Digital Payments a Game-Changer for Mexicans Without Bank Accounts
Introduction to Mexico
An overview of Mexico's currency, population and key statistics.
The official currency of Mexico is the Mexican peso, represented by the symbol "$" and the currency code MXN. The Mexican peso is subdivided into smaller units, with the centavo as the smallest denomination. Banknotes include denominations of 20 pesos, 50 pesos, 100 pesos, 200 pesos, 500 pesos, and 1,000 pesos. Additionally, a variety of coins are circulated, including 10 centavos, 20 centavos, 50 centavos, 1 peso, 2 pesos, 5 pesos, 10 pesos, and 20 pesos.
Banco de México, the country's central bank commonly known as Banxico, has disclosed plans to introduce a digital currency by 2024. While the announcement was made by the government on social media, it has not been officially confirmed by the monetary authority. Regardless, the central bank views this emerging technology and modern payment infrastructure as significant tools to foster financial inclusion in the nation.
Mexico had a population of 128,932,753 as of mid-2020, according to UN data. A subsequent Worldometer estimate based on UN data put the population at 129,709,757 as of January 28, 2021, with 83.8% residing in urban areas, mainly in Mexico City. The median age of the population was 29.2 years. Statista documented approximately 89 million active internet users in Mexico as of February 2020.
Mexico had a population of 128,524,327 as of July 2023, based on Worldometer's analysis of the latest UN data.
Mexico recognizes Spanish as its sole official language, which serves as the predominant and widely spoken language within the nation. However, a multitude of indigenous languages are used by diverse ethnic communities across Mexico. Notable among these indigenous languages are Nahuatl, Maya, Mixtec, Zapotec, Otomi, and several others.
Mexico had a gross domestic product of US$1.41 trillion in 2022, as reported by the World Bank. This accounts for approximately 0.63% of the global economy. The country's economy expanded by 3.1% during that year, after a significant rebound of 4.7% in 2021, which followed an 8.0% contraction in 2020 attributed to the impact of the coronavirus pandemic.
Internet & mobile phone trends
Approximately 22% of internet users in the country were aged between 25 and 34 years as of April 2019, based on data compiled by Statista. In January 2020, Datareportal reported a total of 89 million internet users in the country, reflecting a 0.9% increase – approximately 816,000 users – from the previous year. This change resulted in an internet penetration rate of 69%. Furthermore, Statista's findings showed that about 60% of the population owned smartphones in 2019.
Advancing to the start of 2023, Datareportal indicates that Mexico's internet penetration rate had risen to 78.6%. Moreover, an analysis by Kepios highlights an increase in the number of internet users by 4.8% or approximately 4.6 million between 2022 and 2023.
Based on International Monetary Fund data, Mexico's GDP declined to US$1.04 trillion in 2020 from US$1.29 trillion in 2019, mainly due to the impact of the pandemic. However, as the economy gradually recovered, the GDP was projected to increase to approximately US$1.09 trillion in 2021.
In 2020, Iupana reported that only 36% of Mexicans had bank accounts while a mere 9.5% of them held credit cards.
Summary of fiscal policy
The Mexican government maintained a conservative fiscal approach to its proposed budget for 2022, aiming to achieve a small primary deficit while ensuring a stable debt-to-GDP ratio. The country's sovereign rating is supported by policies that prioritise public finance sustainability and a steady macroeconomic policy framework. The budget outlines a fiscal deficit target of 3.1% of GDP and a 0.3% primary deficit, which is a departure from the earlier projection of a 0.4% primary surplus mentioned in preliminary guidelines. Additionally, there is an emphasis on increasing pension spending in social expenditure.
Notably, the government has chosen not to implement major revenue-raising tax reforms, honouring its recent commitment to avoid new taxes or higher tax rates. However, limited government revenues will continue to constrain its spending capacity. The fiscal policy remains geared towards achieving a stable debt-to-GDP ratio in the medium term.
Despite these positive developments, Mexico faces several challenges that hinder the achievement of healthy and sustainable public finances in the long run. These challenges include the country's heavy reliance on oil revenues, the need to enhance the efficiency of public spending and bolster fiscal sustainability, and the necessity to improve fiscal accountability across various government levels. These factors impact the country's economic growth potential.
How people pay in Mexico
An overview of how people in Mexico choose to make payments.
Traditional payment methods
The primary traditional payment methods used in Mexico
A Visa credit/debit card is a financial payment card issued by banks or financial institutions. It allows users to make purchases, withdraw cash, and be used online and in person. Visa's processing network can handle over 65,000 transaction messages per second.
Mastercard is a worldwide payment network that links financial institutions, merchants, and individuals, facilitating seamless transactions. This renowned company provides a range of credit and debit cards issued through partner banks. Depending on the specific bank, customers may enjoy supplementary benefits such as rewards programs, cashback offers, and insurance coverage.
American Express cards encompass a range of payment cards provided by the multinational financial services corporation, American Express Company. The Amex card portfolio includes diverse options like credit cards, charge cards, and prepaid cards. Renowned for their broad acceptance among merchants, these cards grant cardholders access to various advantages, including perks, rewards programs, travel benefits, and dedicated customer service assistance.
OXXO is Mexico's leading alternative payment system, known for its voucher-based approach. With this method, customers place online orders and opt for OXXO during checkout, which generates a voucher. The purchase is subsequently settled by presenting this voucher as cash payment at any of the more than 18,000 OXXO stores scattered across the nation. The popularity of this e-commerce payment option stems from its wide acceptance among Mexicans who lack bank accounts or credit cards.
Efectivo is a distinct alternative payment solution tailored for merchants in Latin America. It allows customers to make cash payments to the merchants using a bank bill, an investment instrument with a relatively short maturity period ranging from 30 to 180 days. Referred to as a "bill of exchange," this payment option is widely employed in local and international trade transactions.
Alternative payment methods (APMs)
Alternative payment methods
Apple Pay, a mobile payment service from Apple Inc, allows users to make in-person, online, and in-app payments. It replaces chip and PIN transactions at contactless terminals.
PayPal is a frequently used digital payment system that allows clients to use their PayPal accounts, debit/credit cards, or bank accounts. Customers use PayPal for secure online shopping and to send/receive money.
Google Pay is a digital wallet and payment service developed by Google. It allows users to make secure payments using their mobile devices or computers. It supports various payment methods, offers compatibility across different devices, and provides features like loyalty program integration and transit ticketing. Google Pay prioritises security and convenience with tokenisation and biometric authentication. It has expanded to include digital banking services and continues to evolve.
With Amazon Pay, consumers can easily pay for their purchases on the website using the information they have stored with Amazon. It eliminates the need for them to set up a new account with a different merchant. In addition, they can also make purchases at restaurants and stores using the app.
Aplazo is a Mexican buy now, pay later (BNPL) provider. Both online and in-store purchases can benefit from this service, offering flexibility to consumers who might need help to make full upfront payments. By dividing the total cost into manageable instalments, Aplazo seeks to make significant purchases more accessible to a broader range of customers.
Accepting payments in Mexico
A guide to accepting payments in Mexico.
How to accept online payments in Mexico
Before accepting online payments, you must determine which methods you prefer. Then you can choose a payment gateway provider, a service that authorises and processes online payments with their specific system.
Although there are plenty of payment gateway options in Mexico, the general process for online payments typically involves an acquirer, issuer, retailer, and cardholder in the following steps:
The cardholder initiates a payment by presenting their payment card to the retailer to purchase goods or services.
The retailer sends the payment details to the acquirer, who processes the payment request and sends it to the payment scheme (such as Mastercard or Visa).
The payment scheme sends the payment request to the issuer (such as a bank or licensed issuer) who issued the card to the cardholder.
The issuer checks if the cardholder has enough funds to complete the transaction and approves or declines the payment request. If the payment is approved, the issuer sends an authorisation code to the payment scheme.
The payment scheme sends the authorisation code to the acquirer, which then sends it to the retailer, completing the transaction.
How long does an international payment from Mexico take?
The payment processing time may vary depending on the method and the recipient's bank. For instance, online money transfers through platforms like PayPal can quickly and conveniently send money to multiple destinations.
Bank debit/credit cards: International payments with bank debit or credit cards may take a few minutes to a few hours, depending on bank processing times.
Online money transfers: Platforms like PayPal can process international payments within minutes to hours, depending on the service and destination country.
Wire transfers: Traditional bank-to-bank transfers via SWIFT or wire may take one to five business days or longer, depending on the destination country, intermediary banks, and transaction requirements.
Merchant fees for online payments in Mexico can vary depending on the payment method and the merchant services provider used. Here are some examples of typical merchant fees for online payments in Mexico:
Credit and debit cards: Merchant fees for accepting online credit and debit card payments can range according to the transaction amount. It also varies depending on the type of card used and the merchant services provider.
Bank transfers: Bank transfer fees can vary depending on the bank used, with some banks charging a flat fee per transaction and others charging a percentage of the transaction amount.
Other fees surrounding online payments in Mexico include charges incurred by merchants, payment processors, and financial institutions involved in the payment processing chain. Below are some common fees:
Interchange fees: Interchange fees are charges paid by merchants' banks to cardholders' banks to cover the costs of processing card transactions. These fees are usually based on a percentage of the transaction value and can vary depending on the type of card used and the merchant's industry.
Payment gateway fees: Payment gateway providers charge a fee for processing transactions on their platform, which may be a percentage of the transaction value or a flat fee per transaction.
Cross-border fees: If a merchant accepts payments from customers outside the country, they may be subject to additional fees for cross-border transactions, including currency conversion fees and international processing fees.
Merchant discount rate: A processing fee that merchants are charged for transactions made using credit or debit cards. This fee generally falls within 1% to 3% of the total transaction amount.
Security challenges of online payments in Mexico
Mexico stands out as a captivating case in Latin America's digital payment evolution. The country's potential shift to fully digital banks in the coming years, as indicated by the willingness of many bank customers, suggests that established financial institutions offering online digital banking could pave the way for a complete transition to internet-based transactions and loans. Nevertheless, there is still much progress to be made in digital payment penetration in Mexico, primarily due to a significant portion of the population remaining unbanked.
The adoption of digital payments in Mexico has been on a rapid rise, with the total value of digital transactions in 2021 reaching US$54 billion, projected to increase to US$90.1 billion by 2025. Among various digital payment methods, digital wallets are the preferred choice for Mexican consumers, accounting for 19% of all payments. However, they are still overshadowed by credit and debit cards, making up 47% of all transactions. Interestingly, despite the growth of digital payments, cash continues to be the country's most widely used payment method.
Numerous initiatives are currently underway to enhance access to digital payments in Mexico, but one in particular stands out. Banco de Mexico recently introduced a national digital payment platform known as CoDi to promote digital payments and reduce reliance on cash, debit cards, and other potentially vulnerable payment methods that could be susceptible to theft or compromise. Through such efforts, Mexico strives to embrace the potential of digital payments and bring financial services to a broader population segment.
Key sectors & industries in Mexico
According to the US International Trade Administration and other various sources, the top 10 industries in Mexico are:
The advanced manufacturing sector in Mexico has witnessed remarkable expansion since 2020, leading to a growing interest from companies seeking to nearshore their operations in the country. This surge in activity has propelled Mexico to a prominent position among the top five importers of advanced manufacturing technology worldwide.
Despite an overall economic contraction, the Mexican agribusiness sector demonstrated resilience during the pandemic, registering a remarkable 4.5% growth in 2021. Notably, demand for food products during the pandemic played a crucial role in this growth, resulting in a total production of 290.7 million tons. This production included 21.7 million hectares of harvested land, 1.9 million tons of fisheries-related products, and 7.4 million tons of meat.
While Mexico's aerospace sector is relatively young, its foundations run deep. The industry experienced an average annual export growth of 14% from 2004 to 2019, resulting in the creation of 55,000 jobs and the influx of US$6 billion in foreign investment between 2007 and 2017. In 2021, the sector defied expectations of a 15% reduction in available seats and achieved the third spot globally.
Mexico has a significant automotive sector, comprising 3.5% of the country's GDP and 20% of its manufacturing GDP. It employs over a million people and is the seventh-largest global passenger vehicle manufacturer, producing three million vehicles annually. Around 90% of cars produced are exported, with 76% going to the United States. Established automakers in Mexico include Audi, Baic Group, BMW, Stellantis (FCA and PSA Group), Ford, General Motors, Honda, Hyundai, Jac by Giant Motors, Kia, Mazda, Mercedes Benz, Nissan, Toyota, and Volkswagen.
The construction industry experienced a 17.6% decline in 2020 but it was expected to recover with 6.4% growth in 2021 and 2.7% in 2022. Average annual growth is estimated at 3.1% from 2023 to 2026. Investment in the construction of new manufacturing and industrial plants will play a vital role, and Mexico stands to gain from implementing the United States-Mexico-Canada Agreement.
Private institutions in Mexico prioritize international education. They promote student mobility and academic exchanges with foreign institutions to boost competitiveness. Mexican higher education actively participates in the 100,000 Strong in the Americas Innovation Fund, fostering partnerships and student exchanges with institutions across 25 countries and 49 US states.
Mexico's environmental technologies and water markets show promising potential for significant expansion in the coming years. The country's urgent demand for water infrastructure modernization and effective technological solutions for solid waste disposal drive this growth. Both public and private stakeholders are enthusiastic about tackling Mexico's significant challenges in these fields by leveraging the most advanced products, technologies, and expertise available.
Since 2015, the Mexican government prioritized financial inclusion by introducing reforms in the sector. These included "banking agents" and suitable electronic/mobile payment options. With over 512 fintech startups, Mexico is a prominent player in Latin America's fintech industry, actively supporting payment, remittance, financial management, crowdfunding, and lending services.
The franchise sector contributes approximately 4% to the country's GDP, boasting a remarkable presence of over 90,000 points of sale across the country, encompassing more than 1,500 franchise concepts, according to the Mexican Franchise Association. Around 85% of these franchises are Mexican brands, 10% originate from the United States, and the remainder involves European and Latin American brands.
Mexico's healthcare sector comprises three primary sub-sectors: medical devices and supplies, healthcare services, and pharmaceutical/biopharma. The country's imports of medical devices and supplies in 2021 amounted to US$5.9 billion while imports of pharmaceutical products were valued at US$5.2 billion. The value of imports of healthcare services is not currently available.
Mexico was the world's 12th-largest economy in terms of total exports in 2021. The top exports were cars, valued at over US$40 billion. The country's exports included computers, digital equipment, motor vehicles, parts and accessories, and crude oil. Most of the country's exports go to the US, Canada, China, Germany, and Taiwan.
Meanwhile, major imports are motor vehicles, refined petroleum, office machine parts, integrated circuits, and petroleum gas. Mexico's imports are mainly from the US, China, South Korea, Germany, and Japan.
Regulation in Mexico
The regulatory environment of Mexico
Summary of the regulatory environment in Mexico
To maintain fairness and operational smoothness in business ventures in Mexico, entrepreneurs are required to comply with a range of laws and regulations, which include:
Company law: This includes regulations governing companies' establishment, operations, and dissolution.
Employment law: This includes regulations governing employment contracts, working conditions, and employee rights.
Product liability law: This includes regulations governing the legal liabilities and responsibilities of manufacturers, sellers, distributors, and other parties involved in the production and sale of goods.
Intellectual property law: This includes regulations governing copyrights, patents, and trademarks.
Competition law: This includes regulations governing competition and antitrust matters to promote fair competition.
Consumer protection law: This includes regulations governing the rights of consumers, product safety, and advertising standards.
Data protection law: This includes regulations concerning the collection, use, and storage of personal data.
Like many other nations, Mexico has some governmental entities overseeing those various regulations. For example, the Secretariat of Economy is responsible for overseeing company law and regulating the establishment, operations, and dissolution of companies in the country.
How card payments are regulated in Mexico
Banco de México oversees payment cards and can intervene in the market. The central bank has promoted transparency in banking charges, removed participation restrictions, and coordinated with market participants through regulatory threats, including price regulation.
Do I need a licence?
Foreign entrepreneurs are not required to obtain a visa to initiate a business in Mexico. They can establish their business remotely using a power of attorney. Simply sign the power of attorney, get it apostilled, and send it to the designated legal representative. However, if you plan to work physically in your Mexican business, you must apply for an immigration visa.
Payment solutions in Mexico
An overview of how to accept payments from customers in Mexico.
Payment gateways and providers in Mexico
Payment methods have evolved in Mexico, which has led to merchants having to accommodate different kinds of transactions. This has resulted in businesses having to find a solution that will allow them to accommodate their customers' needs. With the support of its payment orchestration layer (POL), APEXX can help them connect their payment methods and banks.
One of the main advantages of POL is its ability to support different payment methods. It also has various features that will help businesses improve their efficiency.
Integrating the payment processing capabilities of APEXX into existing systems can be effortless. The company's pre-built plugins and APIs allow organisations to easily integrate its solution with various platforms like e-commerce shops and POS terminals. This flexibility helps minimise disruptions and potential issues and makes operations smoother.
Payment processing solutions from APEXX help companies in Mexico process more transactions and handle various payment methods. The adaptable framework allows them to provide their customers with better service.
Cheapest payment solutions in Mexico
To reduce fees in their payment stacks, merchants in Mexico can implement the following strategies:
Negotiate fees: Merchants should negotiate with their payment providers for better rates, including transaction fees, and monthly fees.
Choose a suitable payment provider: Merchants should research and compare different payment providers to select the one that offers competitive rates and low fees.
Use alternative payment methods: Merchants can reduce fees by using alternative payment methods such as e-wallets or bank transfers instead of traditional card payments.
Prevent chargebacks: To avoid chargebacks and additional fees, merchants can offer clear product descriptions, prompt customer complaint resolution, and refunds when necessary.
Implement fraud prevention measures: Merchants should adopt fraud prevention measures to prevent fraudulent transactions, which can lead to chargebacks and additional fees.
Monitor payment processing fees: Merchants should keep a close eye on their payment processing fees and use payment analytics tools to track their expenses and identify areas where they can reduce costs.
Merchants can also consider using payment aggregators such as APEXX, which allow them to accept multiple payment methods through a single platform, reducing the need for multiple payment providers and lowering costs.
BNPL in Mexico
The BNPL industry is growing rapidly in Mexico, with payments expected to increase by 132.3% annually. The e-commerce boom and in-store partnerships are driving this growth. Mexican startups like Nelo are disrupting the BNPL space, while the long-term outlook forecasts steady growth, with a compound annual growth rate of 38.7% between 2021 and 2028, when it is projected to reach a total value of US$19,707 million.
Due to the increasing number of payment providers and the acceptance of BNPL, Spanish merchants can benefit from using APEXX. This platform allows them to manage their operations and integrate various systems.