexico in 2021 shed light on this trend when it was only emerging, focusing on small and medium-sized businesses (SMBs) that were adopting digital payment methods for the first time.
This research revealed that an impressive 75% of respondents acknowledged that accepting digital payments had a profound impact on their business, fueling its growth. On average, these companies experienced a monthly revenue increase of up to 22%.
Given the fact that both consumers and businesses are generally willing to embrace digital payments, it is only natural to wonder why this transition has not happened earlier. Read on to find out!
While massive changes to the Mexican payments landscape seem to be underway, it will still take time for the country to fully adjust to lower cash use. Here are the top three challenges that are in the way of a faster transition:
1. Large Unbanked Population
While this situation certainly means that cash will continue to be used in Mexico in the foreseeable future, it also gives way to innovative fintech solutions. Notably, at the beginning of 2022, a staggering 94% of Mexican consumers were already utilizing mobile banking apps and other alternative financial tools.
2. Lack of Transparency
According to the latest research, Mexican consumers are 36% more likely to make purchases in brick-and-mortar stores than the average shoppers in countries like Brazil, India, the UAE, the UK, and the USA. This is mainly due to the fact that they believe this option is cheaper, find it easier to navigate, and appreciate it offering immediate access to goods.
This tendency partially explains why cash has been asserting its dominance in the local payments landscape for so long. Just like with physical stores, a lot of Mexicans tend to feel more comfortable with tangible money, considering it more simple, reliable, and trustworthy than digital forms of payment.
What’s more, while 66% of merchants provide enhanced data protection measures in digital payments, only 57% of local shoppers are aware of it, which undoubtedly hinders conversions.
Due to this, to gain the trust of consumers and promote their transition to digital payments, Mexican merchants must prioritize enhancing the visibility and transparency of security features and refund policies.
3. Regulatory Framework Drawbacks
While the Mexican government aims to encourage the spread of digital transactions, the local payment industry still has many regulatory aspects that require refinement.
Experts agree that the existing regulations create an uneven competitive landscape among digital payment service providers. Besides, they also pose challenges to expanding the digital financial infrastructure, especially when it comes to increasing cash-in and cash-out access points in remote areas.
Overall, relaxing the regulatory constraints could help facilitate the growth and expansion of digital payment services in Mexico by promoting financial inclusion and enhancing accessibility in underserved areas.
In recent years, Mexico has been making significant steps toward achieving a cashless society by promoting digital transactions and even announcing the development of the digital peso, the country’s CBDC, back in 2021.
However, the country still has significant challenges to overcome before it can complete this large-scale project. After all, this undertaking will require significant investment in infrastructure, multiple regulatory reforms to promote innovation, and measures to address barriers hindering financial inclusion.
Yet, should the collaborative efforts from various stakeholders across the country, including the government, FIs, businesses, and consumers, continue, Mexico is sure to succeed at reducing the use of cash to unprecedented levels already in the near future.
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