CoDi: the platform for digital payments in Mexico

Mexico Central's Bank launched a platform for digital payments.

The Central Bank of Mexico (Banxico) presented the CoDi digital payments platform on Monday, September 30. From now on, banks in the country must offer their users the possibility of making and receiving payments from their mobile app.

CoDi works with QR and NFC technologies. The first consists of a barcode in a square that produces a quick response in smartphones, while the second allows the transmission of data by bringing two mobile devices together.

Mexico is the second country that used more cash in the world, after India. With the CoDi platform, Banxico seeks to encourage the population to use banking services and make digital payments affordable for everyone, while improving the prevention of money laundering.

What are the requirements to use CoDi?

The only requirement for users to pay and receive money with CoDi is to have a Mexican bank account and an application for mobile phones. As of Monday, September 30, banks are required to offer CoDi payment options from their mobile apps. Most banks are already prepared to meet the requirement. Not only that. Some institutions such as Citibanamex and Santander participated in the pilot tests that were carried out in small communities in the country.

Transfers with CoDi can be made 24/7 to any business or person. Even payments between individuals can be made with this platform. The payments send to other individuals can be smaller than eight thousand pesos and without any commission charger.

The financial institutions that participate in the Interbank Electronic Payment System (SPEI) will be part of the CoDi ecosystem. Entities that are not part of the SPEI and wish to participate must submit the requirements listed on this page of Banxico.

Teamwork with the banks

For the preparation of CoDi, Banxico brought together all the banks that are already part of the SPEI to create a digital tool that allows instant money transfer, as happens in countries such as Sweden and South Korea. 

To test the payment system, Banxico, along with other financial institutions, conducted tests in small communities in the country to introduce CoDi. Tulancingo, Hidalgo; Progreso, Yucatán and La Paz, Baja California were some of the neighborhoods selected by the Bank of Mexico. The objective of the tests was to verify that there could be communities that did not use cash at all.

Santander conducted a survey of participating users, where 8 out of 10 users of the platform said they were happy with how it works.

The challenges to drop cash

Like Mexico, India tried to discourage the use of cash and promote electronic payments. However, the results were quite disastrous for the country’s economy. From one day to the next, the highest denomination bills were withdrawn, while more than 190 million people without a bank account were excluded from the country’s economy.

  • The elimination of cash has happened with fewer dramas in Mexico. In recent years, Banxico has taken measures that, in one way or another, discourage the use of cash and promote banking. 
  • The obligation for the bank to offer basic accounts – bank accounts that do not require a minimum for opening and where only one identification is required.
  • Payroll directly in a bank account.
  • The loss of value of the battered bills, a recent change in the monetary policy that accepted all the bills, regardless of whether they were mistreated – without a doubt, this will make people prefer to use electronic means of payment.

The implementation of CoDi, an electronic payment method that does not charge bank fees as is the case with credit and debit cards.

The projections of the Bank of Mexico estimate that by September 2020, there will be about 20 million registered users on the CoDi platform.

Despite the optimism, Mexicans have been reluctant to use bank accounts. Three out of five adults do not have a bank account. Most bank users are payroll and prefer to withdraw all their money on the day of payment. 95% of Mexicans pay their essential services with cash. And although the vast majority already have a smartphone, connectivity does not reach the most remote areas of the country.

The failures of the SPEI system give credit to the skeptics. Less than a month after the launch of CoDi, bank transfers were intermittent due to an overload in the fortnight. And this triggered the alarms because the CoDi will use the same system as the SPEI. Mexico’s infrastructure is still not enough for the extensive use of digital payments.

Despite these stumbling blocks, the president of the Mexican Bank Association Luis Niño de Rivera said he was confident that both banks and users would be able to settle more transactions. Missing users also have that confidence.

The shops analyze joining the platform

Non-banking entities have also sought to adhere to the Banxico platform, such as Clip, Chedrahui, or Walmart. The Oxxo convenience store also analyzes subscribing to the platform.

In the presentation of the platform, Citibanamex showed the case of Ramón Ramírez, a Central Alamode bowler. The trader said he finds it very advantageous to use CoDi because of the risk of being assaulted.

Before the launch of CoDi, ABM Executive President Carlos Rojo mentioned that public policies are needed to promote digital payments and discourage the use of cash, which represents between 80% and 90% of the transactions carried out in the country. Among the proposed measures, the use of cash at gas stations in the country is prohibited.

On the other hand, the Ministry of Finance, Foreign Affairs, and Banxico will take advantage of the fact that their offices are located in the perimeter of the Historic Center of Mexico City to invite payments to be made through the digital platform. Likewise, before the launch of the platform, tests were carried out in the heart of the city, in what will be called the “CoDi zone”.

Juan Carlos Arroyo, director of Banco Azteca, estimated that for the CoDi to work correctly, all those involved (both public and private sectors) must participate.

“Financial institutions have to be there, public institutions, commerce, retail, chambers of commerce. We are all going to have to do our part, even consumers. We are talking about a change of habit. I think we are all going to have to do our part, and I do believe that the benefits we will receive, if we manage to digitize the cash in the next few years, will be huge from the point of view of the Mexican economy, but more important in matters of security and above all of the ease and of great experience of the consumers”, expressed.

A country without cash, but at what cost?

With the adoption of CoDi Mexico, it adds to a global trend: the disappearance of cash. In developed countries such as the United Kingdom, South Korea, Denmark, or Sweden, cash is a thing of the past. However, this trend is not exclusive to developed countries. In Kenya, the M-Pesa company managed to represent a third of the country’s economy thanks to a cell phone credit transfer system.

Cashless transactions can be safer and more comfortable for most. However, some analysts believe that we give up our privacy when we agree to make transactions with digital media.

Data science consulting Mike Weston once asked himself “Do I want a handful of companies to have the opportunity to control something as fundamental as where I can spend my money?”, to which he replied,” No.“ 

User data is at the hands of large corporations in each electronic transaction. The mediator of the trade – PayPal, Visa, Mastercard or Banxico – knows where, when, and how you made a purchase. 

Governments and banks present this user transparency as an advantage. In this way, it is easier to identify transactions that come from drug trafficking or prevent tax evasion. However, they can also use or share the data with third parties, which they do not hide. Or at least they do it in small letters.

Among the advantages that Banxico offers with the introduction of CoDi is the possibility of generating a history “that will allow financial institutions to offer you services according to your needs”.

Either for better or for worse, the introduction of the digital payment platform of the Bank of Mexico means a watershed for the country. With him, he begins a transformation of how Mexicans see not only money but also banking. It will not be a change without friction, and there will be no lack of detractors who, with reasons, pointed out the dangers of delivering the information on daily transactions to financial institutions. To affirm that the CoDi means the elimination of cash – as some media do – is rushed. If Mexico has demonstrated anything with its history, it is to be faithful to traditions.