Dangerous curves ahead if Mexico's tolls and gas stations turn cashless
On August 9th, 2019, Bloomberg reported that Mexico's government and banking authorities have engaged in talks to ban cash at road tolls and gas stations as part of their plan to push unbanked Mexicans towards the government-run CoDi bank accounts.
On August 10th, 2019, card payment service provider Prosa experienced widespread failures affecting millions of card users across the country. Customers holding American Express, Banorte, HSBC, Citibank and Santander cards were amongst those impacted. For days, millions of businesses and individuals depended on cash entirely.
Mexico is the third most populated country in the Americas, with an adult population of approximately 98 million. Out of these, only 37% have bank accounts while most of Mexico's population, at 63%, rely on cash to get by.
By banning cash, criminals who target gas stations will unlikely be affected, while law-abiding citizens will be denied the freedom to travel freely without being vulnerable to never-ending traffic jams when tolls suffer network crashes, as foreshadowed by the Prosa blackout.
Consumers expressed frustration on social media due to declined transactions, while Mexican media outlets reported chaos in supermarkets as shoppers abandoned carts full of groceries.
The failure may spark uncomfortable questions about the nation’s banking system as the government mulls placing a ban on the use of cash for tolls and gasoline -- part of an effort to crack down on money laundering and draw Mexicans without bank accounts into the formal economy.
The plan, which has been discussed between the banking industry and the government, hasn’t been fully approved. A final decision may not be taken until after the central bank rolls out its digital payments platform next month as part of a broader government program to push more Mexicans into the banking system and cut down on cash, according to people with direct knowledge of the discussions.
The plan, which has been discussed between the banking industry and the government, hasn’t been fully approved. A final decision may not be taken until after the central bank rolls out its digital payments platform known as CoDi next month which is part of a broader government program to push more Mexicans into the banking system and cut down on cash, said the people who asked not to be named, since the plan isn’t public.
Mexico is awash in cash from the informal economy of street merchants and the illicit drug trade. Cash is used for between 80% to 90% of transactions in Mexico, Finance Minister Arturo Herrera said in March, when he was still deputy minister. At a time of a slowing economy, the plan could also help widen Mexico’s tax base.
Mexico’s Finance Ministry did not immediately respond to a request for comment. The country’s banking association declined to comment.
Mexico created CoDi to boost its economy and encourage the use of electronic transfers. On the face, the solution almost sounds like a good idea, except for a few major obstacles.
For one, it requires users (both on the sending and receiving ends) to have bank accounts at one of the banks participating in the system. According to data from World Bank, more than half of Mexicans are unbanked. And many avoid bank accounts, so they won't have to pay taxes on what little income they make.
Another problem is that cash is king in Mexico, where it is used for the majority of transactions, largely due how many goods are bought and sold in street markets and an illegal drug trade. It's not clear why people who get by on a small amount of cash each day would even need to set up a bank account.