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Sonect Secures License to Operate in Mexico

Categories : Cash connects people, Cash does not require a technology infrastructure, CashTech
September 30, 2022
Tags : Access to cash, Cash cycle efficiency, CashTech, Future of Cash, Latin America, Mexico
The Swiss firm Sonect obtained a fintech license to operate in Mexico in August, paving the way to bring innovative CashTech services to Latin America.
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

Sonect in Mexico: Turning Tienditas into ATMs

Payments expert Sandipan Chakraborty founded Sonect in Zurich, Switzerland, in 2016. Sonect converts retailers into “virtual ATMs.” After downloading the app, users add money to their Sonect wallet. When they need cash, they locate shops through the app, request funds, and receive a barcode to withdraw funds. Sonect brings retailers new customers and reduces cash distribution costs for banks.

In 2019, Sonect became Switzerland’s largest cash distribution network and started operations in Mexico. Sonect sought strategic partnerships with traditional banks, commercial alliances with major brands, and direct outreach to final users, according to Carlos del Río, Sonect’s then-country manager in Mexico.

License to Cash(Tech)

This license will now massively accelerate our market entry. It also allows us to launch new and affordable financial products and services across Mexico and increase financial inclusion among the population. – Sonect

Sonect has partnered with Arca Continental, Yomp, and the National Association of Breadmakers (CANAINPA), to persuade unbanked businesses, such as small stores (“tienditas”), to become virtual ATMs.

Sonect applied for a license to operate as an electronic payment funds institution (IFPE) in April 2021. In late August, Mexico’s CNBV granted Sonect the IFPE license. Sonect joins 37 companies authorized to provide fintech services in Mexico.

Cash is King in Mexico

Cash dominates retail payments in Mexico. Currency in circulation grew during the Covid-19 pandemic. Mexicans have not embraced Cobro Digital (Digital Charging or CoDi), Banco de México’s payment solution.

Most Mexicans prefer to use cash in small- and high-value payments. According to the 2021 Financial Inclusion Survey, 90.1% of Mexicans (75.4 million people) use cash to pay for purchases of MXN500 (USD24.78) or less; a slightly smaller share (78.7%) use cash in transactions of MXN501 (USD24.83) or more (INEGI 2022: 25).

Pain Points in Mexico’s Cash Infrastructure

Mexico needs access to ATMs and many terminals are not even near to users. – Efraín Navarrete, Sonect’s former operations and finance manager in Mexico.

 While cash prevails in payments, many pain points exist in Mexicans’ access to cash. Mexico had 59,415 ATMs in 2020, per the National Banking and Securities Commission’s (CNBV) latest Financial Inclusion Report (CNBV 2021a: 12, 31-35). While 95% of Mexicans have access to ATMs, their geographic coverage is uneven, as just 59% of municipalities have a terminal (see Map 1). Most ATMs are in Mexico City, Monterrey, Guadalajara, Puebla, and Toluca.

Map 1. Mexico: ATMs by Municipality, December 2020.

Note: Lighter areas have fewer ATMs, and dark red regions have more ATMs. Source: CNBV (2021a: 35).

Many Mexicans worry about crime and violence when using cash access points. Most Mexicans in urban areas report feeling unsafe when using ATMs (76.5%) and going to bank branches (62.6%), according to the June 2022 survey from the National Institute of Statistics, Geography, and Computing (INEGI).

Sonect founder Sandipan Chakraborty presented at the Future of Cash Conference, held in Madrid on September 14-16, 2022.

This post is also available in: Spanish