Mastercard Helping Cash-Obsessed Mexico Get Rid of Informal Economy

People around the world are moving towards urban areas, leaving their rural habitats in search of jobs, better education, or a better life. City governments have to make systemic changes to meet the needs and expectations of this growing urban population. In many aspects of this kind of urban life, the dominance of cash opens up the possibility of friction, both for the functioning of the country’s economy and for citizens as individuals. It adds operational hurdles and hazards in the path of citizens to make transactions, and also holds back businesses from transforming the country into a digital economy. Even though citizens in larger cities have access to many electronic modes of payment, cash still rules the roost. Cash is riskier to carry around, in societies with high crime rates, and many estimates state that it even costs states a sizable chunk of the GDP to fund its circulation. On the other hand, one can draw a rather straight line from prevalence of electronic modes of payment, to higher economic growth. It is for this reason that governments around the world are trying to reduce their economy’s dependence on cash.

People are now using alternative modes of payment, including debit and credit cards, digital wallets, payment gateways on eCommerce platforms, and in some circles, even cryptocurrencies. Cashless forms of retail purchases have taken over cash and coins in the US, Canada, and large parts of Europe. Despite this, cash is far from going extinct and is in robust health in most other countries.

In Mexico, for instance, cash still remains king. This holds true even despite the recent surge in the adoption of electronic banking services, whether you’re paying for food, a smartphone, or a pedicure. The use of cash just keeps growing, as a result of the deeply-rooted informal nature of the economy.

The use of credit and debit cards is quite popular among the upper-class working population of Mexico and they are choosing plastic over paper money. The lower classes, however, still use the relatively traditional mode of payment — cash.

At least half of the Mexican population still doesn’t have a bank account and depends entirely on the country’s cash-based economy for their daily transactions. A significant amount of citizens use their debit cards to withdraw cash from ATMs.

How Mastercard Changed Plastic Cards

Mastercard has been one of the first companies to bring about the much-needed innovation in plastic cards. From cards that needed to be swiped, to contactless payments, the company has provided convenience and comfort to millions of customers. Mastercard has been testing the prototype of the contactless card since 2014.

The speed of contactless payment, coupled with its EMV-grade authentication against fraud, is changing the whole landscape of commerce and benefiting business and consumers alike. Today, millions of people are able to make smooth transactions with just a tap!

Most merchants around the world are also ready to accept this cashless mode of payment, especially in places like grocery stores, quick service restaurants, petrol pumps, and even pharmacies, where high-speed checkout is very crucial. Slowly, business owners are accepting and embracing this chance to give their consumers a seamless user experience. With contactless cards, you don’t have to wait in queues, tender the exact change, or struggle to remember your pin.

This contactless payments revolution around the world, is largely driven by the transit and transport sector, the use case of which, might be ready in the next 12–18 months. The ‘Tap and Go’ feature used in public transport is gaining the attention of governments around the world. This innovation in the public transport sector is on its way to some of the largest cities in the world.

Mastercard in Mexico

Moving towards a world beyond cash, Mastercard is partnering with cities and tech companies. Their goal is to improve the overall quality of life and help people manage their logistics in a more efficient manner.

Latin America is one of the most urbanised regions worldwide, where 80% of the total population lives in the cities. While every city in this region has its own characteristics, they all suffer from similar problems like road congestion, pollution, etc. Cities across Latin America are trying to modernise public transport by making it speedy, efficient, and easily accessible to all. Mexico City is one of the major cities of the world where Mastercard tried to implement cashless payments in the public transport sector. Around 6 million people travel through subways and public buses, which requires different ticketing systems. In addition to this, there are 9 million trips each day, on small buses which only accept cash payments.

As a part of the efforts driven in 2017 to modernise the transportation system, Mastercard partnered with local banks and announced a debit card that can be used for transit payments as well as daily transactions. They can just swipe their cards, and their bank accounts will be debited. Through this, Mastercard is now able to capture millions of daily cash transactions while helping the government promote wider participation in the financial system. For many citizens, this was a huge shift towards building a digital financial identity — a very crucial step to fully participate in the formal sector of the economy.

Mastercard’s Biometric Payment Method

Mastercard and Edenred (a provider of payment solutions via mobile apps, online platforms, and cards) launched their first regional test of biometric card technology in Mexico, last year. They are currently testing this with a state benefits programme. Consumers who are a part of the programme received a card which features an embedded fingerprint sensor to identify the cardholder while making in-store purchases.

The biometric features could be implemented on any Mastercard debit, credit, and prepaid cards. It will also work with EMV card terminals globally, helping businesses enhance their shopping experience without purchasing any new hardware or upgrading their software. This will also help the users eradicate any card-present fraud.

Creating Sustainable Urban Development

Small and medium-sized businesses are claimed to be the backbone of Mexico’s economy. Mastercard has extended a helping hand towards the expansion and acceptance of electronic payments for this segment. This will eventually lead to greater convenience to buyers, and operational efficiency to these businesses.

Tourism is also one of the main sources of income and employment in Mexico City. Mastercard is aiming to use its network to help the tourism authorities and businesses understand tourists’ needs and identify the experiences they are looking for.

“Mexico City has tremendous experience in managing the daily operations of a megacity — a task that is constantly evolving. We look forward to providing our expertise to help Mexico City continue on its path to becoming a smart, connected, and inclusive city — advancing a better quality of life for all its citizens,” said Antonio Junco, President of Mastercard Mexico and Central America.

An Influence on Developing Countries

Countries in Latin America and Africa are examples of how mobile banking is changing the lives of those in developing economies. The Mexican government has started saving around $11 billion each year, ever since they switched to electronic distribution of salaries and pensions of government employees, and social benefits. Numerous benefits are underway in Africa. Ghana is digitising with the aim of improving access to financial services, while Malawi is seeing a rise in more cashless transactions. Rwanda is aiming to become a cashless society by 2024.

Like Mexico, even India is heavily dependent on cash. Prime Minister, Narendra Modi, came out with the demonetisation of 500 and 1000 rupee notes, with the promotion of digital economy as one of the nation-wide action’s major motives. But most of the junked currency is now back in the market.

India’s efforts to transition to digital payments has been slow, but sure. To promote digital payments, RBI established a state-of-the-art payments that are efficient, safe, secure, and affordable. This has resulted in the rapid growth of digital payments, especially in retail.

However, these developing countries need to improve their level of digital readiness and be more digitally inclusive, before they can make these major changes.

The key to a cashless society lies in the user experience, convenience, and the ability to use digital payment methods so that it can be adopted by anyone and everyone.