Mexico Turns to Mobile Payments to Improve Poverty, Draw the Unbanked

We’ve seen mobile payments systems do a lot in the last couple of years. We’ve seen them improve record keeping, improve loyalty programs, even in some cases take a day from disaster to fairly normal. The Mexican government, under recently-minted president Andres Manuel Lopez Obrador, has an even more ambitious use for mobile payments systems, one that only might pan out: to improve poverty rates in the country.

Obrador’s administration has an eye to taking mobile payments and using them as a means to address the substantial numbers of unbanked individuals—those who have no bank account of any kind—in the country. This in turn should make financial services more affordable, and by extension, more accessible as well.

Run by the Mexican central bank, the new system known as CoDI will offer mobile payments services free of charge. CoDi starts a pilot program this March. Effectively, according to deputy finance minister Arturo Herrera, the country’s mobile phones will ultimately become banks, meaning that it’s no longer necessary to have a bank account to access bank functions.

There are, however, some early issues emerging. It turns out that, to use CoDi, consumers actually have to have a bank account, with an institution that uses Mexico’s currently-existing interbank payments system. Additionally, the system may not have the desired effect because roughly 57 percent of Mexican citizens prefer to work off-book, and therefore untaxed.

It’s easy to find fault with CoDi. There are simply too many failure points for this system to work well; how much of the 57 percent of currently-untaxed workers does the Mexican government honestly expect to sign up for the system that will effectively start putting them on the hook for taxes? Moreover, if the stated purpose of CoDi is to improve accessibility to financial services for the unbanked, why make the only way to use these services to become banked?

Of course, it likely had to be this way; imagine what such a platform would have done to banks’ own sales figures as current customers stopped letting banks charge them for services to instead go to the free government bank whose branches were as close as a mobile device. CoDi isn’t a bad idea in and of itself, but it could stand a bit of retooling.