As encouraging as Mexico’s recent spike in digital payments has been, the enthusiasm has been tempered by reports that national initiatives to increase financial inclusion, such as CoDi, have not been advancing as quickly as we originally expected. Of course, digital payments and financial inclusion are not the same, but they are, at least in my estimation, interrelated in so far as digital payments provide perhaps the most viable path to scaling inclusion.
The good news is that the Mexican market today has more possibilities than ever for removing some of the stubborn barriers that have historically stalled digital and financial inclusion initiatives. Having been actively involved in several such projects over the past decade, I can tell you that we’ve come a long way, having figuratively broken boulders into blocks. However, blocks like the Legos we all love, require some assembly.
Financial and digital inclusion are challenges too big and complex for any one system or player to solve, much less solve quickly. They take a combined effort. And that’s why it’s so important to break it down into actionable component pieces for the different participants.
On that front, there is some good news in the form of new technical advances and collaboration models designed to make it easier for financial players and their partners to move to a variety of digital-first use cases. These models package and deliver the necessary building blocks and help with assembly.
Today, companies like Visa have established ready-to-launch, cloud-based solutions that banks, merchants and fintechs in Mexico can sign up for and quickly integrate with the help of partners who they’ve certified. These solutions help them overcome major barriers like meeting inherent compliance and security requirements and costly development and integrations, allowing them to start issuing, for example, their own fully-digital, instant issuance, virtual debit programs faster than ever before.
These technologies enable programs that let ordinary people self-enroll for financial products in minutes using their mobiles without the need to visit a branch or fill out paperwork.
This is a big deal not only for the prospect of financial inclusion, but for digital inclusion and e-commerce overall as it provides nonfinancial companies like subscription-based consumer and business services a way to partner with licensed entities to establish a reliable means for payment and entry into under-addressed markets.
Digital inclusion without financial inclusion is less meaningful to any society. The difficulty in achieving more rapid and significant change lies in the fact that the problem requires that two separate types of infrastructures be modernized and expanded: digital mobile communications and financial systems. Being in the latter camp, I’ll focus on the financial.
WHY IT’S SO HARD
First, it’s almost impossible to imagine a successful inclusion initiative that doesn’t involve the participation of licensed financial entities and large acceptance networks. That’s because no one else is legally allowed to hold money and no one else is better equipped to ensure it can be spent anywhere and anytime.
The problem is that there are specific compliance and security challenges that these parties have to overcome; for example, at the time of verifying each individual’s identity (KYC/AML) and of securely issuing them a payment credential (virtual account or physical card) that’s safeguarded against fraud.
Of course, the technologies to solve these problems have existed for years but until recently they’ve been rigid and difficult to acquire. That’s because few institutions outside of the very largest have the expertise and human resources to build and integrate everything that’s required, from mobile user interfaces (UIs) to numerous backend integrations and tools and interfaces needed to effectively deploy and administrate digital-first programs.
The tech models used by Visa and others roughly follow the same templates established by companies like eBay, Amazon and Shopify in the retail the world: creating accelerated paths to digital commerce for small and micro businesses that integrate many key capabilities and backend partners through simplified connections.
Today, it’s possible for a fourth-tier bank in Mexico to deploy its own 100-percent mobile and virtual remittance use case in three or four months, thanks to these new alternatives. Equally, they can choose a disbursement solution or some other use case that suits them, such as one brought by a partner like a fintech looking for a bank.
The point here is not that we’ve solved the problem, but rather that we’re getting closer. We have more purpose-built tools and options at our disposal today than yesterday. The sooner that more and more players discover those options and begin playing with the building blocks, the sooner we’ll be able to advance on financial and digital inclusion in the way that we’ve all been waiting for.