Will Latin America Become a Cashless Society?

About two hours ago, I left my apartment to go the nearby 7-11 to buy an energy drink along with some street tacos nearby.

At the 7-11, I was standing in line as this guy in front of me offered a 500 peso bill to the guy behind the counter.

He took the money hesitantly and asked “you don’t have anything smaller?”

“Nope!” the customer replied.

Then they went back and forth for a minute with the guy behind the counter asking him if he has any change.

And the customer pulls out a few pesos but it’s not the exact amount that the worker supposedly needs.

Surprisingly, the worker accepts his 500 peso bill and gives him his change.

And I say surprisingly because, funny enough, larger companies like OXXO, 7-11 or even Walmart at times will claim that they “don’t have change” for a 500 peso bill.

Which, while it is a large bill relative to the other bills in circulation, it is still annoying at times when these large companies claim to not have the change needed.

Because a 500 peso bill is literally just 25 bucks.

As a friend of mine put it when he went to Walmart some time ago in Mexico City – “You’re a Walmart….How do you not have change for 25 bucks?!?”

In the end, these 500 peso bills are like something that nobody wants to keep around because they know it could be a pain in the ass to find someone to accept.

Either way, as I was waiting for the worker to give the customer his change, I noticed a sign that said something like “we encourage you to pay with card! It’s easier and is risk free from contaminating others!”

Still, the guy who was in front of me paid with cash.

And, every time I go to this 7-11 or other stores, the majority of people pay with cash.

I pay with cash.

In my situation, I don’t like paying with card because I don’t like giving my info to random stores and also because I don’t want to risk getting mugged.

This card is the only way I can withdraw my money and it’d be a pain in the ass to get a new card sent to me from the US.

So I almost treat my debit card like a holy weapon that keeps me from going hungry since I’d be fucked for a little bit until I could get a new one.

Anyway, when I finished paying, I walked out of the store to get those tacos on the street.

At both the taco store and the French fry place that I went to, they both accepted cash and had no sign recommending that I pay with card.

In fact, I even asked out of curiosity – “es posible pagar con tarjeta?”

They both said no.

So cash it was!

Not like I was going to pay with card anyway…

But I wanted to know as I got curious – do these street folks accept card?

I’m sure maybe some of the most popular ones do but I have a feeling many don’t.

In my experience living in Mexico, I can’t remember the last time someone paid with card at one of these street vendors.

Granted, maybe someone has and I didn’t notice because I don’t pay with card myself either.

Anyway, I kept on walking once I got my food.

On the way back, I went down a path where, a few hours earlier, you’d see folks selling shit on the street.

Chocolate, cheap headphones, etc.

Do they have a card machine ready to accept a cashless payment?

Nope.

And they’re not alone.

Informal Workers

According to this article here, “the informality rate in Latin America and the Caribbean is 53%, which means that nearly 140 million workers are under informal conditions.”

Now, to be fair, I’m not entirely clear on what is included under work with “informal conditions.”

But I’d imagine that, to a degree, it includes folks selling shit on the street.

Correct me if I’m wrong though but that was always my assumption.

This article here anyway seems to argue that informal work is:

“The informal sector refers to those workers who are self employed, or who work for those who are self employed. People who earn a living through self employment in most cases are not on payrolls, and thus are not taxed. Many informal workers do their businesses in unprotected and unsecured places.”

As such, this article here says that informal workers go on “with no proper contract or social security, whether healthcare or pension cover.”

At any rate, I imagine the situation must’ve gotten worse under the Covid Recession that we’ve had.

As this article here put it:

“The World Bank expects a GDP contraction of more than 7 percent for 2020, worse than the Great Depression. The World Bank projects the recession in Latin America and the Caribbean will be the worst downturn since reliable data began in 1901, setting back progress on fighting inequality and poverty.Jul 1, 2020.”

So I imagine that the situation for informal workers and the amount of people doing informal work is or has likely gotten worse.

All that said, there’s other things to consider before we get into the main topic.

Bank Accounts

When it comes to how many people even own a bank account, this article here titled “Latin America: Most still keep their money under a mattress” gives an idea:

“This places Latin America and the Caribbean on par with the rest of the developing world, where 41 percent of adults have a formal account. In high-income economies, 89 percent of adults are banked. The expansion of government transfer schemes has received much attention in the region.”

From that same article, it goes on saying the following:

“Why do 61 percent of adults – more than 250 million people - in Latin America and the Caribbean remain outside the formal financial system? 55 percent of the unbanked say that they do not have enough money to use a formal account, 40 percent say accounts are too expensive, and 21 percent say they lack sufficient documentation (multiple responses were allowed).”

Of course, that number of those who have a bank account varies by which part of Latin America you are talking about.

As the article states: “according to the data, 39 percent of adults in the region have a formal account, ranging from 14 percent in Nicaragua and El Salvador to 56 percent in Brazil.”

On top of that, just because someone has a bank account, doesn’t mean that they actually use it.

Here’s some great info from this article here.

In which that article goes on that reported numbers by Latin governments on how many people are “financially included” or have a bank account does not take into consideration “if they have any type of formal financial product, regardless of type or usage.”

They give an example in which “millions of Colombians have basic savings accounts and are thus considered ‘financially included,’ even if their accounts have zero balance and sit inactive for months or years.”

Still, there's more to think about than just access to a bank account.

Debit & Credit Cards

The article goes on to say the following:

“What’s more, a bank account is not tantamount to a payment card, and having a payment card is not tantamount to using it. For example, around 500,000 Peruvians own a savings account with affiliated debit card where they receive government benefits. 

However, 95% of these funds are withdrawn in cash within 24 hours of them being deposited, inside a bank branch from a teller. Certainly, the term ‘financial inclusion’ is misleading at best and downright deceitful at worst, considering the complex levels of access and barriers to banking that still exist in the region.”

On top of that, the article goes on to find common use of credit cards to be difficult for different reasons, including the following: “Credit card penetration in the region is still low, since banks lack the tools to properly evaluate credit worthiness and expand issuing to the middle class and young people.”

Still, while the use of debit cards has its risks for fraud also as the article elaborates on, it still makes the claim that institutions in Latin America are pushing for their use.

As the article says here: “As such, while an estimated 230 million Latin Americans have debit cards, only the 113 million who also have credit cards can consistently make purchases online.”

Of course, how many Latin Americas actually own a debit card varies by country.

According to this article here, we can pull some 2017 numbers from the World Bank together for various countries, including the US and Canada for reference:

Canada: 96.80%

The US: 80.23%

Venezuela: 66.07%

Chile: 59.81%

Brazil: 59.34%

Uruguay: 55.85%

Costa Rica: 51.65%

Argentina: 41.37%

Dominican Republic: 32.43%

Panama: 29.26%

Ecuador: 28.42%

Bolivia: 28.05%

Peru: 27.92%

Colombia: 25.65%

Mexico: 24.63%

El Salvador: 18.95%

Honduras: 16.92%

Guatemala: 15.87%

Nicaragua: 15.70%

Paraguay: 15.45%

As you can see, it varies greatly by each country.

Furthermore, I’d be willing to bet that regions in each country have a wide variety in how many people have debit cards or not.

For example, I’d be willing to bet that more people as a percentage of the population have a debit card in Mexico City versus Chiapas.

Still, the article cited here goes on to explain that there has been more of a push in recent years by banking institutions in countries like Mexico, Brazil and Peru for more debit card usage.

Taking Covid Into Consideration

Anyway, there were other “optimistic” news sources before the Covid Recession that talk about efforts to make a “cashless society” in pockets of Latin America.

According to this 2019 article here, the goal for Mexico was to be cashless by 2025: “Industry executives said at a central bank event on Monday in Mexico City that Mexico is ready for a mostly cashless economy by 2025.”

Still, that was all before the Covid Recession.

Have things changed since then?

At least for Mexico?

Well, here’s an article by Jornada that was published on December 27, 2020 with some interesting quotes relevant to the topic:

“A lo largo de 2020 la cultura cashless, también conocida como sociedad sin efectivo, tuvo un fuerte avance a nivel nacional e internacional debido a la ineficiencia e inseguridad del efectivo para operar en un mundo en pandemia, con lo cual el uso de los medios de pago electrónicos y digitales se aceleró.”

“…en todos los países del mundo, en algún momento del año, pusieron en pausa las actividades económicas no esenciales para prevenir los contagios de Covid-19 y solicitaron a sus habitantes quedarse en casa, de tal forma que se aceleró la adopción del canal de compras en línea y, por tanto, agilizó el uso de medios de pago electrónicos.”

Still, that is just Mexico that we are talking about.

Though, in all likelihood, I’d imagine that the same effect has taken place in about every Latin American country for the same reasons they brought forward in those paragraphs.

But let’s get to my actual thoughts now on this subject as to what I think will happen going forward with this topic.

Final Thoughts

First, will the trend ever reverse post-Covid?

I doubt it.

Yes, we have seen an increase in use of debit and credit cards over the last year.

But we also saw a trend going upward before the Covid Recession even hit.

As well, you can clearly see in any of the articles cited here that larger institutions want to keep pushing this forward.

So, in short, I don’t see more people going back to cash only after the Covid Recession is over.

Second, you do have the obvious issue of so many people working informally and taking money under the table…

To those without bank accounts and debit cards.

And rates for any of those things tend to be greater than what you see in countries like the US or Canada.

In the same way that countries like the Netherlands tends to have even more people than the US that have a bank account and debit card.

For that reason, I’m sure we’ll see a “cashless society” bloom quicker in the Netherlands than the US.

And, similarly, we’ll likely see a “cashless society” bloom in the US before it hits anywhere in Latin America.

Truth be told, I’ve never been rejected from buying anything with cash in Latin America.

However, I have had one person at the airport in St. Louis years ago refuse to sell me some black iced tea at some Starbucks they have because I wanted to pay in cash.

Still, in my small town in Iowa, I don’t see “cashless” becoming as much of a thing too quickly relative to other parts of the US like maybe Chicago or other big cities.

And that goes to the next point.

Third, as I always mention in other articles, it all depends so much on which part of Latin America you are talking about.

As we saw in those statistics about debit card usage, obviously folks in Paraguay and Nicaragua are less ready for a “cashless society” than folks in Chile or Uruguay.

Even then, you still have debit card usage noticeably lower in even the highest country, Venezuela, than the US with a 14% gap between the two.

And a gap that is much larger between the US and the other parts of Latin America standing at well over 50% for 13 countries.

Plus, as I said before, it’ll vary a bit between regions of each country also.

In the same way that I can see “cashless” becoming a thing in New York City well before my small town in Iowa adopts it.

You can say the same about any country in Latin America.

Fourth, due to the Covid Recession, you’ll likely see an even greater push in the future for a “cashless society” than ever before.

Particularly as governments and institutions see this as a good way to convince the public to go along with it.

Perhaps scare them a bit about how using cash can be “riskier” for spreading contagions and the like.

Fifth, I do believe that ultimately Latin America, at some point in the future, will become cashless or mostly cashless.

But I have no idea when it will happen.

As I said, it’ll vary heavily by the country and even regions of each country.

But I’m not confident that we’ll see such a giant push towards “cashless” even in a country like Mexico within the 2020s.

As that one article cited had said, the goal in 2019 was to make Mexico cashless by 2025.

Of course, with mañana time, I would’ve expected that goal to be achieved maybe 5 years after 2025.

Then we have the Covid Recession and how, seemingly, it is making the process go faster.

But, as we covered, we also have issues like poverty, informal work and others accelerate.

Part of me wants to believe that the worsening of those issues would set back the timeline necessary to create a “cashless society” down here in Mexico specifically.

Yet alone the rest of Latin America.

Either way, the exact timeline is one in which we can’t predict necessarily with 100% confidence.

All I can say is that, despite the challenges covered in the beginning of this article, I do see Latin America eventually becoming successful in pushing a “cashless society.”

At any rate, drop any comments you have below in the comment section.

Follow my Twitter here.

Thanks for reading.

Best regards,

Matt