E-Payments in Times of COVID-19 to Boost Financial Inclusion

In the 1970s, industrial automation and technological development led many philosophers and thinkers to imagine how disruptive the future could be. In their projections, often crazy and dystopian, there were always two things in common: cars would fly and the way we would pay for our consumer goods in the then distant 21st century would be completely different. Today, in 2020, cars are neither flying nor close to doing so, but the prophecy about payment methods has been fulfilled. Obviously, we do not have chips placed under our skin, nor do we have bar codes on our faces, but if there is one thing that has changed radically since the late 20th century, it is the way we pay for what we consume. In Mexico, according to a survey conducted by Mercado Libre, 57 percent of those surveyed say they will continue to use electronic payment methods once the COVID-19 crisis is over. “The way people pay for things is rapidly evolving and changing. COVID-19 has driven a significant shift in consumer spending habits spurred by economic uncertainty and a push toward the purchase of mainly essential items. There is also a surge in e-commerce whereby consumers are becoming even more heavily reliant on online retail channels to avoid crowded places to limit social interactions,” Phil Sealy, Research Director at ABI Research, said in a press release from the tech consulting firm.

Data from Mexico, although good, does not reach Mercado Libre projections for Argentina and Brazil (strategic markets for the company, like Mexico), where the penetration of electronic payments is expected to be around 75 percent of those surveyed once the COVID-19 crisis is over. According to the Internet Association of Mexico, in 2018 transactions through electronic payment represented MX$491.25 billion (US$20.7 billion), this represents 24 percent more than the previous year. During 1H19, the last time period for which data is available, sales increased by 22 percent compared to the same period in 2018. Also, according to the National Commission for the Protection and Defense of Financial Services Users (CONDUSEF), in 2019 there were 303 million e-commerce operations in Mexico, an increase of 53 percent over 2018. Considering these figures, Mexico has increased sales in this area, a situation that could even have a multiplying effect due to home confinement caused by COVID-19  and with the enormous increase in sales activities companies like Walmart, Amazon or Mercado Libre have seen in the country. “Cash is still a common form of payment in Mexico. Fortunately, this is changing thanks to debit cards. However, we are also finding new ways to make electronic purchases, even by non-conventional players,” Eric Pérez-Grovas, President of the Mexican Association of Online Sales (AMVO), told Forbes last September.

According to AMVO, in 2019 Mexico became the country with the highest growth in electronic payments in retail stores. In that year, Mexico grew 35 percent, ahead of more digitized countries like China, Canada, or South Korea. The global average growth in 2019 was 20.7 percent. The data, which is encouraging, offers another reality, however: Mexico starts from a disadvantageous situation with respect to other markets. That is, the country began late to digitize its payments. 

Electronic payments, common in developed countries, have become a window of opportunity for emerging economies such as Mexico’s and this is due to several reasons. First and foremost because it makes life easier for both the buyer and the seller, generating more engagement for the consumer and less costs for the seller. Second, because banks are finally seeing how cash is gradually disappearing, a headache for them since the failure of the Weimar Republic in 1933. Third, because they are an ideal tool for governments to know what and where consumers are spending their money, which offers many advantages when it comes to creating fairer tax systems. In Mexico, according to government data, only 40 percent of the working population pay taxes, a situation that could change with greater financial inclusion, one of the government’s major objectives to accomplish, as it explained to Forbes Pérez-Grovas. Electronic payments and the gradual elimination of cash could significantly increase that figure.

In Mexico, the lack of consumer confidence continues to be one of the major barriers to overcome in terms of electronic payments. According to Santander, the fourth-largest bank in the country, the possibility of bank data being stolen, a card being cloned and being used by a third party to commit a crime still haunts many customers. For this reason, the Spanish bank decided to launch a credit card in which no personal information is included. Other electronic payment methods can also contribute to improving consumer confidence and, in turn, increase the country’s financial inclusion. Prepaid cards from OXXO and Amazon in collaboration with Banorte, payment processors such as PayPal, OpenPay, PayU, VisaNet and Mercado Pago and the use of QR codes are some of the solutions that can be found in the Mexican market. Banxico, the national central bank, recently launched its CoDi system, a revolutionary electronic payment system that it hopes to introduce to e-commerce in the second half of 2020.

Today, Sweden, China and South Korea are the most advanced countries in terms of electronic payment and cash disposal. According to Dinero magazine, only 1 percent of transactions in Sweden are in cash. To support this disruptive change, the Scandinavian country’s central bank has created e-krona. Through it, the government hopes to continue to control the flow of money in a country that is outside the Eurozone, so a possible devaluation of its currency remains the responsibility of the local central bank. According to the consulting firm Minsait, in Latin America, when comparing the amount of money spent in relation to its GDP, the country with the most credit or debit card payments is Costa Rica, followed by Brazil and Chile.