He use of cash It has always been a controversial topic in the financial industry, in Mexico it is not the exception. Despite the efforts of the Mexican authorities to encourage the use of credit and debit cards, most transactions in the country are still carried out in cash. Now, is this an opportunity or a drag for the future of the financial sector?
According to figures from the Bank of Mexico (Banxico), up to 90% of transactions in Mexico are done in cash, depending on the market and demographic of course. The above figure represents a significant amount of money in circulation outside the formal financial system. In addition, the use of cash is more common in transactions of low amounts and among the unbanked or underbanked population, which also tends to be the one that receives the lowest income.
Therefore, the use of cash in Mexico is not only a matter of personal preference, but also a reflection of the economic inequalities that exist in the country. Or, to put it another way, from a lack of financial inclusion.
What does the use of cash mean for fintechs?
This use of cash has important implications for the financial industry, especially for fintechs. In theory, these companies should benefit most from the decreased use of cash. This is because they offer innovative solutions to carry out financial transactions digitally. However, the reality is more complicated. In fact, many fintech companies face significant obstacles due to the widespread use of cash in Mexico..
On the one hand, the use of cash means that a large part of Mexicans do not have a bank account. Similarly, they lack access to financial services offered by fintech companies. Additionally, these companies often struggle to operate in an environment where cash remains the primary form of payment; particularly, to the extent that the industry’s digital infrastructure does not permeate the bulk of the Mexican population.
But not everything is negative with cash, it also presents opportunities. Some companies have found ways to take advantage of the widespread use of cash, offering solutions to turn that money into digital assets. For example, some fintechs offer solutions wallet to deposit cash into a digital account, which can then be used to make transactions online. This allows people who do not have a bank account to make payments online without any hiccups.
Opportunities in sight
For the fintech ecosystem to continue to grow in Mexico, there are several points to consider. First of all, it is important that the authorities continue to promote bankarization and the digitization of financial services. This could include measures to reduce the costs of electronic transactions, improve financial education, and promote the inclusion of groups historically bypassed in the traditional financial system. Likewise, fintechs must also be more creative and find ways to take advantage of the widespread use of cash to transform that into digital services.
Lastly, it is important to remember that any widespread economic crisis—such as the high inflation observed in 2022, which could translate into a strong recession in 2023—can have a significant impact on the fintech industry. However, if appropriate measures are taken to foster financial inclusion and the digitization of financial services, the ecosystem can be more resilient to economic shocks and contribute to the economic recovery of the people who need it most.
To cut a long story short, the fintech industry in Mexico faces significant challenges due to the widespread use of cash, but there are very good opportunities for ecosystem growth and innovation if the right steps are taken. Particularly, with a view to more than necessary resilience in the face of complex years like the one we are experiencing in 2023.
Sebastian Medrano Economist and expert in Fintech issues. Head of Growth for E-commerce & Financial Services at Coppel Sa de Cv. He has worked in brands such as Linio, Propiedades.com, Coru and Alpha Credit. More than 10 years of experience in financial services