In Mexico, the pandemic is moving the needle toward digital payments — specifically mobile payments — to become more widely embraced by businesses and consumers alike.
In an interview with PYMNTS’ Karen Webster, Miguel Diaz, general director of payment systems and market infrastructures at the Central Bank of Mexico (Banxico), said that making and receiving payments across devices in an affordable manner, with faster payments infrastructure already in place, means that “every Mexican can send and receive electronic payments regardless of their economic background or any other conditions.”
Getting there, he told Webster, involves expanding financial inclusion through digital transactions that, effectively are — for the merchants and consumers involved– free.
The discussion took place as Diaz looked back at the 15 months that have passed since Banxico launched Cobro Digital (CoDi), the national digital payments platform that uses QR codes and NFC to enable users to transact with mobile devices. The platform lets B2B, P2P and other commerce take place over Mexico’s real time gross settlements payments system, known as SPEI (in turn tied to wire transfers) for short. Thus far, the numbers do not bear out a massive uptake of a business model, that for the stakeholders, is essentially free (There are roughly 38 banks signed on and 5 million users of CoDi, as measured in late 2020).
There are some key differences in place between CoDi and what might be seen elsewhere.
Central banks around the globe are in the process of actively developing, or at least mulling, the issuance of digital fiat, directly into digital wallets (the U.S. is one example, where stimulus payments might be funneled to individuals in this manner through Fed accounts), Diaz pointed out that: “We haven’t produced a wallet in that way,” adding that “we are not trying in this moment to generate separate wallets … What we are doing here is we are offering the possibility of receiving money in those [bank] accounts, without the need for the particular institution to develop an app to charge or generate a request to pay.”
Solving For The Chicken And Egg Problem
The app, as provided by CoDi, eliminates the need for banks to develop their own mobile offerings to send and receive money, which requires significant investments of time and money (as they already had been tapped into SPEI itself).
Call it a way to solve the “chicken and egg” problem that is so firmly entrenched in payments. Financial institutions (FIs), as a rule, are reluctant to do the tech-heavy lifting to overhaul their services until they see value — but they’re unlikely to see value until they do the overhaul.
But most banks are already linked to SPEI, which means they’ve tapped into the infrastructure already needed to bring CoDi to their enterprise clients and to those enterprises’ end users.
“The costs of entry are relatively low,” maintained Diaz. “If you want to participate in this ecosystem, you simply have to be able to receive a request to pay and process a payment.”
But as Diaz stated, the model is based on sound economic principles. Though the investments in a payments system itself may be huge, the costs of actually managing the transactions (which boil down, really, to data flows) are essentially zero. There may be the lure of charging 3 percent for transactions that are cost-neutral, he said, but Banxico has chosen the opposite tack, betting on the generation of an ecosystem that is fruitful for society at large.
At a high level, he said, electronic payments generate value for FIs because they are able to monitor how and when (and why) people pay, which can give rise to innovation within the financial services space with new services that prove useful to consumers. Information, he said, generates money in the form of additional revenues yet to be realized.
Banks generate more business by enabling payments for merchants. Merchants, with no additional bank fees in place, as is the case with debit and credit transactions, enjoy higher margins and more robust cash flow that can be redeployed into growing the business itself.
If the high-level concept is that merchants will accept and banks will issue, in terms of mechanics, the CoDi platform lets users with savings accounts at participating financial institutions to make wire transfers through their phones by scanning merchants’ QR codes or wielding devices at on-site NFC terminals. The collection of funds is initiated through a request to pay from the seller via a message sent to a buyer’s phone, which in turn is accepted by the consumer through the CoDi app. The buyer’s bank validates the transfer.
‘Why Not Just Merge These Things?’
As he told Webster, in previous iterations, the RTP system SPEI operated only during certain hours of the day, but now is 24/7, and the focus has, in the past few years, been on payments that are smaller than 8,000 pesos — which puts the bank’s emphasis squarely on small value, high volume retail transactions.
To get there — to spur increased user adoption — he said that the SPEI user experience has had to improve. As it had been done before CoDi, the user experience had been nothing short of “horrible,” where merchants had to text 18 digit account numbers to consumers. But now, with CoDi’s app-driven approach, info is tied to the QR codes or the NFC terminals, and the transactions are simplified.
As for the opportunity that lies ahead for digital transactions and the use of CoDi in particular: Diaz said that of the 37 million people who have bank accounts, many were not using those accounts all that often.
“Basically, they were using the accounts twice a month. And they’re used basically once with an ATM to withdraw” funds, said Diaz.
Which meant, of course, that cash was, and still is, king — as tens of millions of people conduct daily commerce outside the confines of the traditional financial system. Diaz estimated that cash still accounts for as much as 95 percent of transactions.
The government and Banxico have set their sights on financial inclusion, where those 37 million bank accounts represent relatively low financial inclusion in a country that is home to a total population of about 130 million consumers, per World Bank data.
But with 82 million smartphones on the ground, so to speak — where users are doing everything from gaming to email — he said that the concept of transacting across devices, underpinned by robust infrastructure, becomes a reality, especially for lower-income individuals.
In short, as he told Webster: “Why not just merge these things?”
CoDi also helps broaden the financial ecosystem itself, said Diaz, as account openings are streamlined (lower-tiered accounts and small retail-focused transactions need not have the same AML/KYC scrutiny that would be in place with larger payments, he said).
That opens the door for FinTechs, money issuers and crowdfunders to reach more users with CoDi (though under their own brands), he said, adding that “we’re trying to open this up to as many potential participants and players as possible, so long as they comply with the rules and regulations.”
The near term roadmap, with the information that transverses the CoDi platform, include allowing banks and FIs to send push transactions without the request to pay — through an alias or even phone numbers.
As debate swirls, in the financial services arena at large, over digital currencies, Diaz remarked that “the fact is that central banks have been issuing digital currency since there have been computers.”
He said that key among central bankers’ discussions is whether digital, central bank accounts should be opened to the general public — a concept that can make the leap to reality through distributed ledgers (and which could give rise, for example, to prepaid CoDi accounts).
As Diaz told Webster, the value inherent in moving from cash to electronic payments lies in the fact that “the more information there is, the better the ecosystem is, and the better off everyone is.”