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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.
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.
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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The Fletcher School of Law and Diplomacy, Tufts University
