PAYMENT METHODS IN MEXICO. e-business Issue.

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1 emarket Services makes it easier for you to use Electronic marketplaces for International business PAYMENT METHODS IN MEXICO By Rocío Anglés Parejo Marketing Director at SafetyPay Spain ( e-business Issue September 2012

By Rocío Anglés Parejo Marketing Director at SafetyPay Spain (www.

2 Abstract In this article SafetyPay, an online payment platform that enables users to make purchases worldwide in any currency without having to provide bank information, introduces the online and offline payment methods most widely used in Mexico. This is the third article in a series that the multinational has written on Latin American markets. While the first gave a global view of payment methods in Latin America, and the second provided a more detailed analysis of the Brazilian market, this article looks at online and offline payment methods in Mexico, with insight into the most widely used and consequently the most appealing for online stores. In Mexico as in the rest of the world, the financial situation has energized the e-payments market. In times of crisis, like these, customers prefer the flexibility of paying by credit card, but also like to control spending with prepaid cards. This is crucial in markets like Mexico, where about 15% of the GNP and up to 35% of employment is informal economy. Mobile banking is widespread in Latin America. It allows easy access to financial services and is becoming a way to do banking in emerging countries. Mexico is a market where mobile banking will advance rapidly because some entities that specifically target the nonbanking population are already working on it. Online and offline payment methods Mexico has one of the lowest rates of banking penetration in Latin America, 57.6% of the population. This low percentage is linked to the scarcity of certain payment methods like debit cards, which reach only 34.7% of the population. Technological advancements have led to large developments in online and mobile banking. The number of Internet transactions in Latin America in the last five years has tripled, a clear sign that these kinds of payment options are on the rise. In Mexico, the increase was from nearly 6 million users in 2005 to 14 million in According to the 2011 AMIPCI Study on E-Commerce in Mexico, nearly 70% of the sales of businesses surveyed were done by credit card. One out of every five Internet users in Mexico made purchases online. As in the rest of Latin America, the most widely used payment method was credit cards. Bank deposits and PayPal followed. Payment options like SafetyPay, which were created specifically for online payments, are becoming more and more relevant. September 2012 Page 2 of 6

While the first gave a global view of payment methods in Latin America, and the second provided a more detailed analysis of the Brazilian market, this article looks at online and offline payment

3 Most widely used payment methods for Online Shopping in Mexico 2011 Source: 2011 AMIPCI Study on Electronic Commerce in Mexico Cash is the most widespread payment option in Latin America. Proof of this is that the number of coins and bills in circulation has increased at a higher rate than bank issued credit cards. However, cash payments are associated with low value transactions. After cash, credit cards are the preferred method of payment in Latin America, even for online shopping. In recent years, the number of credit cards has continued to grow thanks to outreach campaigns, an increase in banking and a larger number of ATMs. As we mentioned earlier, credit cards have penetrated 34.7% of the population. The following graph, as you can see, shows that the most widely used credit cards are Visa, followed by MasterCard and lastly, American Express with only 7%. Most Widely Used Credit Cards in Mexico Source: 2011 AMIPCI Study on Electronic Commerce in Mexico September 2012 Page 3 of 6

After cash, credit cards are the preferred method of payment in Latin America, even for online shopping.

4 In 2011 a circular on credit cards was approved which standardizes rules and formats that allow credit cardholders to authorize recurring payment for goods and services with the advantage of direct debit. This circular intends to encourage credit card use by making it easier to obtain and to cancel a card. It also increases minimum fee payments so that debts can be paid off faster within a reasonable time. Number of credit and debit cards in circulation Debit cards Credit cards Mexico 75,165,015 22,397,055 Source: Tecnocom Report on Trends in Payment Methods 2011 Another rather popular payment option in Mexico is checks. There is a downward trend in the use of checks due to the fact that paper-based payments are being replaced by electronic payments. In Latin America, the total number of check-based transactions went from 36.5% in 2005 to 17.9% in In recent years, Automated Clearing Houses (ACH, a system that provides electronic fund transfers between banks) accommodated the increase in direct credit and debit transfers in Latin America. The number of transactions has grown, which means that this system is becoming more and more advanced. ACH users benefit from greater security, fewer risks and an efficient payment option. Transfers in Mexico and Spain in Source: Tecnocom Report on Trends in Payment Methods 2011 There are fewer direct debits and direct credits than transfers, but those are expected to increase as SMEs and big businesses begin to use them, as they can reduce the number of unpaid bills. September 2012 Page 4 of 6

It also increases minimum fee payments so that debts can be paid off faster within a reasonable time.

5 Direct Debits in Mexico and Spain in 2010 Source: Tecnocom Report on Trends in Payment Methods 2011 ecommerce industry Despite the complex global financial situation, B2C e-commerce has grown a lot in recent years. This is due in part to the large number of companies that have invested in technology and logistics in order to develop more reliable and safe business models. Furthermore, increased perceived security, higher PC penetration and broadband usage are other factors that have most significantly affected the growth of e-commerce. Online shopping on international websites is one of the fastest growing features of e- commerce in Latin America in recent years. One of the inconveniences of international shopping is the cost of transportation and duty that is added on the orders. Since Mexico is so close to the United States and has so many American emigrants, it is the country that buys the most U.S. products. American consumerism has had a large affect on the Mexican market and there are effective campaigns on social networks like Facebook and Twitter to bolster online promotions. Two major disadvantages to shopping online for Mexicans are fraud and bank data theft. Payment systems created especially for online use like PayPal and SafetyPay have become very popular in recent years because they induce greater consumer trust in Internet shopping. With SafetyPay, there is no need for a credit card, and bank data is not given out to third parties, thereby resolving those drawbacks. In 2011 the LFPDPPP (federal law to protect personal data in the possession of private individuals) came into effect. It requires companies with customer data bases to contract a third party firm to securely manage their customer s personal information and to ensure safe payment methods with minimal storage of personal data. This latter point is where secure payment options like SafetyPay, which already has 6 million potential customers in Mexico alone, are crucial to any online business. About the author This is the third in a series of articles by SafetyPay, on payment methods in Latin America. This piece was written by Rocio Angles Parejo, the person in charge of SafetyPay Marketing September 2012 Page 5 of 6

Furthermore, increased perceived security, higher PC penetration and broadband usage are other factors that have most significantly affected the growth of e-commerce.

6 Spain, a global solution for payments on the Internet that allows online banking customers to shop worldwide. Customers can pay directly through their local bank account and in their own currency. Users never have to provide financial information to stores or to SafetyPay. The company is currently in North America, Latin America and Europe, and has over 250 million customers worldwide. Sources 2011 Tecnocom Report on Trends in Payment Methods, Spain and Latin America 2011 AMIPCI Study on Electronic Commerce in Mexico September 2012 Page 6 of 6

Users never have to provide financial information to stores or to SafetyPay.

Credit card: permits consumers to purchase items while deferring payment

Credit card: permits consumers to purchase items while deferring payment General Payment Systems Cash: portable, no authentication, instant purchasing power, allows for micropayments, no transaction fee for using it, anonymous But Easily stolen, no float time, can t easily