Openbank: Mexico’s new Digital Economy Law could reduce cash use by up to 50%

Mexico’s new Digital Economy Law could conceivably reduce cash use by 50% as it increases access to credit, according to Juan José Galnares, CEO of Santander’s Openbank México. However, Galnares cautioned that the law could be a victim of its own success if its reduction of cash use is implemented too aggressively. Cash transactions — that uniquely human practice of handing over pieces of paper or metal disks with agreed-upon values — could be reduced by as much as 50% in Mexico as the new Digital Economy Law is phased in. (Jonathan Cooper/Unsplash) To that end, Nitin Prabhu, global head of Openbank — a 100% digital bank with 1.6 million customers in Mexico — proposed first digitizing only government payments. He also proposed making it cheaper and easier for small businesses to accept electronic payments by, for example, reducing or eliminating the charges merchants pay to accept and process electronic payments, known as merchant acquiring fees. President Claudia Sheinbaum has sought to allay concerns regarding the new law, formally the Digital Economy Law for Digital and Electronic Payments, particularly with regard to how exactly it will prohibit the use of cash. Although Sheinbaum said that the goal of the new law — enacted last week — is to reduce the use of cash in Mexico, she insisted cash would not be phased out. Instead, the goal is to increase digital payments, especially by identifying specific sectors in which the acceptance of digital and electronic payment methods will be the only form of payment. For instance, cash payments at highway toll booths and gas stations will be eliminated by the end of this year (the latter’s goal being the reduction of fuel theft and fuel smuggling). Mexican Senate passes bill to limit, and sometimes prohibit, cash payments Furthermore, the Digital Economy Law establishes that when a contingency arises that makes it impossible to carry out digital transactions, payment in cash or check will be allowed. Cybersecurity company IQSEC said the new law presents challenges beyond technological adoption, as it involves strengthening the security of electronic transactions, protecting user information and ensuring the continuity of services in the face of potential incidents. Still, the administration insists the advantages — including access to credit — of the Digital Economy Law are worth the challenges. When a person starts paying or receiving money digitally, these transactions generate a history that financial institutions can consider when evaluating a loan application. With reports from Expansión and La Jornada