‘Acquiring in a Box’ in Mexico Helps Merchants Dethrone ‘King Cash’

In Latin America, cash remains king.

That’s true for many markets in the region, and Mexico stands out as a prime example. Roughly 85% of transactions are done in cash, and the country is five to 10 years behind other countries when it comes to having the hardware and software in place to accept digital payments.

The lagging effect stands in stark contrast to countries like Brazil, where more than 30% of gross domestic product (GDP) is “processed” via cards. In the United States, that percentage stands at about 50%.

Mario Garcia, Visa’s vice president and head of merchant sales and acquiring for Mexico, and Juan Jose Galnares, president of FinTech Clip, said that payment facilitators (PayFacs) — leveraging education and outreach — can help merchants and consumers move beyond paper bills and coins.

In the process, they told Karen Webster, these merchant service providers broaden financial inclusion, a boon for consumers in a country with one of the largest unbanked populations in the world. They also boost merchants’ top lines. The conversation marked the fifth in an ongoing series on how PayFacs have been changing the payments landscape.

At the moment, there’s what Webster likened to a “chicken and egg” problem in the mix. Cash is cumbersome. Cash is prone to security risks (keeping money in the proverbial till may be a magnet for theft). And yet, as Garcia and Galnares noted, cash is still sticky — certainly with consumers — so merchants are reluctant to put the foundations in place to push digital transactions, unsure if the investments will pay off.

As Visa’s Garcia said, what’s needed is to “build an ecosystem that provides trust to the consumer as well as a better payments experience.” With those components in place, he said, “we’ll be able to move forward with the acceptance of electronic payments in the region.”

At a high level, Garcia said of the merchant community, “when they notice the convenience and certainly the value that they receive, they are more than willing to accept that cost because they know [transactions] are going to be certainly easier for them. It’s going to be more efficient, but they also access a broader segment of customers.”

But getting the mere functionality in place has been a challenge. There’s the time-consuming process of getting the technology in place to take on digital capabilities. Finding and signing on with merchant acquirers can be a months-long process involving reams of paperwork. Accepting digital payments requires an understanding of all the things that come with digital payments: managing fraud and risk, navigating disputes and chargebacks, and setting up a bank account themselves for their business.

Acquiring in a Box

To speed the transition, companies like Clip are working to change this by providing a solution called “acquiring in a box” that allows small- to medium-sized businesses (SMBs) to accept all payment methods in a mobile point-of-sale (MPOS) device. The company promises an onboarding process of five minutes or less, giving even the smallest micro-merchant the range of payments acceptance capabilities that even the largest department store has.

“We have taken that massive, lengthy, cumbersome process and transformed it into a quick, fast, simple onboarding of five minutes or less,” said Galnares.

Clip assumes the risk of the transactions that merchants accept, but it takes a data-driven approach toward identifying which merchants should be provided access and which should be required to provide more documentation.

Galnares said that his previous tenures at Amazon’s retail operations and in private equity have taught him the value of managing high-growth operations with data.

“We know the local rules,” he said. “We have certain risk parameters that allow us to navigate that successfully, and that’s part of what we have done” for the equivalent of tens of dollars out-of-pocket for merchants rather than the high upfront costs charged by acquirers.

Galnares said about 75% of Clip’s merchants recoup their investments within the first few payments accepted via the “acquirer in a box” model.

With a nod to the bulk of educational videos and materials available through Clip’s site, he said, “we’re building that trust and educating first-time users.”

Both panelists told Webster that key use cases are spurring both the merchant and consumer sides of the equation to embrace and promote digital payments. Tourism stands out here, as tourists coming to the country from other, far-flung locales are used to transacting with their devices and want to be able to do so in Mexico. They also want to use cards.

“Mexico is one of the biggest tourism destinations in the world, so that’s a natural place for us to see traction for our [mobile point of sale] devices,” Galnares said.

Now, it’s increasingly common for, say, a merchant selling bottled water at the fabled pyramids in Mexico to accept cards, he explained. High-ticket items and services are also proving to be fertile ground for electronic payments and cards, including Visa-facilitated installment plans for dentistry and college tuition, which Garcia said allows merchants to log more sales. There’s a knock-on effect brewing, too, as Garcia and Galnares noted that, for example, once several dentists get onboard with digital payments, peers will have to follow suit just to remain competitive.

In the meantime, said Galnares, merchants are becoming increasingly aware of the ways in which card acceptance and technology can help them grow; now they want a bundle of services available to help them scale, with companies like Clip and Visa as key providers. Clip has added “top offs” to its roster of offerings, and card-not-present solutions as well as inventory management through electronic ledgers and merchant dashboards.

“Eventually the installed base of cards in Mexico will move to contactless,” said Galnares.