Behind The Struggle Of Mexico’s CoDi

August 18, 2022
Despite being the first mover in Latin America, Mexico’s instant payment service has not yet taken off. Cash is still the king in the country, while CoDi's Brazilian counterpart is skyrocketing.

Despite being the first mover in Latin America, Mexico’s instant payment service has not yet taken off. Cash is still the king in the country, while CoDi's Brazilian counterpart is skyrocketing.

Latin America’s two largest powerhouses, Mexico and Brazil, have both set up their account-to-account (A2A) instant payment services in recent years with a view to making payments more efficient and increasing financial inclusion in their countries.

But while Brazil’s Pix has been an outstanding success story, Mexico’s CoDi barely shows any uptake.

Launched in 2019, CoDi processed less than 2.5m transactions last year worth MXN1.77bn ($88m). It has more than 14.3m individual users.

By contrast, Pix, which was rolled out 13 months later, processed 9.5bn transactions in 2021, its first full year of existence, moving around BRL5.2bn ($1bn). Current data suggests it is likely to be more than double those numbers in 2022. Pix has registered more than 118m users.

“On the face of it, there is a lot of similarity between CoDi and Pix,” Huw Davies, chief commercial officer of Ozone API, told VIXIO.

Both are instant payment solutions, built on their countries’ real-time payment networks. Both aim to make it easier to make digital payments between individuals, between individuals and businesses, and even between individuals and governments. Both can be triggered through QR codes, NFC and notifications, Davies explained.

“But in the key area of adoptions they are very, very different,” he stressed.

Cash is still king in Mexico

Although Mexico was the first country in the region to pass a fintech law in 2018, it has so far failed to grow a blooming fintech sector.

In December, Finnovista estimated that there were 512 fintechs in Mexico, around one-third of the number in Brazil.

Despite the internet and smartphone penetration rates being relatively high, 90 percent of Mexicans still rely on cash when they make purchases below MXN500 ($25), based on a recent government report.

Cash is also king for purchases above MXN500, accounting for 78.7 percent of transactions and is distantly followed by debit cards, representing 12.3 percent of transactions.

By contrast, Brazil had already had an established and successful card market before the launch of its retail-focused instant payments service, which continues to grow in parallel with the uptake of Pix.

Although the almost total reliance on cash remains a challenge for Mexicans, Brazil could build on consumers’ existing habits to use cards and other digital payments, according to Davies.

'Open' is key

The biggest challenge that Mexico has to overcome is, however, that of openness, according to Davies.

Participation in CoDi is limited to a subset of the major banks — those that are part of SPEI, the country’s real-time gross settlement (RTGS) system.

This is significantly different to Pix, which is open to fintechs operating as payment initiation service providers, Davies emphasised.

Central bank-licensed financial institutions and payment institutions that have more than 500,000 active users are required by law to offer Pix. However, other financial institutions and non central bank-licensed payments firms may also offer the service on an optional basis.

“There are hundreds of participants in Pix. The central bank drove it, the industry has got behind it and the country has adopted it,” Davies stressed.

“We have seen in a number of markets around the world how openness can really accelerate innovation and choice.

“Open banking is demonstrating this and in markets where access to information and the payment infrastructure is enabled through secure APIs we see a huge increase in innovation, investment and choice,” he added.

Mexico was the first country to set up an open banking framework in the region in 2018. Despite being a pioneer, there has been little progress in its implementation, mostly due to regulatory delays.

The central bank, Banxico, issued the first set of secondary rules in early 2020, but the regulations left many questions open about APIs and the implementation timeline.

Delays to open banking in Mexico have probably been a further hindrance to the adoption of CoDi, Davies said, adding that open banking can only be a help to adoption.

The more time that Mexican regulators bide their time for specific regulations around open banking, the larger the difference between Mexico and Brazil may grow.

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