The Future of Finance in Mexico
This is a three part article which will attempt to measure the possibility of implementing decentralized cryptocurrencies within Mexico.
The first part explores Mexico’s economy, financial systems as well as their popularity within the country. The second part will discuss the commonly used method of authentication — biometrics — from a personal security perspective. The third part will evaluate a social experiment involving cryptocurrencies within the city of Oaxaca in Mexico.
The Country of Need: Mexico
Mexico is a country where cash dominates, a place where “more than half of the households don’t have a bank account”. As mentioned by The Wall Street Journal in 2016:
“We’re acknowledging there’s a big opportunity among the unbanked… more than 80% of consumers in Mexico still prefer to buy with cash. ” — Juan Carlos García, Amazon Mexico Country Manager
So why does cash dominate in Mexico?
An article published by PYMNTS in 2018 suggests that “in countries like Mexico, where consumers generally distrust the financial services sector due to corruption in the traditional banking model, cash habits die hard.”
Tax avoidance seems to be another factor that we must take into account. As mentioned by an executive from Mexico’s largest bank, BBVA Bancomer:
“People who work and live in the informal economy do not want to be taxed.” — Reuters, 2019
This raises the question: how do you introduce a new financial product within Mexico?
As further highlighted, a new product cannot win the market by offering “convenience, simplicity or lower cost”.
Consequently, the strategy must be formed and geared towards a much more fundamental level, as described by BillMo’s CEO, Steve LaBella. Such fundamental strategies include “try before you buy”, or giving the people the ability to “access to their funds anytime they want’’, while simultaneously highlighting the incentives of new products and services.
Alternative Financial Solutions
A more recent article published by Routers in February 2019 mentions a plan by Mexico’s new government to introduce phone-based banking solutions. The proposal was inspired by similar systems that have been gaining traction within emerging markets such as China, India and Kenya. These plans, however, fail to address the existing weariness of the people:
“…That presents unbanked Mexicans with a bizarre Catch-22: To access the government’s free mobile payments system, at least initially, they would have to open accounts with banks that many do not want to join or cannot afford in the first place.”
According to Adolfo Babatz, CEO of the payment startup Clip — a company based in Mexico City which has created a “low-cost mobile credit card reader that fits on smartphones” — governments such as that of Mexico should seek support from FinTech entrepreneurs rather than existing banks “that have benefited from high barriers to entry.”
Do People Need a Bank Account?
However noble the solution, we must also consider that many people simply have no use for such innovations. As detailed in a report published by the World Bank Group in 2018, moderate poverty (less than $5.5 USD per day) in Mexico declined by only 4% between 2004–2014, compared to 16.8% within Latin America and the Caribbean.
When we take a look at the overall population, Mexico is a country in which 43.6% (55.6M) of the total population (132M) live below the national poverty line and 25.7% (25.7M — slightly more than the total population of Australia) live on less than $5.50 USD per day (less than $168 USD per month).
If we were to disregard the part of the population which have no use for innovative financial solutions — due to poverty, financial difficulties or the lack of trust — we are still facing one of the most populated countries in the world (top 10). A huge opportunity for anyone who can provide a better service than currently in existence. With that in mind, let us introduce a new thought: what would be more effective?
- A banking system with the same systematic issues ported over to a new piece of hardware in an attempt to reduce costs and increase accessibility?
- A system based on new technologies, decentralized in nature which allows access via multiple devices, open to all without any fees or barriers of entry — where you are literally your own bank?
In a followup article I will go over the limitations and risks of biometrics based authentication — increasingly used by financial institutions and governments in an attempt to increase reach the ‘unbanked’. This plays a vital role in understanding the importance of cryptocurrencies and the role they play within our society.
Photo by Arie Wubben on Unsplash.
