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The new battles between banks and fintechs for the electronic money revolution

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Although there are no official documents confirming this, the use of cash decreases. Part of the blame lies with high inflation, which makes it difficult to travel and have cash available for everyday purchases. The other is the widespread and sustained development of electronic means of payment and collection, among which virtual wallets and accounts and the QR code stand out.

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Weeks ago, the two main chambers of the traditional banking sector expressed their concern about the advance of fintech in the digital money business with unusual clarity. ADEBA (Association of Argentine Banks) directly targeted the financial ecosystem of Mercado Libre (MercadoPago) of “monopolistic practices” and vindicated by opening your QR to accept credit card payments from any wallet. And not just with money in an account or debit, as it works now.

“Some QR providers, taking advantage of their dominant position in that market, close their systems to consumers who are not their customers,” ADEBA highlighted. Days later, the ABA (foreign banks) joined the questions. In both cases, they indirectly underlined this Mercado Pago has the largest network of companies that adhere to the QR code system:“It is estimated to have 70% of the total,” they calculated.

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Mercado Pago responded just as harshly. He rejected that they are a monopoly and stressed that “only 7% of face-to-face payments by electronic means take place in Mercado Pago QR. More than 90% is made in traditional collection terminals”.

In the financial sector, they agree that the conflict has intensified due to the remarkable growth of digital payments and the rapid adoption of the QR code, which compete with traditional terminals, including Posnet (Fiserv) and Lapos (Prisma). Both sides, banks and fintechs, use their arguments to defend their businesses a sector in continuous transformation.

“The conflict between banks and fintechs seems to focus around the rules of the game”, says Alejandro Scasserra, digital banking expert. “When you look at the world -he added- It has been shown that they can coexist.. The most successful initiatives to put an end to this conflict consist in a dialogue between public and private that allows for common agreements to be reached,” he concluded.

But the comparison does not stop. On the one hand there is Modo, the virtual wallet promoted by a consortium of 32 banks. Its CEO, Rafael Soto, claims that “users encounter a lot of confusion with QR codes”, adding that “this goes against freedom of choice”. Soto argues that the lack of competition also hurts businesses, which “they end up paying the fees imposed by each QR, which in some cases are very high”.

Mercado Pago vice president Alejandro Melhem says the company’s QR has a minority stake in the business. But he points out that, in addition, since 2018 he has been developing this payment technology, which required an investment of 30 million dollars. “In 2021, the BCRA made it mandatory for QRs to accept transfer payments from any wallet (interoperability). The banks have not made an investment even remotely similarnor have they handed out QRs in stores,” he said.

The background to the struggle lies in the distribution of fees paid by companies for credit card payments. Banks have a cap of 1.8% (debit is 0.8%) while there is no charge for account-to-account money transactions. This was established in November 2021, when “Transfers 3.0” went into effect, forcing all QRs to interact.

This is only part of the conflict between financial actors. Because non-bank wallets (especially Mercado Pago and Ualá) point out that banks prevent the normal transfer of money from checking and savings accounts to their platforms. The reason is that fintech deposits”They are linked to an investment fund and generate profitability”, explains Romina Simonelli, VP of Means of Payment of Ualá.

The senior executive admits that there is friction on this issue and that some banks (“we found out from user complaints”) impose limits on the transfer of money from CBU (traditional bank accounts) and CVU (virtual accounts). He also says the matter is not clear”because each bank handles it differently and it is difficult to pinpoint it”.

Banks are sworn to comply with all BancoCentral regulations. And they explain that the limit on transfers set by the monetary authority (the equivalent of 15,000 UVA, this is $3.4 million) is logical since “most fraud is committed by a CVU”. Fintechs say that “banks violate those limits”. But at the same time they acknowledge that they have no proof of it.

“Mercado Pago has developed a free digital account through which more than 7 million people in Argentina invest their balances in a mutual fund managed by BIND, which it currently makes 63.8% annuallywith the ability to use the money at any time. Banks do not remunerate balancesMelhem notes.

Carlos Hourbeigt, former director of the Central Bank and one of the promoters of the “Transfers 3.0” system, interprets that this “is a fight between giants, in which they try to use other people’s technologies”. He alludes to the QR system developed by Mercado Pago and the stock of credit and debit cards, which are mostly issued by banks. “What has to be achieved is a consensus to see what is put on either side, and generate a mechanism where everyone wins,” he says. Which, he adds,It is the responsibility of the Central Bank”.

Meanwhile, electronic money is advancing rapidly: a survey conducted between the consultancy firm Inveq and Mercado Pago indicates that “more than half of SMEs say that the use of cash has decreasedeven if a third of the total clarified that they still prefer cash collection. The study, however, indicates that 94.3% accept payments with QR.

Explosive QR Boom

Mercado Pago has been a pioneer in the development of QR payments in the country.  Today it is the leading platform.

Mercado Pago has been a pioneer in the development of QR payments in the country. Today it is the leading platform.

Electronic payments have taken off in a big way during the pandemic. The novelty is that the trend has become much more accentuated in the last year: according to a report prepared by COELSA (the company that records almost all operations in the financial sector), bank and virtual account openings increased by 18%. But in 2022, CVUs have advanced far more than CBUs, the key associated with traditional accounts. Not that: QR payments have also skyrocketed.

The data comes from the “Coelsa Indicator” study, released last week. The first surprising figure is that there are currently 156 million accounts. Of this total, 78% are CBUs (122.5 million) and the remaining 22% (34.1 million) are CVUs. CBU stands for Clave Bancaria Uniforme. It’s a 22-digit code (or alias) needed to send or receive money from any type of bank account. The CVU (Uniform Virtual Key) is its digital equivalent of a bank or a fintech.

The disproportion between one and the other is thinning. Last year, in fact, 24.2 million accounts were opened. 61% were CBU (14.9 million) and 39% were CVU (9.3 million). The count at the end of last year indicated that 36.7 million people had at least one CBU and 21.4 million a CVU. This means that each person has an average of 3.3 CBU and 1.6 CVU. Nearly 5 bank or non-bank accounts per capita.

“Transfers and electronic payments involving at least one CVU increased by 149% compared to 2021,” the study says. This universe (840 million transactions) covers both sending or receiving money from a virtual account, as well as payment with QR.

The QR code system is the payment method that is growing the most and the most developed ecosystem is that of Mercado Pago. It coexists with others, such as Posnet (Fiserv) and Lapos (Prisma), the fintech of banks (Modo, Account DNI, BNA+, Naranja X) and the fintech world, such as Ualá. The evolution of payments through this channel, known as PCT (Payments with Wire Transfers) has grown by 230% in one year.

According to COELSA, between December 2021 and the same month of 2022 it went from 1,310,323 operations to 4,319,777. That is, just over 3 million. The average ticket was low ($1,982), but that trend is changing fast, according to financial industry sources. There is another piece of information that alerts the banks. in 2022 Just over 110 million transfers were made by CVU and 1 million by a CBU.

As interpreted by Carlos Hourbeigt, former director of the Central Bank, “electronic money transfers exploded last year due to the implementation of the Transfers 3.0 system”, which entered into force in November 2021, and which established the interoperability of all QR codes. for transferring money electronically directly or through a debit card.

Another report, in this case a survey conducted jointly by consultancy firm Inveq and Mercado Pago, points out that most SMEs accept tariffs in different ways: debit card (96.6%), cash (95.3%), QR code (94.3%), credit card (89.7%) and online payments (69.1%). It also indicates that half of the respondents indicated that they have implemented a digital transformation in the last 6 months. Anyway, one in 3 merchants said they prefer to continue charging in cash.

Advances in digital payments are advancing as is access to banking services for the population. “There are more and more people with bank accounts and instant money transfers are accelerating,” summarizes COELSA CEO, Atilio Velaz. Openings include pure non-bank fintech accounts (MercadoPago or Ualá, for example) or virtual electronic wallets, such as those of MODO (the ecosystem that promotes a consortium of 32 banks), Conto DNI (Banco Provincia) or BNA+ (Banco Nación ) .

Regarding the use of electronic transfers, millennials (those born between 1980 and 1993) top the list0.42% of this segment sent or paid for through an app. Further back appear those of Generation X (those born between 1964 and 1979), with 26%, just below the centennials (1994 and 2009), with 24% of the total and finally the so-called baby boomers (the generation born between 1959 and 1963), with 7%.

Source: Clarin

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