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Digital Versus Cash

By Vicente Aguirre - Arcus Financial Intelligence
Business Development Head

STORY INLINE POST

By Vicente Aguirre | Head of Business Development - Mon, 10/25/2021 - 12:59

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While many parts of the world are increasing their digital transactions, the Latin American region, and Mexico in particular, remains anchored to physical money.

The year 2020 however, while unexpected, was a year full of transformations. Work was done to increase sanitary measures due to COVID-19 and digital payment methods became more attractive, leaving behind the use of cash. 2020 accelerated the adoption of digital payments by several years, consolidating a trend that is most definitely irreversible.

Many industries have started to carry out different mobile payment initiatives, modernizing the economy based on a digitization effort, all with the aim of avoiding physical contact and costly money manipulation. Furthermore, digitization has been widely accepted by users, especially the younger generations, since it provides a level of convenience that they otherwise could not easily find.

In economies like Mexico, however, there are great challenges for digitization strategies to easily be massified and become the norm, instead of the exception. Among these reasons is the massive use of cash in more than 70 percent of transactions, the high level of informal economy, a high percentage of the unbanked population and the limited (but growing) access to technologies such as smartphones.

What to do?

The solution is to have highly efficient hybrid models in which the two universes (physical and digital) can coexist. Efficiency, cost-efficiency and payment traceability are all key factors that need to be a priority.

Where to look for the conditions?

In Mexico, there are two large networks through which digitization can be implemented.

The first is related to neighborhood stores, known colloquially as “changarros.” These networks have the highest capillarity in the country, with their presence being so relevant that large companies, such as Bimbo, Femsa and Modelo, make more than 60 percent of their sales in these ecosystems.

The second network is one of recent creation and presents many opportunities for exponential growth. It corresponds to the convenience store networks, such as OXXO, 7-eleven and Modelorama. Unlike the previous network, these are highly technical, operating on pre-established standards and with a high degree of penetration, mainly in urban environments.

The solution:

The solution should focus on generating transactions in a format that can be easily implemented by both networks, and it involves the generation of highly accepted standards, from traditional references to high impact trends such as QR codes, which, as an example, Mexico’s central bank is promoting through its CoDi platform.

The secret also lies in the interoperability of platforms; that is, a solution that can be used for payments, deposits or cash withdrawals, both in the neighborhood stores network and in the convenience store chains. It can even be compatible with traditional networks, such as banking or retail networks with a nationwide presence.

Impact.

By fulfilling the above conditions, the two universes are united (both digital and cash), allowing transactions between the two. A good example of this would be the dispersions of payments related to social programs in which the beneficiaries can withdraw the resources at the corner store, cheaply and conveniently. Another example would be the money transfers between individuals using chains. A third example could be to offer higher accessibility via check-out mechanisms, which allows for e-commerce purchases, paying directly in POS, which, so far, is only really accessible to the banked population.

At Arcus, we pride ourselves on improving people’s financial health by helping companies empower their consumers, giving them a better way to manage their payments. We are proud to be the infrastructure that is helping so many businesses transition to adopt technology and implement solutions that will radically change their end user’s experience, contributing to financial inclusion and, at the same time, increasing client retention, building loyalty, attracting more users, generating traffic toward their apps, increasing transactionality and, in essence, becoming the center of their consumers’ financial lives, staying on the train of the future.

Photo by:   Vicente Aguirre

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