Payment Leaders’ Next Steps on the Path to a Cashless Economy

Mexico's cash-driven economy presents several challenges to the country's financial system and overall economic development. The country stands at a crucial juncture in its journey towards a cashless economy but first it must overcome several challenges, such as financial education, infrastructure development and fostering collaboration among stakeholders. By seizing the opportunity, Mexico can accelerate its digital transformation and provide its citizens with the numerous benefits of a cashless economy while bolstering financial inclusion and security.

Mexico possesses significant opportunities to shift towards digital payments. While smaller countries have surpassed Mexico in the digital economy due to a lack of awareness about its benefits, the country has a tremendous chance to democratize digital payments. "Cash is a highly prevalent payment method in Mexico, and we have seen other countries successfully transition from a cash-prevalent economy to one dominated by digital payment methods," says Daniel Sujo, Digital Practice Leader, McKinsey & Company.

Mexico is 10 years behind developed economies in the region concerning digitalization. However, the pace of change is set to be substantial and the opportunity to transition away from cash remains enormous. This acceleration toward digital payments is expected to become increasingly evident.

In transitioning to digital payments, “Mexico possesses several advantages. As a young country, we have a high smartphone penetration rate and financial services have become more accessible and user-friendly,” says Juan José Galnares, President, Clip.  Many frictions in the process have been removed, making it easier for individuals to adopt digital financial services. The ease of access and the increasing digital inclusion of users are driving this transition. However, there is still much progress to be made.

The first challenge is to increase financial literacy and educate people on the benefits of using digital financial services. Many people in Mexico are unfamiliar with digital banking services and, therefore, do not trust them. Education is key to addressing this issue and promoting digital payment use. Governments and private institutions can help by providing training programs to the public on using digital financial services and their benefits.

Education and advocacy are integral to the daily operations of a cashless economy. These efforts play a crucial role in keeping users well-informed about the multitude of benefits associated with digital payment options. Ongoing efforts to collaborate, create informative content and offer incentives are essential in empowering individuals to adopt digital payment methods. By providing comprehensive education that goes beyond basic account usage and by offering hands-on experiences, users can become more confident in embracing the benefits of a cashless society. “To effectively educate users, it is necessary to bring the product directly to them, allowing individuals to experience the safety and efficiency of digital payments firsthand,” says Othón Moreno, Director of Payments Systems and Market Infrastructure Policy and Research, Banxico.

Moreover, financial education should not be limited to merely introducing the concept of having a digital account. “It is imperative to delve deeper into more sophisticated use cases, empowering individuals to explore the full range of possibilities and advantages offered by digital payments,” says Galnares . By expanding financial education, users can gain a comprehensive understanding of the transformative potential of cashless transactions.

“Financial education is a significant challenge that requires us to convey to individuals that cash does not offer the same benefits as digital transactions,” says Alehira Orozco, Government Relations Director, Mercado Pago. In ensuring user confidence and security, all participants in the ecosystem play a vital role. To promote financial inclusion, it is crucial to continue forging alliances with organizations focused on this goal. By working collaboratively, it is possible to educate and empower individuals, guiding them towards the advantages and security offered by digital financial services, adds Orozco.

Another challenge is Mexico’s limited technological infrastructure. To increase the penetration of digital payments, it is necessary to expand access to the internet and mobile networks and improve the digital payment systems available to consumers. There is a need to build and enhance the digital infrastructure that will enable secure, fast and efficient digital payments.

Infrastructure is a crucial aspect that cannot be overlooked when discussing financial education. It is essential to ensure that the necessary infrastructure is in place to support the growing range of financial products and services. "To eliminate friction and support digital payments, we need to build and improve the necessary infrastructure. This includes developing robust online payment gateways," says Armando Betancourt, Head of Partnerships, Google Mexico.

By expanding the infrastructure, we can onboard more users into the digital payment ecosystem. Implementation of transaction limits with contactless cards is a notable step towards improving security. However, there is still significant work to be done to ensure that merchants have the infrastructure required to enable secure transactions. Providing the necessary security measures and ensuring the reliability of these essential elements is a priority. Companies must strive to establish a robust infrastructure that supports the seamless integration of digital payment methods, thereby fostering a safe and efficient cashless economy.

“There is ample room for collaboration between the private and public sectors in Mexico's digital payment landscape,” says Moreno.  Any sustainable solution must benefit all stakeholders in the long run, and this is where public-private collaboration becomes essential. Public infrastructure encompasses not only physical infrastructure but also a regulatory framework and a set of consistent policies that encourage innovation and interoperability. It is crucial to ensure that the systems in place are both efficient and secure. By fostering collaboration between the private and public sectors, Mexico can create a robust ecosystem that supports the growth of digital payments while prioritizing the needs of all stakeholders.

As Mexico moves towards becoming a cashless economy, several opportunities are opening up. A cashless economy will help to promote financial inclusion and drive economic growth. With more people having access to financial services, businesses will be able to reach new customers and individuals will have more opportunities to invest and save. Additionally, the transition to a cashless economy will reduce the cost of transactions and increase transparency, potentially increasing the efficiency of the overall economy.