Trends Transforming the Payment Technologies Market

You can watch the video of this panel here.

Digital payment methods have undergone profound changes in a short time. The growing popularity of digital currencies and digital payments, coupled with advances in underlying technologies such as AI and blockchain, will bring lasting changes to the way people spend and exchange money. The pandemic further accelerated existing shifts in users’ payment preferences, making digital payments more prevalent in what may eventually become a cashless society.

On May 27 at Mexico Business Forum 2021 Virtual Edition, experts of online payment modalities discussed the current status of payment methods during the panel “Trends and Transformation in the Payment Technologies Market.”

Online payment increased exponentially during 2021, said Miguel Diaz Diaz, General Director of Payment Systems and Market Infrastructures at BANXICO. This is a positive sign, “as it contributes to the healthy development of the financial system.” According to Diaz, payment methods like Spei grew by 110 percent. “These types of online payments are essential for financial inclusion, which goes beyond having a bank account and withdrawing cash.” With that limited dynamic, people do not get the benefits of the financial sector such as credits, insurance or a healthy financial ecosystem, explained Diaz. Despite this limited financial reality, in Mexico digital assists and crypto currencies are emerging but few users understand them. “Traditional financial services deliver exactly what digital assets promise, but they are safer and easier to understand,” said Diaz.

The growth of on-line payments is a positive sign, said María Teresa Arnal, Head of LatAm at Stripe, but there is still the risk of frauds. “Mexico is the country in Latin America with the majority of frauds,” said Arnal. She explained that this results in higher operating costs for sellers with lower utilization rates, which might struggle to balance risks and experience. However, the sector aims to create solutions where no one has to sacrifice anything.

René Salazar Palafox, Director Digital Payments & Financial Services at Walmart México, said that to find the balance Arnal explained, companies must invest in talent and tech. “These are complementary as they offer an improved experience through the use of technology and better safety thanks to the human monitoring the operation.”

Smaller companies and startups also face drawbacks as they have limited resources to address all fraud charges, said Héctor Cárdenas, CEO & Co-Founder of Conekta. “Chargeback regulation was insufficient; therefore, all chargebacks were a loss for the company selling.” Online charges are now safer, said Cárdenas, as “there significant progress in terms of data and we can now share information with banks with more confidence, but regulation still needs to improve.” Cárdenas recommended a two-step strategy to address frauds. The first is by installing prevention tools with real-time transaction analysis that use machine learning and AI. The second is the use of tech innovation and for businesses to implement 3DS 2.0 (the new authentication protocol for online card payments).

Diaz explained that there are different types of fraud, one affects businesses and the other affects the end user. This can be an even bigger problem for the latter as “users do not have the tools to identify fraud, so authorities must offer certain essential minimum requirements companies should implement to protect them from fraud.” BANXICO’s goal is to make the private sector comply with these minimums without affecting user experience, said Diaz.

However, overall conditions need to change if the country wishes to keep expanding on e-commerce, which according to Arnal “grew by over 80 percent last year.” With the digitization of payments, more businesses are accepting them and more consumers are willing to use them. “It is about giving the final user more payment options, such as spei, oxxo, payment links or credit cards,” said Arnal.

Salazar explained that with the boom of e-commerce, digital orders must be complemented with "where the customer wants to pay" solutions that accept other products such as digital wallets. However, “more than 50 million Mexicans do not have access to a bank account, which is a giant opportunity for digital payment providers,” said Salazar. In this sense, omnichannel options complement payment platforms, Federico Gómez-Schumacher, VP Sales of LatAm Market at PayPal. “This is important because some physical businesses never thought of receiving electronic payments,” said Gómez-Schumacher. “Omnichannel payment methods help the user pay how, where and when they want.” It also helps businesses make more sales, according to Cárdenas. “When the pandemic is over, ecommerce dynamics will remain, which is why is relevant they have and use online options but we urgently need a product for cash payments.” In 2020, 94.6 percent of SMEs in Mexico moved to online transactions said Cárdenas, and card payments also increased compared to cash payments.

Cash payments, however, may always have a place in Mexico, said Tory Jackson, Head of Business Development and Strategy LatAm at Galileo Financial Technologies. “Cash is the king in Mexico, with around 91 percent of sales closing through cash.”

While there is no reason to leave cash, “the benefits of online payments are clear to us. From the Mexican user standpoint, cash does not need a battery or signal to work, so it is functional for everyone,” said Gómez-Schumacher. The country also has to deal with structural issues in Mexico, which is a task that concerts authorities too.

Arnal agreed with Gómez-Schumacher and said that there are not clear incentives to abandon cash. “Cash is easy but it is not safe and it can be expensive, which it is not so obvious to the end user,” said Arnal. But as long as there are no products that make people chose digital payments, cash will dominate. “We need to create products that make users change on their own initiative.”