With its vibrant Generation Z, ubiquitous smartphones and a massive economy boosted by nearshoring, it may seem surprising that cash remains the most popular way to pay in Mexico. But, that’s starting to change as new trends take hold to accelerate a digital payments revolution.
In this article, we’ll cover:
- Advances in mobile and broadband penetration
- Cash vs. digital payments
- Unlocking opportunities: Real-time payments in Mexico
- Embracing cross border transactions and global remittances
- Use of digital wallets for non-cash payments
- B2B payments and digital payment adoption
- The future of digital in Mexico
Mexico has a long and fascinating history involving money dating to the 1500s, when it established the first mint in the Americas and went on to export more than three billion silver coins around the world.
Today, Mexico is on the cusp of another financial renaissance. With a population of nearly 130 million, a tech-savvy Generation Z and a thriving economy that increasingly benefits from US trade and remittances, Mexico is the next frontier for cashless payments.
As with other emerging economies transitioning to digital payments, challenges remain.
For example, as of last year, only 49.1% of adults had a bank account. The country remains primarily wedded to cash, with 66% of total payments still being conducted in paper or coins.
This reliance on cash in Mexico has outlasted many of their peers in the Americas. In Argentina, for instance, the share of cash payments is 42%, whereas in Brazil and Chile, they account for just 15% and 12% of transactions, respectively.
However, this dependence is anticipated to shift soon. New government policies and an expanding ecosystem of fintechs are beginning to transform Mexico’s payments landscape as the war on cash intensifies.With widespread online shopping, and a massive economy that recently surpassed China as the United States’ primary trading partner, an imminent digital transformation looms for Mexico.
Advances in mobile and broadband penetration
Mexican consumers are enthusiastic newcomers to the internet economy.Over 100 million Mexicans, or 79% of the population, are now online, while 123.5 million cellular mobile connections were active in the country as of early 2023.
These users enjoy impressive improvements in connectivity and speed. The median mobile internet connection speed in Mexico has increased by 8.4% since 2022, while fixed internet connection speeds jumped 36.6% in the same period.
Much of this growth is fueled by the country’s youthful demographic. People between the ages of 11 and 26– Generation Z– now comprise Mexico’s largest share of internet users.
Mexicans spend an average of 4 hours and 37 minutes on their phones every day. That’s the 10th heaviest use in the world and over an hour of what Americans spend daily on smartphones.
As a faster internet and mobile phones continue to take hold, it raises an important question: When will consumers finally replace cash with alternative digital payment methods?
Cash vs. digital payments
Although Mexico shares a border with the world’s largest economy, its adoption of digital payments has progressed at a different pace. Alternative payment methods are rising in 2023, but still lag behind other LATAM countries.
Of the $476 billion transacted in payments last year, $315 billion (66%) was in cash, while another $127 billion (27%) was with cards, and just $34 billion (7%) was in the form of digital payments.
It’s a similar story with banking. Slightly less than half the population had a bank account in 2022, and that number has changed very little recently – growing just 2% since 2018.
The prevalence of a cash-based economy in Mexico can be attributed to various factors. Financial inclusion remains elusive for lower-income groups, with much of the population finding few reasons to maintain a bank account, especially when fees, commissions and interest rates are seen as too expensive.
Low financial literacy and a distrust of the banking system can also contribute to a preference for cash and the informal economy.
However, this is beginning to change. The convenience of smartphones is causing more Mexicans to adopt debit cards, digital wallets and other digital solutions.
Ecommerce is an increasingly attractive alternative to shopping in person. Surveys indicate the top reasons for shopping online are home delivery, saving time and additional product selection.
The use of cash in stores has declined 23% since last year, while the share of consumers using contactless credit cards has grown from just 1% to 5.1%. The share of shoppers using contactless debit cards also rose from 3.6% to 8.6% year-on-year.
The rising use of cards and other non-cash payments – together with rapid economic growth and the government’s push to simplify digital payments – is helping Mexico emerge as a world hotspot for fintech.
Unlocking Opportunities: Real-Time Payments in Mexico
With real-time payments growing worldwide, the Mexican government is accelerating its focus on financial inclusion and increasing digital transactions.
The first seeds of Mexico’s real-time payment networks were planted in 2004 with the government’s launch of SPEI, an electronic platform to facilitate same-day payments, interbank transfers and third-party payments made between accounts at different banks.
SPEI received a significant update in 2019 with CoDi – or Cobro Digital – the country’s largest-ever initiative to improve digital payments. Intended to leverage Mexico’s growing adoption of smartphones, CoDi is a national system of QR codes and contactless payments that has grown to over 15 million accounts in just three years.
Gen Zs drive demand for eCommerce digital payments
Online shopping in Mexico is still in a relatively early stage.
A survey last year found that 71% of Mexicans made their most recent purchase in a brick-and-mortar store, compared with 52% of shoppers elsewhere.
And yet, like most other countries, lockdowns during the global pandemic triggered a sharp increase in online shopping.
That carried over into 2022, with Mexico’s ecommerce sales rising by 23% to $35.5 billion, helping the country become the second-largest online marketplace in Latin America.
That growth is expected to continue, with experts predicting Mexico will have over 77 million eCommerce users by 2025.
Interestingly, despite the advantages of digital payments for online purchases, even here, a large share of Mexican shoppers still prefer cash. About $6 billion of online purchases are paid with cash vouchers, $3 billion in cash on pickup and $1 billion in cash on delivery.
However, this will change quickly as improvements in connectivity, enhanced financial inclusion, and streamlined logistics increase digital payments.
Mexico’s Generation Z is poised to drive demand for digital payments. According to a recent survey by Thunes, over 19% of Gen Z’s expenditure in Mexico goes on retail shopping, with an additional 17% directed towards online subscriptions – more than their counterparts in the US and the UK. As online spending constitutes a significant portion of their expenses, it’s imperative that merchants and marketplaces provide payment options that align with their preferences.
Thunes survey also revealed that Mexican Gen Zs prioritise several factors when selecting a payment method. These include a good user experience, fast transfers, widespread acceptance and a ‘trust’ in the brand.
Another unique trait of Mexico’s online shoppers is their willingness to buy online from international retailers. The Mexican Internet Association reports strong demand for international ecommerce — 50% of the country’s online shoppers purchase from abroad, with about 64% from the US.
Embracing cross-border trade and global remittances
This readiness to conduct cross-border transactions, especially with the US, points to another powerful trend in the country’s digital payments sector: remittances.
With a large number of Mexican workers in the US, global remittances to Mexico totalled $30.2 billion in just the first half 2023, up 9.9% from 2022.
This was the largest flow of remittances to Mexico for the first six months of any year since records began.
For the 10 million Mexican families who receive regular remittances from the US, it’s a powerful incentive to streamline the acceptance and disbursem*nt of this money via seamless cashless digital payment methods.
The value of digital remittances in Mexico, primarily from the US, is expected to reach $327 million this year and grow at a compound annual growth rate of 6.47% to $421 million by 2027.
The estimated average annual digital remittances per user is set to reach $3,800 in 2023.
Use of digital wallets for non-cash payments
Digital wallets will be a future driver of non-cash payments in Mexico.
Similar to other emerging markets around the world, Mexico’s unbanked population is expected to leapfrog conventional brick-and-mortar banks and adopt digital alternatives. The pace of this adoption will depend on government efforts to deregulate the financial industry, as well as the willingness of banks to partner with digital wallet companies.
However, the share of in-store consumers using digital wallets rose modestly to 2.8% from 2.2% last year. Increased merchant acceptance, improved broadband connectivity, and government incentivisation will see this rate continue to grow.
Spurred by the increased use of smartphones, the government’s CoDi, and rising digital literacy, the Mexican digital wallet market is expected to grow at a CAGR of 14.3% to reach $5.1 billion in 2028.
B2B payments help accelerate digital adoption
More than 90% of retail transactions in Mexico occur in 2 million physical stores across the country, while less than 1% of B2B payment transactions have moved online.
Most retailers remain dependent on cash transactions from their customers, which means they often use cash to pay their suppliers.
This dependence on cash creates a vicious cycle. Suppliers spend too much time chasing retailers for cash payments, while retailers must wait to sell the stock on hand to generate the cash for new inventory.
However, there is a potential bright spot. B2B payments could accelerate the adoption of digital alternatives.
The US push to nearshore manufacturing closer to home is fueling a boom in new factories along the US-Mexico border. The Mexican government indicated a further 400 companies had plans to move production from Asia to Mexico.
One study estimated that nearshoring could increase Mexican manufacturing exports to the US from $455 billion today to $609 billion within five years. Much of this growth will come from the established auto and electronic industries, while newer manufacturers of IT hardware and electric vehicle components will also contribute.
Foreign investors are recognising the opportunity. In the first quarter of 2023, Mexico attracted 48% more foreign direct investment than in the same period last year.
The rise of nearshoring will trigger more demand for digital payment services as more companies seek convenient methods to pay vendors, manage payroll, make cross border payment and secure credit.
A modernised B2B payment system for this growing cross-border trade could be just the spark Mexico needs to encourage digital adoption elsewhere in the country.
The future of digital in Mexico
Mexico has a keen opportunity to further align with its peers in adopting digital technology.
A recent survey found that 79% of shoppers used at least one digital feature during a recent purchase, while a significant 29% of Mexican consumers are considered ‘digital enthusiasts’ who use an average of 14 digital features.
To capture this growing shift to digital solutions, the global payments company Thunes has stepped up its presence in Mexico and throughout Latin America.
Withregional payout partnerships in 17 Latin American countries, Thunesnowoffers more than50 alternative payment optionsfor integration, including Oxxo Pay in Mexico, PIX, Mercado Pago and PicPay in Brazil, and PSE and Nequi in Colombia.From acceptance to payouts, we can offer you and your customers the full ecosystem of payments in LATAM.
Founded in 2016, Thunes powers payments for the world’s fastest-growing businesses – from gig economy giants such as Uber and Deliveroo and Southeast Asia’s super-app Grab to global fintech leaders such as PayPal and Remitly. Through a single, simple connection, consumers and businesses can send payments to – and get paid in – every corner of the world.
To learn more about Thunes’ capabilities in Mexico, schedule a call with us.
