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Mexico: Cash > Digital Payments

Categories : Cash and Crises, Cash is available to all users, Cash is the first step of financial inclusion
June 21, 2022
Tags : Cash Infrastructure, Coronavirus, Digital payments, Financial inclusion, Mexico
Cash remains dominant in Mexico after the Covid-19 pandemic, despite the government’s promotion of digital payments and a boom in fintech solutions, per the latest national survey on financial inclusion.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

The author thanks Bernardo Bátiz-Lazo, Gustavo Del Ángel, and Guillaume Lepecq for references and feedback.

Since 2019, the government of President Andrés Manuel López Obrador has promoted the adoption of digital payments and a reduction in the use of cash to promote financial inclusion in Mexico. Mexican authorities define financial inclusion as the “access and usage to formal and adequately regulated financial services that guarantee consumer protection rights and promote financial literacy” (INEGI 2022: 3).

The National Banking and Securities Commission (CNBV) and the National Institute of Statistics, Geography, and Computing (INEGI) have conducted national surveys since 2012 to measure financial inclusion in Mexico. The most recent survey took place between June and August 2021: it comprised 13,352 households, representing 90.33 million Mexican adults.

“Measuring financial inclusion across the population and [obtaining] information on the use of financial products by individuals is an indispensable exercise to identify levels of financial access, usage and inclusion, and financial habits; [to identify] inclusion gaps among different groups; [to map] mexisting barriers and their relation to relevant variables, such as individuals’ socio-demographic characteristics,” said Gustavo Del Ángel, professor of Economics at CIDE.

Financial Inclusion

According to the survey’s results and data (published last May), Mexico’s level of financial inclusion (measured by access to formal financial products) worsened slightly during the Covid-19 pandemic.

Cash, Covid-19 and Stagflation

Cash in circulation rose a staggering 30.33% from March 2020 to March 2021 before Mexico sourced Covid-19 vaccines. The country’s weak economic recovery with persistent inflation and a likely global recession will undoubtedly reinforce the dominance of cash in Mexico.

Cash Remains the Most Used Payment Instrument

Most Mexicans have long preferred to use cash in payments. Cash remains dominant, even if its usage declined slightly during the Covid-19 pandemic (see Graph 1).

Graph 1. Mexico: Adult Population’s Payment Habits, per Payment Instrument and Gender, 2022

Source: Picture from the survey presentation on May 11, 2022.

The regions with the highest use of non-cash alternatives (payment cards, electronic transfers, checks, prepaid cards, etc.) for higher-value purchases were Mexico City (28.7% of adults), the Mexican Northwest (22.9%), and the Northeastern states (21.5%). Southern Mexicans conspicuously prefer cash: just 12.4% paid with an instrument other than cash for these purchases (INEGI 2022: 25).

CoDi? Who’s That?

In 2021, just 32.7% of adults (27.4 million people) had access to formal credit in Mexico. The Mexican Northwest (41.2%), the Northeast (38.9%), and the Western and Central states (34.7%) had the highest ratios of adults with formal credit. The percentage of Mexicans with credit cards issued by department stores increased from 19.2% to 20% between 2018 and 2021; bank-issued credit cards remained the same, at 11% (CNBV 2022: 14, 16).

A little more than a third of Mexicans (34%) reported knowing about CoDi, the mobile payments platform developed by Banco de México. Although adults in Mexico City (49.3%) were the most aware, only 11.8% had used CoDi (INEGI 2022: 27).

According to Ana Laura Martínez, professor of public policy at CIDE, CoDi’s launch lacked awareness campaigns, rewards for usage, and user accompaniment. Banco de México’s bet on CoDi fell short as Mexican consumers demand information, rewards and prizes to change their payment habits.

Cash and Banking Infrastructure

Mexico’s financial infrastructure is insufficient, particularly in the poorest states, including Chiapas, Oaxaca, and Guerrero (see Map 1).

Map 1. Mexico: Average Time Employed to Go to a Bank Branch, 2021 (Minutes)

Source: CNBV (2022: 3).

In the past three years, Mexican increased their usage of ATMs and financial correspondents, whereas they went less to bank branches (INEGI 2022: 24).

Fintech Revolution? Thanks, but We’ll Stick with Cash

Regulators and innovators implement supply-side innovations and products, thinking that demand will arrive eventually, but consumers are not demanding cash alternatives in Mexico (Fundef 2019: 9; Fundef 2020: 22, 33, 36-37). Mexicans remain conspicuous cash users, despite a booming fintech scene with many banking incumbents and startups.

“The above raises a key policy question: should the government subsidize fintech and digital payment providers to increase financial inclusion, or should it provide cash transfers to lower-income groups to lift them out of poverty?” said Guillaume Lepecq, chair of Cash Essentials.

This post is also available in: Spanish