EXCLUSIVE: “The Mexican Payments Wave” – Alejandro Valenzuela, Banco Azteca and Francisco Javier García Delgado, ACI Worldwide ‘The Fintech Magazine’
Fintech adoption and digital transaction rates in Mexico are soaring. Alejandro Valenzuela, CEO of Banco Azteca, and Francisco Javier García Delgado, of payment solutions provider ACI Worldwide, consider the challenges for acquirer banks
“You can’t swim against the tide of innovation,” says Alejandro Valenzuela. And the bank he leads, Banco Azteca, has no intention of doing so.
Part of the Mexican financial, telco and retailing behemoth Grupo Salinas, established by the business magnate, investor, and Bitcoin hodler Ricardo Salinas Pliego, it’s been riding the digital swell around banking and payments since 2002. Most recently, it found itself at odds with the central bank over plans to accept cryptocurrency; it’s lost that battle, along with every other local bank (for now).
But Grupo Salinas’ Elektra stores – often referred to as the Amazon of Mexico by virtue of their market dominance – has pressed ahead with becoming the first retailer in the country to accept Bitcoin for purchases. They will go through US-based Bitcoin payment service provider BitPay instead. Salinas’ personal determination to promote cryptocurrency, which he has referred to as ‘the new gold’, strikes a chord with ordinary people across LatAm. El Salvador, where Banco Azteca also operates, became the first country to adopt Bitcoin as legal tender, alongside the US dollar, in September 2021.
People in every walk of life across the region – and notably immigrants who need to transfer cash cross-border – have dramatically increased their holdings as a way of hedging against economic instability, especially after COVID. Many see cryptocurrency potentially levelling the playing field and extending financial inclusion to those who can’t access mainstream financial services – and more than half the Mexican population still can’t. About 42 per cent live in poverty, according to the International Monetary Fund, despite many being in work.
Banco Azteca has a long track record in extending financial freedoms to many of those who hitherto had no access to credit, savings and transactions using anything other than cash. Financial inclusion is not just part of the business model – Valenzuela sees it as more of a mission.
“We’re developing digital products to give access to banking for around 20 million Mexicans, which will probably be their only option for formal banking,” he says.
That includes tackling some big social issues, such as finding ways to help women who are kept out of the financial system by patriarchal communities, and even abuse. The pandemic has helped hasten the bank’s progress.
“According to the Bank of Mexico, in 2019 there were 422 million purchases via digital channels, amounting to a total of 246billion MXN. In the first quarter of 2021 alone, there were 407 million digital transactions, which translates to 232billion MXN. The metrics tell us that we’re going to double the number of transactions conducted in the digital world in just two years. So, this [digital shift] has come to stay,” says Valenzuela.
Even before the life-changing events of 2020, Banco Azteca was profoundly altering ordinary people’s relationship with money, providing micro-financing for businesses, personal loans for those without conventional credit records, and facilitating payroll coupons for food and gasoline (a common way for employers to top up wages in Mexico and for employees to reduce tax).
Francisco Javier García Delgado, a customer success manager, responsible for Mexico, Central America and the Caribbean with payments solution provider ACI Worldwide, cites his own experience of the impact it’s had. He had an issue trying to pay a local person to look after his remote cottage in the Mexican countryside.
“I couldn’t go every week or fortnight to pay him in cash, so we both set up an account with Banco Azteca – which he could use via a local Elektra store – just so I could transfer money to him and he could take it out.
“Now, I see his card is being used to buy groceries. If banking is advancing out there, it’s a sign that the whole Mexican market is advancing,” Delgado says.
It’s this utility that proves the case for digital finance, agrees Valenzuela. And the number of low-friction options for consumers and businesses is growing all the time. The challenge for banks is in deciding whether to accept all or some.
“The acquirer market is changing a lot,” says Delgado, “not least because businesses want to have the same experience between their physical and virtual terminals. Then you have traditional credit and debit cards, being joined by alternative payment methods like PayPal, Google Pay and Apple Pay, which are also coming to market, QR codes and payroll coupons. And more payment methods are being introduced. One of the things we’re seeing is a growth in real time payments in Mexico and SPEI (a real-time gross settlement system for large-value funds, in which banks can make transfers on behalf of themselves or their customers) is becoming very popular. Today, a business will typically tell you that you have to pay with cash or card. In the future, they’re going to ask if you would like to pay by cash, card or bank transfer. There’s also CoDi, (Cobro Digital, the central bank’s fast retail payments platform), although that needs some more development.”
CoDi, launched in late 2019, provides a national mobile digital payments platform based on QR codes that allows business-to-business, peer-to-peer and other payments to be made over SPEI. Despite it being free to end users, awareness and uptake has been disappointing.
“Certainly, in the near future, there’ll be more cross-border payments,” adds Delgado, “and all these things the acquiring market needs to take into account within their systems and operating models.”
Regulation v Innovation
Will that mean that every acquirer bank has no choice but to offer an omnichannel platform for businesses that will allow them to respond to any type of payment? For Valenzuela, there is no future but omnichannel, which means banks will have to ‘do what it takes to understand the customer’s end-to-end journey’ and figure out what transaction is likely to come next.
“The reality is that the bank is transforming. Banking-as-a-service (BaaS) will revolutionise the sector, but the bank of the future isn’t necessarily going to fracture. “Let me give you an example. I want to go to Cancún, and this morning I asked Alexa ‘how can I finance it?’. She gave me options, not based on a single bank, that allowed me to get complete financial visibility about what I should do. As a consumer, it doesn’t matter who I do this with, all I want is for my experience to be positive. How we interact with banks is going to change and an omnichannel experience becomes truly fundamental to this client journey.
“As to whether every bank will provide it, I think that depends a lot on the size of the organisation. Two verticals will emerge: one will try to do everything and the other will specialise in a niche, offer a really differentiated, added-value service. I would expect to see banks in these two worlds existing together in much the same way that we see banks and fintechs existing together. But we really need one of us to achieve that omnichannel experience for the customer.”
Javier sees a third way. He believes that the effort banks have put into building a superior infrastructure in Mexico over the past few years – albeit one that’s still struggling to find relevance when it comes to CoDi – will be rewarded and forms the basis for more co-operation between banks and third-party providers.
“Banks and fintechs complement each other in several ways – perhaps, ultimately, the fintech will offer payment services and the bank will offer acquiring services.”
Wherever the players end up on the payments board, both Delgado and Valenzuela believe regulators will have a hard time keeping up. “Innovation and transformation are happening at such a rate that we have to work very closely with regulators to make them understand the sophistication and the speed of change that we’re experiencing,” says Valenzuela. “Because, if they don’t regulate correctly, abuse will happen that could also lead to mass distrust.”
Regulators have already fallen back on the blunt instrument of banning banks from handling cryptocurrency – at least in advance of Mexico issuing its own national digital currency in 2024. But, meanwhile, as Delgado points out, a parallel economy is emerging because regulators have failed to engage with it.
“There are ATMs with cryptocurrencies, there are cryptocurrency payments that still aren’t regulated. There are issues with money laundering, fraud, handling charges.”
Meanwhile, Valenzuela is watching El Salvador’s national experiment with Bitcoin closely.
“It seems very risky but fascinating in that it should give us an indication of how banking might evolve. I also think there will be a permanent battle between the cryptocurrencies that are already here and regulations – and I don’t think the regulators will give up because issuing currency is a gigantic resource of sovereignty and profitability, at the end of the day So, we’re going to see a permanent tussle around this innovation between the entrepreneur, who is obviously seeking the most effective business model, and the regulator.
“There’s going to be friction, there are going to be blows, in the sense of understanding different conditions, but I think we’re going to push on and, fortunately, as I said, you can’t swim against the tide of innovation.”
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