Mexico, where cash has historically dominated transactions, is undergoing a significant shift towards digital payments. In 2018, approximately 90% of retail, rent, utility, service, and public transportation transactions were settled in cash. This reliance creates challenges such as high transportation and storage costs, the necessity for in-person transactions, and facilitation of criminal activity due to the lack of a paper trail. The Mexican government and private sector are collaborating to diminish this cash dependence and facilitate a transition to digital payment methods.
Key drivers for Mexico's heavy cash usage include low banking penetration, with only 35% of adults having a bank account. The large informal economy, accounting for over a quarter of the GDP and employing more than half of Mexicans aged 15 or older, is a major factor, as individuals in this sector often earn wages in cash and may lack the documentation for bank accounts. Additionally, banks have historically been expensive, with minimum deposits, fees, and penalties, and little incentive to cater to low-income individuals. Despite some efforts by fintech companies, the sector remains nascent and out of reach for many.
The Mexican government, under President Claudia Sheinbaum, is pushing to close the digital payment gap. Initiatives include FEMSA's NetPay deploying a digital payment system across nearly 600 gas stations and convenience stores, integrating card, QR code, and CoDi payments directly into store management platforms. Furthermore, the government announced that gas stations and highway toll booths would phase out cash acceptance by the end of 2026, and reduced card payment commissions for gas stations through October to encourage electronic payments. The central bank's CoDi platform, launched in 2019, has seen over 2 million accounts opened and processes an average of 1,646 transactions daily, totaling over $8.4 million.
While progress is being made, significant hurdles remain. The requirement for a bank account to use CoDi excludes much of Mexico's informal workforce. Although proposed regulatory changes aim to mandate banks offer zero-fee accounts to low-income clients, convincing those accustomed to cash, particularly in the informal sector or those avoiding taxes, to switch to digital payments is a challenge. Competition from fintechs developing alternative platforms leveraging card and mobile point-of-sale technologies could also limit CoDi's reach, despite the potential for increased financial inclusion. Analysts like Ben Danner from Javelin Strategy & Research note that a decline in cash usage will require both behavioral and infrastructural changes.
Ultimately, while digital payment adoption is growing, particularly with government mandates and infrastructure expansion, the ingrained preference for cash and systemic issues like financial inclusion for the informal economy mean that Mexico still has a considerable journey ahead to fully wean its population off an addiction to cash. The transition is vital for fiscal stability, tax collection, and addressing the vulnerabilities of a vast informal economy.
