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Bad timing and cultural attachment to cash: Why hasn't CoDi, Mexico's instant payment system, taken off yet?

A year after its launch, Cobro Digital has over 6 million registered accounts and is mostly used for in-person transactions. Only now retailers, payment providers, and fintechs are starting to explore the system's potential for digital commerce

Mexico’s instant payment system Cobro Digital, or just CoDi, completed one year last September amid a horrible timing, the unprecedented COVID-19 crisis. Despite the push for digitization brought about by the coronavirus pandemic, CoDi has not benefited from it. The thing is, abandoning the ingrained habit of using money has never been in Mexicans’ minds. On the contrary, the use of efectivo has risen about 22,82% when comparing September 2019 with September 2020, and the pandemic itself crushed the expectations around the first phases of CoDi, focused on in-person transactions.

Despite the comparisons between CoDi and other instant payment systems worldwide, Miguel Díaz, general director of Payment Systems and Market Infrastructures at Bank of Mexico, tells LABS that “ending the use of cash” was never CoDi’s goal too.

Díaz, during the interview with LABS. Photo: Screenshot.

The main goal of CoDi is simply allowing every Mexican to be able to pay or receive payments through electronic means. This does not imply that the Central Bank has any objective in terms of eliminating cash for good. That’s a decision that every person has to make

Miguel Díaz, general director of Payment Systems and Market Infrastructures at BANXICO.

If we look at CoDi’s background, what Díaz says makes sense, since it was born from an electronic funds transfer system created in 2004, called SPEI. Like any Real-Time Gross Settlement system (RTGS), it allowed the financial institutions to send large amounts to one another in a faster way. Some years later, differently from other monetary authorities back then, what Banxico decided to do, according to Díaz, was to use the same logic not only for institutions but people. “We had so much spare capacity in the system. So we thought, ‘Why not allowed for the final customers to have this amazing service (as well)?'” stresses Díaz.

READ ALSO: Brazilian e-commerce will never be the same after PIX

And this was the project’s focus for the past four to five years. Two years ago, before CoDi was actually born, people would go to a convenience store, buy something and ask to pay through SPEI. At that time, however, this would happen like any other bank transfer, which means that data such as the name and account number of both the payer and the receiver would have to be filled out, and that the transaction would take something around 30 minutes to be completed. “So it was very clear that the system was not being used for retail because we didn’t have the proper customer experience for that,” Díaz recalls. “What we thought was why not put a layer on top of that, which would allow the person to simplify this experience? That was when CoDi came out”.

The numbers of CoDi

As the first phases of CoDi were built focusing on small independent businesses, especially the so-called “mom-and-pop” shops, which is where most Mexicans consume and pay for services daily, COVID-19 did not help the system gaining momentum. On the contrary. “All the communication schemes were built for that, for these businesses, which were supposed to really engaged with the new system in March, helping things to flow mouth-to-mouth,” tells Díaz.

Currently, CoDi has 6,218,180 million valid accounts. Still, the number of accounts that have actually been used since September 2019 is much smaller: 294,190 were used for at least one payment transaction, and 246,337 were used for at least one charge transaction through CoDi.

By the end of the year, the system is likely to achieve 1 million transactions (today is around 947 thousand) and MXN 1 million in volume – something still far from the real potential of the system.

Mexico has between 77 and 82 million smartphones, and a population of around 130 million people – but less than 40 million of them have a bank account. “So CoDi will not solve the financial inclusion problem alone, but with it, we can generate a functionality that may make more people willing to use electronic payments,” says Díaz, stressing that this could be the first step for many Mexicans to enter the financial system. Today, most Mexicans still prefer to pay for services such as transportation, water, electricity, and cable in cash, according to data from the Comisión Nacional Bancaria y de Valores. “How people are using it today? To very particular things, like paying their rent, something that people do not do every day, and for small amounts”, says Díaz. The average ticket for transactions is around MXN 990.

How to change that? Through new business models within CoDi, something that depends on the ecosystem as a whole. 

When launched in September last year, CoDi required the participation of the 32 largest financial institutions in Mexico, so banks such as BBVA, Bancomex, Bancoppel, HSBC, among others, concentrate most of the accounts of the new system.

But this number is growing, since many of the 58 financial institutions within SPEI are adapting themselves to process payment through CoDi’s layer too. Additionally, the system has about 150 non-financial or indirect participants, from retailers to fintech startups, developing different types of solutions while being certified by the Central Bank so that they can sell their products and services through CoDi.

It’s in this part of the ecosystem that things are really starting to happen. Many like to define this (CoDi) as a QR thing. It’s not just a QR thing. There’s a multitude of business models that can operate through CoDi. Things may change a lot in the next quarters

MIGUEL DíAZ, GENERAL DIRECTOR OF PAYMENT SYSTEMS AND MARKET INFRASTRUCTURES AT BANXICO.

One of these models with the potential to increase the use of CoDi is that of prepaid services, that is, services that can be requested and “prepaid” at different times than the payment settlement itself, something very useful for transportation public, since no passenger wants to risk losing the bus due to poor connectivity.

Another important feature under development is the integration of third parties initiators, like the payment services of the Big Techs (WhatsApp Pay, for instance). “It’s a way of solving this boring thing that is paying. Nobody wants to spend more time than necessary using the bank’s app, right? So, paying for anything through one of your favorite apps can be an alternative.”

How do CoDi works?

The two parts involved in CoDi transactions need to have a bank account from one of the participating institutions in the system. The collection operation is always initiated by the seller or receiver of the payment or transfer, through a message sent via a mobile device to the buyer or payer, who will, also through his or her mobile device, accept the charge.

This payment request can happen through a QR Code or any other kind of push notification. The buyer’s bank is the one responsible for identifying and approving the transaction.

READ ALSO: Contactless payment triples in Brazil with COVID-19 pandemic, says Visa

Why Brazil’s PIX is apparently ahead of CoDi

Despite also being an instant payment system that works in a very similar way to that of CoDi, the Brazilian system, PIX, seems to have been more successful in engaging both direct and indirect participants even before its official start, on November 16. This is perhaps PIX’s greatest asset over CoDi. There are 762 financial institutions already certified to operate within PIX since its inception.

A more mature ecosystem is also another important factor. More than 60 million PIX keys – as the data that identifies any user within PIX is called – have been registered since the beginning of October. According to the Brazilian Central Bank, there are more than 25 million people already registered in the system, and more than 1 million companies.

Of course that the registration of keys, as we have seen in CoDi, does not guarantee that Brazilians will effectively use the new system. On the other hand, the fact that fintechs are among the institutions with the largest number of registered keys can help to make PIX take off faster than CoDi, since fintech users are more inclined to use this type of novelty before than others, and diligently.