Trust, local regulations challenge Mexico's digital environment - OECD
Mexico has fallen behind the rest of Latin America in adoption of digital service platforms due to divergent local traffic regulations, lack of penetration of financial services and Mexicans' serious concerns about cyber fraud, according to a recent OECD study.
The report "Digital platforms and competition in Mexico" pointed at local transit regulations, for example, as one of the reasons why 11 of Mexico's 32 states (including tourist destinations Guerrero and Quintana Roo) still do not allow Commercial Transport Apps (CTAs) such as Uber and Cabify to operate within their borders.
"Some states limit the option of sharing a ride or restrict parking options for CTA's cars. Other significant barriers... may be represented by the restriction on the number of permits per person/vehicle or by the prohibition of cash payments. The latter can be particularly relevant in a country where the financial inclusion is low and many people do not own a bank account and consequently a credit or debit card," the report reads.
Adoption of financial services has long been a problem for Mexico. The study showed that as of 2017 only 37% of Mexicans over 15 years of age had a bank account compared to a regional average of 55%, while credit card ownership was at 9.5% and debit card ownership at 25%, also below regional levels. "The lack of these amongst a wide segment of the adult population represents a barrier to the development of e-commerce platforms," the report added.
E-commerce companies in the country have tried to get around these limitations by offering services such as payment on delivery or deposits made in cash at local convenience stores, among others. But the study states that such measures are only temporary at best. "A high level of financial inclusion is a necessary condition to capture the potential of the digital economy."
FRAUD WORRIES UNDERMINE E-COMMERCE
Online fraud, or the perceived risk of it, is another major reason why Mexicans are still on the fence about the advantages of e-commerce. The study showed that the suspicion of potential fraud was the reason for 14.3% of incomplete online purchases, double the figures in Brazil (7.6%) and Argentina (6.3%).
Financial consumer protection agency Condusef reported that in the first half of 2018, some 59% of all fraud complaints filed were related to cyber fraud, an average of 333,000 per month regarding e-commerce. The OECD study said that 34% of potential e-commerce users do not use these platforms because they are afraid of being defrauded.
That, however, has not stopped e-commerce platforms from increasing their business in the country, having grown 28.3% increase between 2015 and 2016, according to the study. "From 2012 to 2016 online sales rose by 43% while general retail sales only grew by 5%," it added.
The report identified Buenos Aires-based Mercado Libre as the country's largest e-commerce platform in terms of both visits and purchases, followed by Walmart de México, local luxury store Liverpool and Amazon México.
It also identified Mexico as one of the regional leaders in terms of fintech development, with 334 startups in the sector as of August 2018, a 40% year-on-year increase. The country this year put in place a trailblazing fintech law governing everything from cryptocurrencies to crowdfunding and peer-to-peer financial tools. "From a competition perspective, improving the development of the Fintech universe can decrease barriers to entry and improve competition in the sector with final benefits for consumers," the report read.
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