The Four Megatrends in Payment MethodsBy Jan Hogewoning | Tue, 04/07/2020 - 10:47
Q: What trends are you observing in the Mexican market regarding digital transformation?
A: When we look at Latin America, as Visa, we can identify four megatrends. These will come to full fruition in the following years. The first is universal access to payment credentials in the digital space. Consumers are moving away from cash and physical cards, even at the base of the population pyramid. This is driving more financial inclusion. Devices are becoming financial centers for people. The best example is payment by mobile phone using a digital wallet or the boost of neobanking which will accelerate the emission of virtual accounts.
The second megatrend is universal access to digital points of sale. The high penetration of smart devices in Latin America is changing the mindset from hardware to software. We work with large companies and SMEs, all looking to build the capacity to accept digital payments as mobile phones become a more prominent point of sale, also known as MPosor and SoftPOS. Another example are scan-and-go solutions. This cardless option is still incipient in Latin America, with only two large retail businesses in the region offering scan-and-go.
The third trend is security as a priority. As customers pay through multiple devices at multiple commercial sites, data becomes integrated in platforms to allow faster recurring payments. There are different technologies to secure your data. One is tokenization, which replaces sensitive data with a non-sensitive equivalent, making it harder to exploit the original information. Another tool is 3D secure protocols, which allow e-commerce companies to verify the validity of a transaction based on historical interactions with the client. At the same time, there are numerous tools for authentication. These include biometrics and facial recognition technology. Visa offers Consumer Authentication Services, Visa Advanced Authorization and Visa Risk Manager Services. Our artificial intelligence capabilities can now manage 500 risk attributes in one millisecond. This is an effective tool against fraud and cyberattacks for our business partners.
The fourth trend is automated commerce, through the Internet of Things. Commercial activity has reached new heights with less and less manual intervention. 5G is an essential asset in allowing much faster communication for automatic sales., Visa is working with manufacturers of different equipment to include systems for digital transactions in their designs. For example, we will see “connected cars”, where payments at a gas station will be processed automatically as the car registers the transfer of fuel and exchanges the digital credentials for payment. The same will happen for home devices conducting purchases.
Q: In light of these trends, what challenges stand in the way for Mexico to achieve a higher level of digitalization?
A: Cash payments remain a key obstacle in moving to a digital ecosystem. In Mexico, 85 percent of all payments still happen in cash. Unfortunately, this is cyclical, as customers pay merchants in cash and merchants then pay their supplier and employees in cash. Infrastructure for card payment is still limited in comparison to the rest of the region. With 10 payment terminals per 1,000 people, Mexico lags behind the regional average of 18. In Brazil, the number is above 30. A study titled 'The Readiness Index', an analysis developed by Visa Consulting and Analytics team, categorizes each municipality in Mexico regarding its level of preparation to adopt electronic payments using indicators such as internet infrastructure, number of bank locations, ATMs and smart device ownership among the population. We found that only 6 percent of Mexican municipalities are at an advanced stage of readiness for digital transactions, 14 percent are considered in transition, while 80 percent are still in the emerging/incipient class.
There have been important advances in this area, however. Simplified accounts allow more people to have access to digital finances.. There are now also millions of cards in Mexico that are capable of processing contactless payments, which are faster, more secure and convenient. Consumers are concerned about handing their card over to someone else. This contactless method allows them to pay in a few seconds and skip this step. More than 50 percent of the existing card terminals in Mexico are now able to facilitate contactless payment. Our goal is to move to 100 percent as the ecosystem evolves.
I believe the government has an important role to play in Mexico’s digitalization. Salaries, for example, can be paid through a digital transaction. Policies can also be implemented to stimulate the growth of digital transactions. In Uruguay, for example, the government implemented a VAT discount for individuals who paid through electronic means, which helped the ecosystem to grow very quickly. In Costa Rica, the government mandated that all businesses should accept at least debit card payments.
Q: What specific actions are you taking to help SMEs?
A: Visa is focusing on collaborating with business verticals that have a high penetration of cash payments, helping them to transition to a new payment capability. Cash payment penetration actually represents an opportunity for Visa. The company also works with the FUNDES foundation to provide education to micro, small and medium enterprises on financial control of their business.
One of the advantages is the widespread use of smart devices in Mexico, particularly of mobile phones. There are 90 million smart phones in use in Mexico, with a penetration of 89% in the population. These are the financial centers of the future. It is important to emphasize that moving to a digital transaction system has the ability to increase the sales of a business by 20 to 30 percent. Cash tends to be more attached to a targeted purchase, whereas individuals with a debit or credit card will choose to buy additional items because they feel fewer restrictions in the moment of purchase. Visa conducted a research study on the impact on cities should they go cashless, considering the premise that the whole population is at the level at which the Top 10 percent now stand in terms of digital payment use. We found that a city like Mexico City would see a total net positive impact of US$12 billion, with a 9 percent projected increase in annual GDP. With easier, more secure and faster transactions, businesses and individuals would see a major improvement in their lives.
Q: What are your priorities for the Mexican market in 2020?
A: Our priority for 2020 remains the conversion from cash to digital payments. We will continue working closely and collaboratively with the digital payments industry in Mexico, to accelerate digitization; drive acceptance; expand consumer access to fast, secure and convenient electronic payments; as well as to develop new technologies and innovations that help reduce barriers to include more people in the digital economy. We recently received the authorization granted by Central Bank of Mexico, to establish and operate as Clearinghouse for Card Payments, which will allow Visa to provide domestic network-processing services in Mexico. This is yet another example of Visa's commitment to drive the adoption of electronic payments to all sectors of society and contribute for the economy to thrive.
Visa is a global payments technology company with the mission to connect the world through the most innovative, reliable and secure payment network - enabling individuals, businesses and economies to thrive. The company’s relentless focus on innovation is a catalyst for the rapid growth of connected commerce on any device, and a driving force behind the dream of a cashless future for everyone, everywhere