Last month, the United States finally launched its first federally-backed real-time payments method, FedNow. While you might still be learning what a real-time payment is, or this might even be your first time hearing about FedNow, you might be more surprised to know that Mexico has had a real-time payment solution since 2004. Put simply, real-time payments (RTPs) are payments that are initiated and settled instantaneously, 24/7, regardless of bank hours, holidays, and weekends, providing instant liquidity. In the United States, several private-sector solutions, such as Zelle and Venmo, offer a very similar user experience.
In Mexico, while the Central Bank has offered a real-time payment system known as SPEI for nearly 2 decades, its transaction volume remains marginal, representing only 2.8 percent of all payments over 500 pesos (approximately US $20) in 2021. In September, Mexico will link its real-time payment system to consumers’ phone numbers for the first time launching Dinero Móvil (DiMo), introducing near-frictionless instant transfers into Mexico’s financial system. Although many have hailed it as the “PIX of Mexico” –the Brazilian real-time payment method launched in 2019 and today the country’s most popular payment method— this optimism is misplaced.
In addition to several barriers to mass adoption, DiMo might prove to be more detrimental than beneficial.
Who benefits from DiMo?
As essentially a slightly more refined version of SPEI, banks are expected to charge for DiMo transfers as they would charge for a traditional SPEI transfer. While some banks have decided to assume the cost for participation in the SPEI system (at the end of the day moving money is never free) others have decided to pass this fee along to their customers, charging between 3 and 8 pesos, less than US 50 cents per transaction. As has been predicted in the case of the United States’ RTP FedNow, in the short run banks could lose some revenue in transfer fees, but, ideally, DiMo will slowly increase the volume of transactions and reduce cash costs for banks, thereby increasing bank profits in the long run.
Should DiMo be successful in increasing the use of real-time payments, it could also bring important benefits to consumers and merchants alike, providing instant liquidity to vendors, allowing gig workers to get paid immediately, providing a more secure way to move money to vulnerable consumers, and reducing certain types of fraud associated with other payment options, among other benefits. However, these benefits are characteristic of any RTP, and beyond further facilitating transfers, DiMo’s additional value-add is unclear.
The likelihood of adoption
DiMo’s adoption faces various challenges, with one significant hurdle being the overwhelming preference among Mexicans for prepaid SIM card options, chosen by approximately 82.1 percent of mobile phone users, equivalent to roughly 77 million people. As Isaac Phillips, the founder of the telecommunications startup Siglo, pointed out, with prepaid options, SIM card rotation is common, leading to frequent changes in phone numbers. This poses challenges in staying connected and secure authentication, not to mention using it for payments.
Additionally, the Mexican government has framed DiMo as a way to reduce cash and increase financial inclusion. This approach completely ignores the root causes of why more than half of Mexico’s adult population remains unbanked: Mexico’s economy is powered by a massive informal economy; there is a culturally embedded distrust of banks; and savings remain low, among many other reasons. Moreover, the current system of SPEI transfers, which requires the sender to have the unique bank account ID of the recipient (CLABE) and their full name, is a minor inconvenience and unlikely to be the real reason why digital transfers have yet to take off.
This said, one thing working in DiMo’s favor is that many banks are expected to offer the payment method from the start. According to the Governor of the Bank of Mexico, Victoria Rodríguez, four banks, which include two of Mexico’s largest banks BBVA and Santander, have developed the necessary infrastructure to offer the service. Combined, Santander and BBVA represent 37.13 percent of the banked population. Importantly, an additional 16 banks are currently in the process of building the necessary infrastructure to implement the technology. The fintech Sistema de Transferencias y Pagos (STP) will also provide the financial infrastructure so that mom-and-pop shops will be able to associate a phone number with a bank account and receive payments from consumers. It will also likely serve as the intermediary for many other fintechs as it has done for traditional SPEI transfers.
The unforeseen downside of frictionless RTP
Adoption challenges aside, it is unclear if Mexican authorities are prepared to assume the responsibility of frictionless real-time payments. Removing what little friction remains in Mexico’s real-time payments, DiMo will likely lead to a spike in fraud, which is already a major problem in the country. In a global survey conducted by Surfshark, Mexico ranked 9th for cybercrime, the highest-ranked country among all Latin American countries.
Adding the problem, if DiMo does convince some of Mexico’s unbanked population to open bank accounts, we can expect their awareness of digital fraud to be very low. This was observed with Brazil’s RTP payment rail PIX, which also sought to decrease the use of cash among Brazil’s informal workers. In the year following the instant payment method’s roll-out, social engineering hacks, including phishing scams, reached a record high causing 2.5 billion reais (approximately US $513 million) in damages; with 70 percent of all phishing attacks targeting PIX users. Moreover, amid a spike in kidnappings, the Brazilian government re-introduced a bit of friction into digital payments, including limiting transfers at night. In the US, Zelle has also been plagued by scams causing more than US $213.8 million in damages over 18 months.
Ultimately, it might be wiser for Mexican authorities to focus on the underlying reasons driving the persistent preference for cash, instead of introducing a new payment method that risks further eroding consumer trust in the financial system.
* Sara Hayden Van Velkinburgh is a senior analyst with the public relations division of Miranda Partners, where she works primarily with fintechs, investment funds, and startups. With a background in public policy and public affairs, she has analyzed Mexico’s regulatory framework and digital policy in Latin America as it applies to tech companies while at McLarty Associates and the Atlantic Council’s Adrienne Arsht Latin America Center. Twitter: @svanvelk
