Mexico’s Digital Payment Ecosystem Hindered by Fraud

Payment methods are evolving as a response to customer demand and technological growth. New payment options offer customers a broader range of choices, while potentially increasing access to financial services. However, as the adoption of digital payments grows, users should remain careful as Mexico is one of the countries most frequently targeted by online fraud, yet this activity is not yet classified as a crime in the country.

“We realized that to enable a digital economy, we had to diversify payment methods. Initially, we implemented credit and debit cards. However, in Mexico, the main challenge lies in addressing the problem of fraud, as the country is among the most affected globally”, said Hector Cárdenas, Co-founder and CEO, Conekta, during the company’s 11th anniversary celebration.

Digital Payment Trends in Mexico

The trends in digital payments are evolving to offer new methods and customer experiences, driven by increased customer demands. Contactless and biometric alternatives are on the rise, with smartphones gaining relevance for sending and receiving money. Irina Valassi, Vice President of Customer Solutions, Mastercard Mexico, notes that “75% of phones are enabled with a card for payment”.

Alberto Saracho, Parter, McKinsey, highlighted the trend of unifying digital and physical store experiences, known as the omnichannel model. He emphasizes the importance of efficient and secure payment systems that consider merchants, buyers and all stakeholders in the digital economy.

However, these trends have yet to become a reality in Mexico. Myriam Cosío, Chief External Affairs Officer, Clip, points out that penetration of digital payments in the country lags behind others in the region, with Brazil, Chile and Argentina leading the way. 

In terms of contactless payments, Mexico lags significantly behind, with only about 5% adoption, while in other countries in the region, rates are around 50% or higher, reveals Mastercard. The lack of interoperability and standards in Mexico is identified as the reason behind this gap. The volume of processing in Brazil significantly outpaces that of Mexico, highlighting the need for improvement and standardization.
 

Focus on the Customer

Mexico’s Central Bank (Banxico) recently launched Dimo, a new payment method, after the failed attempt of CoDi. While the CoDi system used QR codes, Dimo enables users to send money through phone numbers. The failure of CoDi was attributed by the panelists to non-standardized QR codes and a lack of promotion in the country. Additionally, users are required to link a bank account and to install and use the app, creating hurdles in its adoption, says Saracho. 

During September 2023, only 55,685 payments processed through CoDi were successfully completed, as reported in Banxico’s progress update. 

“There must be a concerted effort in educating people about new technologies and emerging payment methods,” says Valassi. “I believe that the goal we all share with these solutions is to eliminate the reliance on cash, accelerate economic transactions, enhance financial inclusion and provide a higher quality of life to areas lacking physical bank presence, enabling them to access essential services remotely.”

According to Cosío, the reason for Pix, Brazil’s QR payment system, achieving a penetration rate of over 50% is its unwavering focus on user experience. Brazil’s Central Bank’s instant payment solutions recently recorded over 163 million payments in a single day, as reported by The Brazilian Report. 

“For Pix, experts were brought in to design the product with the user's needs and challenges as the central focus, not the institution’s convenience or presumptions about customer needs,” says Cosío. 

Fraud Prevention and Collaboration

Besides enhancing the customer journey, another crucial aspect that fintech companies prioritize is transaction security. All stakeholders within the ecosystem bear the responsibility of implementing, safeguarding and acknowledging that each party must play a role in delivering the security customers seek. 

“For the customer, the experience should be straightforward and simple, while also instilling a sense of security,” says Mastercard’s Vice President. “In Mexico’s e-commerce landscape, it falls on the payment initiator to introduce safety measures because the system inherently lacks them. Rather than adopting AI or an open finance model to streamline processes and enhance user experiences, issuers tend to reduce transaction approvals.”

“Rather than having a fraud prevention system, we end up with a sales prevention system,” says Casío. He also emphasizes the importance of government initiatives to classify online fraud as a criminal offense. 

In 2021, the National Guard and the Cyber Police launched the National Anti-Cyber Fraud Campaign targeting users. However, the speakers stressed that cooperation, openness, interoperability and competition are instrumental in advancing technology and preventing fraud. “Successful economic models require two critical elements: transparency and certainty,” says Saracho. “When everyone possesses the same information, they compete on a level playing field and evolve collectively.”