Capturing the first digital companies in Mexico

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Digitizing Payments in Latin America February 2022 - Find out why payment providers can help Mexican merchants meet their consumers' growing appetite for digital payments

Digital payments providers and FinTechs have flocked to Mexico in recent years, inspired to enter the market by the growing use of online channels by Mexican consumers. Cash has long dominated the country’s payment ecosystem, but the pandemic has pushed consumers to experiment with digital payment methods such as credit or debit cards, Mariano Carranzachief financial officer of the Mexican digital payment and commerce platform Clip, said in a recent interview with PYMNTS. This, in turn, has increased business interest in supporting cards and other emerging digital payment methods, rapidly accelerating the adoption of digital payments in the country.

“During the pandemic, a shift in customer behavior has occurred that we believe is here to stay: customers are more willing to pay [for] their daily purchases with cards,” Carranza said. “Businesses have also been pressured by customers to start adopting card payments as government shutdowns have often forced them to operate online.”

Providing consumers with innovative in-store and online payment experiences is becoming an imperative for Mexican businesses. As more and more competitors emerge, competition has intensified and merchants recognize that they need to offer compelling payment experiences to stand out. This trend, in turn, represents an opportunity for payment and financial service providers such as Clip.

Keeping pace with changing consumer behavior

To capture consumer attention in the increasingly digital Mexican market, merchants and their potential payment partners must understand how quickly consumer needs and preferences have changed and why. Cash has remained a dominant payment method for decades, and only recently has this begun to change, with consumers making way for plastic credit and debit cards as well as early digital payment tools such as than mobile wallets.

The impacts of the pandemic have altered inherited ways of thinking, Carranza explained, driving consumers away from cash and demanding that their favorite merchants accept debit or credit cards. Data from the National Institute of Statistics and Geography of Mexico (INEGI) revealed that the segment of the population making payments by card has grown from 12% before the pandemic to 52% by the end of 2021, showing how fast the move away from cash has been.

“Consuming habits have also been hard to change, but the pandemic has really helped accelerate that,” he said. “For example, it took time for people to realize that they don’t need to go to a branch to open a bank account or perform a simple transaction or that they don’t need to receive money to make a payment.”

Staying abreast of evolving payment methods is also imperative for businesses, and merchants now understand that they need to support a variety of emerging payment options rather than just cash or even plastic cards. Growing smartphone penetration in Latin America — about 70% of the region’s population access to mobile phones — has made mobile wallets and virtual payment apps increasingly popular. However, there are still several challenges, such as innovations in digital payments infrastructure, that need to be addressed within the financial industry before businesses can implement these tools at scale.

“Another element that needs to be improved is the infrastructure for [or Card-Not-Present] CNP payments,” Carranza said. “Today, [CNP] acceptance rates in Mexico are significantly lower average, partly because of [the] lack of system-wide investment in risk management tools.

Mexican businesses are scrambling to find tools and services that can help them juggle the growing number of unique payment methods they have to offer without causing friction. This is a new opportunity for financial players in the industry.

Winning the Next-Gen Payments Game

The competition to capture the attention of customers in the country is getting fierce for payments players looking to set up shop in Mexico. The country’s rapid digitization and growing familiarity with online banking and payment solutions means that consumers are quickly spoiled for choice. However, those who already have the infrastructure in place can have a clear competitive advantage over players who have recently entered the market.

“Now customers can choose from a variety of digital wallets, credit cards, digital loans [or] payment providers. … All [of] these products are rapidly gaining popularity,” Carranza explained.

Keeping pace with how consumers are leveraging emerging digital payment methods and how their financial needs and preferences may continue to change is therefore essential for payments players in Mexico.

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