Cost of Cash: Mexico

How digital currency can transform life in Mexico
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Mexicans are accustomed to paying with cash

For everyday purchases and important bills, Mexicans trust cash. But the preference for physical cash bears significant costs.

Heavy Reliance on Physical Cash

Despite the availability of non-cash alternatives such as credit, debit, and prepaid cards, online banking, and most recently mobile banking, an estimated 90% of consumer transactions in Mexico are still performed in cash.

Reluctant to Adopt New Technologies

Consumer transactions account for more than 75% of the value of consumer payments. Our survey data confirms that even in payment categories that are relatively easy to make electronically, such as utility bills and tax payments, Mexicans are reluctant to adopt new payment methods.

Significant Resources Lost

The costs of cash access represent some MXN 2.3 billion and 48 million hours of time annually. Using conservative assumptions, the aggregate value of fees and time exceeds MXN 3 billion, and could very easily exceed MXN 6 billion, given what we know about the income distribution of individuals whose time is spent on cash access.

Is physical cash worth the cost?

Several Indirect Costs

It is likely that the indirect costs of cash (theft, corruption, security costs, and the opportunity cost of idle savings) eclipse the direct costs of managing cash balances.

High Banking & Transaction Fees

Bank account users in Mexico incur higher fees for cash access transactions on a monthly basis, including all (bank and non-bank) cash access transactions.

Costly Transportation

Mexican consumers face higher costs getting to the point of cash access than they do to withdraw cash once they arrive. The average monthly cost of transit for cash access transactions is MXN 16.9 versus MXN 2.4 for transaction fees.

Socio-economic implications

Travel costs are regressive; whereas fees catch the rich more often. In the middle of the income distribution, time and money spent to obtain cash fall linearly as income rises. The rich have a number of confounding factors. They rely more on financial services in general, with greater rates of account ownership and usage and higher transaction counts per month. They are also more likely to own their own businesses. Since business owners often receive cash income directly into the business, the wealthy show higher costs of time and money spent traveling to these transactions. The type of cash access point plays a very large role in determining the costs of cash access.

Cash access costs can vary from zero to several pesos per transaction depending on the type of access point used. Monthly costs of transportation to the point of cash access are also sensitive to the source of the cash being accessed.

Resistance to digital payments explained

Low Bank Account Ownership

Less than one-third of Mexican adults (27%) have a bank account in a regulated financial institution. Even less have a debit or credit card. Unsurprisingly, account ownership is lowest among rural, less educated, and low-income Mexicans

Sizable Informal Sector

The large size of the informal economy means that most Mexicans receive their income in cash. Half of the economically active population in Mexico is employed without a formal contract; nearly one third works in an informal business.

Misaligned Corporate Strategies

The corporate strategies of Mexican banks have not focused on deploying products that address the payment needs of low-income unbanked populations.

Poor Consumer Protection

Consumer protection in financial services, which could help remedy fraud issues, has historically been weak: this, combined with low financial literacy, has made cash the preferred payment choice for many.

Low Card Usage

70% of transactions are in cash, which may reflect low card adoption or a genuine consumer preference for cash, even among cardholders. Low card usage is largely explained by consumers’ fears surrounding payment fraud. Issues such as card cloning are top-of-mind concerns for many Mexicans.

Considerable Economic Disparities

Like in many emerging markets, low income, limited education, and living in rural areas are significantly correlated with lower levels of account ownership

The promise of digital currencies

Bringing the informal economy out of the shadows promises immediate benefits for the national fiscal position by closing the tax gap. Every 1% of the informal economy that is formalized represents US $560 million of new revenue with no changes to tax rates. Where financial infrastructure is adequate, electronic payments can save time and money for households and simultaneously reduce the informal share of economic activity.

Innovators have already revealed the investment agenda required to leverage payments for growth. Improved infrastructure and service offerings must go hand in hand to serve the needs of households and small businesses. The infrastructure perspective concerns access to telecommunications and cash conversion points. Service offerings must include remote bill payment services, such as payments to utilities and governments; payment acceptance for small business; and a mobile money or mobile banking product with concrete advantages over existing money transfer services.

In the last decade, there have been considerable changes in how Mexicans access and use financial services. Wealthy and middle class Mexicans that have bank accounts are making more and more payments with cards, and are using web-based and mobile platforms to transfer money and pay bills from their online accounts.

In the same period, usage of paper checks has declined precipitously, as businesses switch to electronic funds transfers. For the poor and the middle classes, the last ten years have brought an onslaught of consumer lending for homes, autos, and durables—albeit at some of the highest interest rates in the world, which compete with informal moneylending. But savings and transactional products for lowincome segments, which are less profitable, have not multiplied on par with lending. A growing number of formally employed Mexicans receive their wages in a payroll account, but the number of Mexicans with a bank account or payment card remains low relative to global averages and even relative to peer Latin American countries.


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