Women-owned small businesses in Mexico are yet to widely adopt digital finance due to factors ranging from security concerns and regulatory barriers to an already-low rate of financial inclusion, an analysis of the country’s financial services landscape has found.
Female small business owners told non-profit Women’s World Banking (WWB) that they remain distrustful of digital finance, citing discomfort with using their mobile devices to manage their finances, according to the organisation’s ‘Designing Digital Payments for Mexican Women Entrepreneurs’ report.
Risks related to card cloning, lack of privacy, mis-entering numbers, lack of confidence in transaction completion and lack of proof-of-payment were also cited as reasons to prefer cash over digital payments.
Mexico’s 6.3 million micro, small, and medium-sized enterprises (MSMEs) generate nearly half the country’s GDP and employ 37 per cent of the workforce, according to the country’s National Institute of Statistics and Geography (INEGI). 94.2 per cent of MSMEs are microenterprises and more than half of these are women-owned or women-led.
But most MSMEs transactions are still cash-based, as shown by the Organisation for Economic Co-operation and Development (OECD)’s 2020 scoreboard on ‘Financing SMEs and Entrepreneurs‘, which provides data from 48 countries. This can partly be explained by Mexico’s low rate of financial inclusion, the WWB said.
The World Bank said in April that financial access gaps by gender, region and urban-rural setting were significantly larger in Mexico than elsewhere in Latin America and the Caribbean region.
In Mexico, more than half (53 per cent) of the population is either financially excluded or does not have access to a bank account, and 32 per cent do not have access to any formal financial product, according to INEGI numbers. Women are also more likely to be fully excluded from the formal financial sector: 35 per cent of women are financially excluded compared to 28 per cent of men.
Mobile-based payments remain low
The report’s authors acknowledge that the Covid-19 pandemic has generally accelerated the use of digital payments and contributed to a reduction in the use of cash. Eight-six per cent of the surveyed population reported using less cash to make payments, according to a December 2020 survey by Banco de México.
However, use of mobile-based payments remains very low, despite the central bank having launched smartphone payments system Cobro Digital (CoDi – Digital Purchase) in 2019. Banxico’s platform, known as CoDi, is designed to reduce the use of cash and draw people into the financial system. But according to last year’s central bank survey, none of the 1,321 respondents used CoDi regularly before the pandemic and only 0.9 per cent said they were now using it during the pandemic.
Mexico’s mobile-money regulation, enacted in 2010, established a bank-led model. This means that in order to access mobile financial services, a bank account is required. WWB’s 32-page report identifies this as a central barrier on the road to financial inclusion. As the authors point out, this model stands in contrast to a telco-led model used in countries such as Kenya, where it is possible for mobile-money providers to offer e-wallets to people who do not have a bank account.
Similarly, Mexico’s ‘Fintech Law’ of 2018 mandated that customers have an account at a regulated financial institution in order to interact with fintechs. However, secondary regulation in 2019 allowed authorised fintechs to cash in up to about 65,000 pesos (about £2,350) per month from their customers.
Mexican citizens’ low levels of access to and low use of financial accounts ‘reflect the fact that the currently available formal financial services are inadequately addressing the needs, preferences, and constraints of the unbanked and excluded segment,’ the WWB report says. Rural and low-income populations were more likely to be excluded from formal financial products and services, with women and indigenous populations experiencing compounded barriers.
Social networking 1 Financial services 0?
Entrepreneurs listed saving time and reducing transport or transaction costs as the two greatest prospective benefits of digital payment adoption. All participants saw it as a catalyst for business growth.
The report also sets out how evolving customer preferences could also trigger entrepreneurs to accept digital payments to avoid losing clients.
Although the study’s participants distrust digital financial services, all told New York City-headquartered WBB that they used digital social networking platforms for their businesses. As the report explained, ‘entrepreneurs use social media and messaging platforms to engage with customers, announce daily offerings and sales, receive orders and send banking details or receive a record of transactions’.
The women entrepreneurs feared that any mistakes while using financial services on their mobile devices would result in money loss, and were unsure of where to turn for assistance in developing ‘digital financial capabilities’ (defined as knowledge, attitudes and skills enabling the active use of digital financial services). Entrepreneurs also said they were worried about potential IT problems during transactions.
Recommendations for regulators
The WWB report provides a series of recommendations targeted towards regulators, policymakers and financial services providers. ‘For mobile-based payments to deliver on their promises of financial inclusion, they must be able to interact easily with all types of digital transactions, build on existing digital financial capability, and see wide adoption among all parties involved in the payment cycle as clients, entrepreneurs, suppliers, or financial services providers,’ the study says.
The telcoms and banking sectors in Mexico, which has a population of about 127 million, are dominated by a few large players, the authors point out. ‘This dominance combined with current regulation has created an environment that does not favour the development of a robust mobile-based payment ecosystem,’ they add.
To enable a more favourable environment for mobile-based payments and financial inclusion, the authors recommend the boosting of connectivity in rural areas where mobile network coverage is ‘inadequate’. They also call on the regulators to launch ‘broad awareness campaigns to promote understanding and adoption of new technologies such as CoDi’.
The non-profit goes on to recommend the Mexican government lead by example and digitise person-to-government (P2G) and government-to-person (G2P) payments. This includes providing Mexicans the option to easily pay local, state and federal taxes online and ensure that all state-owned utility companies offer an easy-to-use portal or app for bill payments.
The current administration announced plans to transition the payment of welfare benefits from cash to direct deposit or mobile-based wallets in 2019. The report calls to further support a movement away from cash by linking this to ‘a campaign where the beneficiaries could decide if the bank or fintech will receive the G2P payments, without any restrictions on how recipients can spend the money’.
Finally, the country’s National Financial Inclusion Survey should collect detailed data on mobile-based payments in order to understand the ‘transactional behaviour of the beneficiaries’. The National Banking and Securities Commission (CNBV) and INEGI have conducted this survey every three years since 2012. Its stated objective is ‘to generate information about the Mexican population’s access to and use of financial products and services’.
WWB’s research was divided into two phases. In the first, focusing on the ‘big picture’, interviews were conducted with four banks and financial services providers, two fintechs or payment platforms, four financial inclusion experts and two government policymakers. In the second phase, 45 women entrepreneurs and six bank agents were selected for multiple rounds of interviews. These women came from urban (Mexico City), semi-urban (Veracruz) and rural (Oaxaca) areas.
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‘Digitise payments to help women’s financial inclusion, report urges’ – our news story (9 March 2021) on a 10-point ‘action plan’ for governments and businesses to help economies and societies to recover from Covid-19
‘Mexico to launch smartphone payments system‘ – our news story (2 July 2019) on the Mexican central bank launching smartphone payments system CoDi