Cash remains the preferred form of consumer payments in Mexico; especially among the rural population, primarily due to limited knowledge of payment cards or limited access to banking infrastructure. Cash is primarily used for making small-value payments at retailers, and for the payment of utility bills, taxes, and transport fares. A significant proportion of the population is engaged in informal activities, including farmers, street vendors, domestic servants, and self-employed workers.
Debit cards have grown in prominence on account of the introduction of electronic payroll services, an increase in the banked population, and the government’s distribution of social welfare funds through cards. Mexico’s government is focusing on financial inclusion by undertaking three social benefits programs: Oportunidades, Programa para Adultos Mayores, and Procampo, disbursing benefits through bank accounts and cards. These programs are supervised by the Ministry of Social Development (SEDESOL). Banks have also supported the financial inclusion programs, resulting in an increase in the banked population from 31.5% in 2012 to 46.8% in 2016, which in turn has supported a rise in debit card penetration.
Mexican e-commerce market posted a review-period compound annual growth rate (CAGR) of 40.8%, growing from US$4.1bn (MXN85.7bn) in 2012 to US$16.2bn (MXN336.8bn) in 2016, with the country anticipated to reach US$35.8bn (MXN741.4bn) by 2020. Payment cards remain the most popular payment method among online shoppers, accounting for 60.8% of total e-commerce transaction value in 2016. In addition to payment cards, alternative payments such as PayPal, MercadoPago, DineroMail, and SafetyPay are all used extensively for online shopping. The availability of digital wallet services, and the security and convenience they offer, has made them popular among consumers. Mobile wallets, digital wallets, and carrier billing collectively accounted for 10.7% of total e-commerce transaction value in 2016, up from 5.1% in 2012.
Despite being small in size, the Mexican credit card market has recorded robust review-period growth in terms of the number of cards in circulation, as well as transaction value and volume, supported by high consumer spending.
However, the market is likely to be affected by Donald Trump’s victory in the US presidential election. Consequently, banks are cutting credit card exposure to counter a potential rise in consumer defaults and the risks of an economic shock should the new US government restrict trade and business with Mexico. Banks are therefore reducing credit card spending limits and raising consumer lending standards. Banks’ profits would suffer if the US government scraps the North American Free Trade Agreement (NAFTA) or discourages US companies from moving to Mexico.
To combat fraudulent payment activities in Mexico, banks and scheme providers are taking a number of measures, with one example being Mastercard’s introduction of the Identity Check Mobile solution in November 2016. The solution allows card holders to verify online payment by scanning their fingerprint or taking a selfie.
Unlike existing identity verification methods – which take shoppers away from a merchant’s website or mobile app and often require them to remember and enter a password – Mastercard Identity Check Mobile verifies the user via technologies such as biometrics and one-time passwords. Earlier in January 2015, Oberthur Technologies (OT) partnered with PROSA, a provider of payment processing services, to launch OT Motion Code technology. With Motion Code, the card’s CVV code is replaced with a mini-screen on which the CVV code changes automatically at regular intervals, making it impossible for fraudsters to misuse.
The uptake of alternative payments is gradually increasing in Mexico, with banks and payment solutions providers launching products and services in the market. In partnership with Mastercard, Banamex launched its digital wallet, Banamex Wallet, in February 2016. The Android-compatible mobile app can be used to make contactless m-payments, which are authorized by a four-digit PIN. Users can add all Mastercard-branded credit cards to the wallet.
Earlier in June 2014, BBVA Bancomer launched its mobile wallet BBVA Wallet in Mexico. The wallet allows secure NFC payments at merchant locations that accept contactless payments. Available on phones with Android 4.4 and above, other phones can use it through NFC stickers.
To further enhance financial inclusion, Mexico joined the UN-based Better Than Cash Alliance in June 2016. The move comes after the government introduced a national policy on financial inclusion to promote the use of electronic payments across the country and reduce the dependence on cash. With 86% of the 124.6 million population owning mobile phones, Better Than Cash Alliance aims to harness the popularity of mobile phones for digital payments.
Earlier in February 2016, PROSA partnered with digital solutions provider Gemalto to offer m-payment services to its partner banks, which include 95% of credit, debit, and prepaid card issuers in the country. Gemalto’s Trusted Service Hub enables banks to offer their own mobile wallets using host card emulation technology, while PROSA is responsible for mobile wallet development, card holder identification and verification, card digitization, and security.