Digital payments adoption by consumers and firms: Implications for financial inclusion

Vlaicu, Razvan Working Paper Digital payments adoption by consumers and firms: Implications for financial inclusion IDB Working Paper Series, No. IDB-WP-1705 Provided in Cooperation with: Inter-American Development Bank (IDB), Washington, DC Suggested Citation: Vlaicu, Razvan (2025) : Digital payments adoption by consumers and firms: Implications for financial inclusion, IDB Working Paper Series, No. IDB-WP-1705, Inter-American Development Bank (IDB), Washington, DC, https://doi.org/10.18235/0013575 This Version is available at: https://hdl.handle.net/10419/324818 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/3.0/igo/ Digital Payments A doption by Consumers and Firms: Implications for Financial Inclusion Razvan Vlaicu WORKING PAPER No IDB-WP-1705 InterA merican Development Bank Department of Research and Chief Economist June 2025 * InterA merican Development Bank Digital Payments Adoption by Consumers and Firms: Implications for Financial Inclusion Razvan Vlaicu* InterA merican Development Bank Department of Research and Chief Economist June 2025 Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Vlaicu, Razvan. Digital payments adoption by consumers and firms: implications for financial inclusion / Razvan Vlaicu. p. cm. — (IDB Working Paper Series ; 1705) 1. Financial institutions-Technological innovations-Mexico. 2. Banks and banking-Customer services-Mexico. 3. Financial services industryTechnological innovations-Mexico. I. Inter-American Development Bank. Department of Research and Chief Economist. II. Title. III. Series. IDB-WP-1705 http://www.iadb.org Copyright © 2025 Inter-American Development Bank ("IDB"). This work is subject to a Creative Commons license CC BY 3.0 IGO (https://creativecommons.org/licenses/by/3.0/igo/legalcode). The terms and conditions indicated in the URL link must be met and the respective recognition must be granted to the IDB. Further to section 8 of the above license, any mediation relating to disputes arising under such license shall be conducted in accordance with the WIPO Mediation Rules. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the United Nations Commission on International Trade Law (UNCITRAL) rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this license. Note that the URL link includes terms and conditions that are an integral part of this license. The opinions expressed in this work are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. Abstract* Digital payments have increasingly been adopted by consumers and firms in Latin America and the Caribbean. This policy research paper analyzes recent postpandemic data on digital payments in the region to describe adoption patterns, measure adoption gaps, and identify adoption barriers. The data reveal a positive trend in the use of financial accounts for receiving wages, and of payment apps and digital wallets for purchases in-person and online. Despite increased average adoption, sizable gaps remain both between countries and within countries. At the consumer level, factors associated with delayed adoption include low income, old age, indigenous status, and rural location. At the firm level, factors include small size, retail sector, and limited credit access. Four types of adoption barriers appear to be important: technological, economic, informational, and behavioral. These observations are supported with detailed microdata from Mexico. The paper proposes policy solutions for achieving digital payments inclusion of vulnerable consumers and firms. JEL classifications: D18, G23, G50 Keywords: Digital payments, Adoption gaps, Adoption barriers, Financial inclusion * The paper benefited from input and comments by colleagues from RES, CMF, and DVF divisions, and an anonymous reviewer. Santiago Deambrosi and Sergio Garbay provided research assistance. The findings and interpretations in this paper are those of the author and do not necessarily reflect the views of the Inter-American Development Bank or the governments it represents. Author contact information: Research Department, Inter-American Development Bank, 1300 New York Ave NW, Washington, DC 20577, United States. Email: [email protected]. 2 1. Introduction As Internet penetration has grown, digital technologies are increasingly employed to facilitate a wide range of economic transactions in Latin America and the Caribbean (LAC). The trend started before the Covid-19 pandemic and has continued unabated post-pandemic. Purchases, sales, payroll, and transfers have been gradually transitioning to online platforms and are being initiated from Internet-connected smartphones, tablets, or computers. While the trend was to be expected for online commerce, in-person transactions are also relying more on digital payments. As consumers and firms make and receive payments digitally, both online and offline, the demand for cash by consumers and acceptance of cash by firms declines. In this new digital economy, consumers and firms lacking the devices and knowledge for making and receiving digital payments may be restricted from accessing the full range of economic opportunities. The ability to make and receive digital payments is a basic step toward financial inclusion in an increasingly digital economy. In LAC currently, one in five adults are still cash-only consumers, and only one in three can be considered fully financially included (Mastercard AMI, 2023). In the conventional economy, being financially included was traditionally defined as having a bank account (World Bank, 2012). Being a bank customer gave a consumer or firm access to basic financial services such as deposits and payments. This created a customer history and a banking relationship that opened the door to more complex financial services, such as credit and loans. In the new digital economy, however, financial services may be also provided by nonbank institutions, such as fintechs or online merchants. These providers offer nonbank transaction accounts in the form of digital wallets or payment apps (IDB, 2022). Digital-based alternatives to traditional bank accounts create an excellent opportunity to expand financial inclusion of vulnerable groups with limited access to banking infrastructure, such as rural communities. On the other hand, because of the complexities of new technologies and the necessary behavioral adjustments, other vulnerable groups facing higher adjustment costs, such as the elderly, may be excluded. In a digital economy where cash is no longer widely accepted and banks shrink their physical branch networks, cash-dependent individuals incur transaction costs and may risk losing 3 access to a range of services. Thus, it is important to understand both the opportunities and the constraints coming from the demand side of digital payments.1 Several questions guide the analysis in this paper. How have the payment choices of consumers and firms changed post-pandemic? What types of new digital payment instruments have become available, and which ones tend to be more widely adopted? Who are the users that still rely heavily on cash and are least inclined to transition to the new payments ecosystem? What types of barriers prevent broader adoption of digital payments? And finally, what can government institutions and financial providers do to mitigate and overcome these barriers? The objectives of this policy research paper are to: discuss key issues in the context of the existing literature, highlight important patterns in the data that raise new research questions, and advance policy ideas for improvements in digital payments inclusion that add economic value to consumers and firms. This paper uses recent data and reviews new developments in the digital payments ecosystem in LAC to provide insights on four points: adoption, gaps, barriers, and policies. In terms of adoption, the paper looks at recent trends in usage by consumers and firms, focusing on identifying the users that have not yet switched from cash reliance to digital solutions. The data reveal an upward trend post-pandemic in the use of financial accounts for receiving wages, and of payment apps and digital wallets for daily consumer expenses in-person and online. Despite the upward trends, sizable gaps remain both across countries and within countries. Across the region, most of the adult population prefers electronic payments over cash; however, countries differ markedly in levels of adoption. At the consumer level, factors associated with delayed adoption include low income, old age, indigenous status, and rural location, all markers of vulnerable groups. At the firm level, the factors are small size, retail sector, and limited credit access. Next, the paper seeks to characterize the barriers that delay digital payments inclusion. Four types of barriers appear to be important: technological, economic, informational, and behavioral. On average across countries, the main barriers to adoption appear to be connectivity, due to insufficient infrastructure availability; switching costs, due to limited merchant acceptability, low digital capabilities and financial literacy, as well as usage frictions or habit formation; and finally, concerns about digital transaction privacy and security. These observations 1 Digital payment tools generate alternative data that can support innovative credit scoring models using Artificial Intelligence (AI) algorithms (Beck et al., 2022; Vlaicu, 2024). Credit access is an essential component of financial inclusion. Traditional underwriting and ability-to-pay assessments, however, have closed off many consumers from credit opportunities that enhance financial well-being and economic resilience. 4 are supported with detailed microdata from Mexico. The paper concludes with policy solutions for facilitating digital payments adoption by vulnerable consumers and firms, among them improvements in infrastructure, balanced and updated standards and regulations, widely accessible public education and social support for financial literacy and digital capability, and user-centered design and customization promoting digital and financial trust. The last five years have witnessed major changes in the financial sector, driven by a high pace of innovation in digital technologies. During this period, LAC has experienced a doubling of financial technology (fintech) firms, the introduction of real-time payment systems in several countries, and novel uses of digital mechanisms for disbursing social benefits, among other developments. Consumers and firms have responded to the new ecosystem by adopting digital forms of payment at a high rate, with important benefits in terms of expanded accessibility, higher speed, and lower fees. These trends present a new opportunity to expand and deepen financial inclusion, as the new tools are data-rich and reduce some of the main informational costs of providing financial services. At the same time, new risks arise, including the exclusion of certain vulnerable groups, and challenges related to cybersecurity, fraud, and data privacy. How governments navigate this process of change has first-order implications for consumer welfare and firm growth in the region. 2. Adoption of Digital Payments The Covid-19 pandemic was a pivotal event for the payments sector around the globe (World Bank, 2022). Because of disruptions to face-to-face commerce, many consumers and firms shifted to online shopping, which is more dependent on remote forms of payment. Therefore, digital transactions increased faster than cash transactions. That was the case in LAC, as well. In the aftermath of the pandemic, however, has there been a reversion to cash or has the adoption and use of digital payments continued? According to WorldPay data, the aggregate transaction value of in-person shopping in LAC increased at a rate of about 11 percent per year during the 2020-2024 period, while online shopping increased two-and-a-half times faster, at 27 percent per year. Therefore, on average, a larger share of consumer payments has moved online. At the same time, there has been a shift in the composition of payments for both types of commerce, with a greater presence of digital payments both in-person and online. The trends in payment types post-pandemic are shown in Figure 1, 5 based on WorldPay transactions data from the largest economies in the region. It distinguishes between cash, cards, and digital. The left panel shows the breakdown among payment methods used for in-person shopping. The right panel shows the breakdown for online shopping. In both cases, there has been an increase in the percentage digital payments, conducted through such tools as payment apps or digital wallets. Digital payments have been capturing a larger market share away from cash as well as debit and credit cards. Making or receiving payments digitally requires a transaction account: a deposit or cash balance account that can store, receive, and send funds. Preferably, a transaction account would not limit the number of transactions that the account holder can make and must provide relatively unrestricted and costless access to account funds. Common types of transaction accounts with minimal restrictions and costs include bank and credit union checking accounts, fintech digital deposit accounts, and nonbank accounts with online payment service providers. Transaction accounts with higher restrictions and costs include debit cards, general purpose reloadable (GPR) Figure 1 : Digital Payments Expanded Post - Pandemic Note : Based on data from WorldPay Global Payments Report 2021 and 2025. Digital payments include Digital/Mobile Wallets, A2A real-time transfers and direct debits to a bank account, BNPL/POS Financing like PostPay and Buy now Pay Later methods and other methods like PrePay and Cryptocurrencies. Card payments include Credit, Debit, Prepaid and Charge Cards. Dataset covers Argentina, Brazil, Chile, Colombia, Mexico and Peru. 12 sales. The right panel shows that digital transaction costs incurred by firms vary from 1 percent to 5 percent.9 Within countries, variation in digital payments adoption across consumers and firms is influenced by geographic, economic, racial, and cultural factors. Urban populations tend to adopt digital payments more readily due to better infrastructure, higher smartphone penetration, and greater access to financial services. In contrast, rural communities often face barriers like limited internet connectivity and fewer banking options, which hinder their ability to use digital payment systems. Younger generations are typically more inclined to embrace digital payments, driven by familiarity with technology and mobile apps, while older individuals may prefer traditional payment methods due to concerns about security or lack of digital literacy. Additionally, women 9 By comparison, Value Added Tax (VAT) rates in the region average around 15 percent, with a range between 9-22 percent. Figure 5 : Consumer Gaps in Digital Payment Adoption Note : Based on data from Latinobarometro 2023. For outcome variables and countries covered, see note to Table 3. High education defined as completed secondary school. High SES includes individuals whose socioeconomic level, assessed by the interviewer, is good or very good. Ranges at the end of the bars represent 95% confidence intervals. 13 and micro, small, and medium-sized enterprises (MSMEs) are increasingly adopting digital payments as they gain access to financial inclusion initiatives and tailored solutions. Latinobarómetro survey data reveal large gaps in consumer usage of electronic payments (including digital payments) across economic, demographic, and geographic factors. Figure 5 depicts estimated gaps averaged across the 18 countries in the sample. The top panel of Figure 5 indicates that the groups that lag behind are characterized by low income and low education, old age, indigenous, and rural location. In some cases, the gaps exceed 50 percent difference. These are groups traditionally excluded from formal financial services in LAC (Credicorp, 2024).10 These data indicate that, despite more of a decade of gains in participation in formal financial services, significant gaps remain. It underscores the importance of understanding the 10 Crouzet et al. (2024) develop a formal model and report evidence of the role of age and other demographics in the adoption of mobile payments in India. Figure 6 : Firm Gaps in Digital Payment Adoption Note : Based on data from the World Bank Enterprise Survey 2023. For outcome variables and countries covered, see note to Table 4. Small defined as less than 20 workers. Credit includes firms that applied for a credit or loan. Female defined as 50% or more of the owners are female. Exporter if 10% or more of their sales are exported directly. Capital defined as firm located in the capital city area . Ranges are 95% confidence intervals . 14 nature and causes of these gaps to inform policy action. The bottom panel of Figure 5 shows gaps in consumer preferences for electronic payments. It is notable that preference differences track usage differences, however, the gaps in preferences are less marked, again suggesting that demand for non-cash payments may not be the main constraint to broader adoption. Turning to gaps in digital payments usage among firms in LAC, Figure 6 based on recent World Bank surveys of firms, suggests the differences are less pronounced than among consumers. The top panel of Figure 6 shows the types of firms less likely to use digital payments for sales and purchases: small firms, retail firms, non-exporter firms, and firms located outside the capital city metropolitan area. The bottom panel of Figure 6 suggests no significant differences in cost of firms’ digital transactions, with the exception of female-run firms, which appear to enjoy lower costs.11 4. Adoption Barriers Several types of barriers may restrict the broader adoption of digital payment methods in LAC. Some barriers originate on the supply side, while others come from the demand side. Access to the necessary technology, like smartphones or reliable internet, remains an obstacle, particularly in rural or low-income areas. The direct costs associated with digital transactions, such as fees for using platforms or services, discourage adoption, as well as limited interoperability among payment services providers. At the consumer and firm level, a significant challenge remains the lack of trust in financial institutions and digital platforms, stemming from concerns about security, fraud, and economic instability which tends to increase the demand for cash. Some of these perceptions may reflect the relative novelty of these technologies which create lack of awareness about the potential benefits and actual security of digital payments. Many individuals also face limited digital capability or financial literacy, which prevents them from understanding and utilizing digital payment systems effectively. Lastly, cultural preferences for cash and a general resistance to change further slow the transition to digital payments. Adoption barriers, therefore, can be categorized into at least four types: technological, economic, informational, and behavioral. Technological barriers are limited supply of technology 11 Small local firms, including agricultural firms, are more dependent on relationship banking built on soft information that may not always translate into digital format. A study in Brazil found that the closure of bank branches reduced establishments with active operations by up to 8 percent and formal employment by 0.5 weekly hours, with micro and agricultural firms being the most affected (Fang and Vlaicu, 2024). 15 necessary for the smooth operation of digital payments, such as connectivity infrastructure, reliable financial networks, or financial software applications for smartphones. Economic barriers are the costs and fees associated with adoption and use of digital payments. Informational barriers are limited awareness about available new digital payments options and knowledge about how to use them. Finally, behavioral barriers are status quo bias due to habit formation, biased perceptions, and lack of trust in either the payment technology itself or the banks and fintechs that provide it. Examining recent data helps shed further light on these factors to better delineate the nature of adoption barriers. Data from Credicorp Ipsos Peru based on consumer surveys conducted in eight countries in the region yearly after the Covid-19 pandemic provide an opportunity to examine trends in factors that may hinder consumers from using digital payments. The left panel of Figure 7 shows trends in potential barriers for the period 2022-2024. In terms of levels, lacking a mobile Figure 7 : Consumer Barriers and Digital Payment Adoption Trends Note : Based on data from Credicorp Ipsos and GSMA. Lack of knowledge defined as not have heard of mobile wallets and digital payments apps as a financial product. Lack of security defined as hesitation of using digital payments to make transactions. Lack of trust defined as money not being safe in financial entities. Lack mobile phone defined as not owning a mobile phone. Estimate for 2024 extrapolated using the average annual growth rate of the years 2020-2023. Estimates are equal-weighted averages across eight countries: Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Panama and Peru. 16 phone is the least stringent barrier, affecting under 20 percent of the population, whereas lack of knowledge is the most common, affecting over 40 percent of the population. Perceived lack of security of digital transactions and lack of trust in financial institutions are relevant to about 30 percent of the population. In terms of trends, a steep decline of more than 10 percentage points is noticeable in the knowledge barrier. The phone ownership barrier has also relaxed over time. On the other hand, concerns about digital security and financial institutions appear more persistent. These barriers notwithstanding, there is clear growth in adoption and usage, supported by strong positive trends in the value consumers associate with payment apps and mobile wallets. See the right panel of Figure 7. Ownership of these forms of payment has increased more than threefold, from 11 percent in 2021 to 36 percent in 2024. About half of those who have these tools on their smartphone also use them regularly. The positive trend appears in every country in the study. At the same time, sizable differences in adoption across countries should be noted. As of 2024, Argentina (65 percent) and Panama (63 percent) lead in adoption of digital wallets, whereas Chile (20%) and Mexico (11%) are at a considerably lower level of digital wallet adoption, instead leading in the adoption of debit cards. Other surveys ask consumers directly the reasons why they do not take advantage of digital payments technology. In 2024, Mastercard conducted a survey in collaboration with PCMI in six countries in the region. The results are presented in Table 2. The top three reasons given for not using a mobile phone for financial transactions such as payments and transfers were lack of interest, lack of trust in the digital payment format, and lack of understanding and knowledge of the workings of the payments and transfers technology. Table 2: Top Barriers to Adopting Digital Payments Consumer Barriers Lack Need/Interest Using Phone for Financial Transactions Don’t Trust the Digital Payment Format Don’t Understand/Know How to Use Technology Not Enough Phone Data Businesses Do Not Accept Phone-Based Payments 51% 28% 15% 7% 7% Note : Based on survey data from Mastercard PCMI (2024). Percentages reflect respondents who select a given reason why they are not using a mobile phone to pay for services or to send or receive money. Sample consists of 1,848 individuals. Estimates are equal-weighted averages across six countries: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. 17 Consumer concerns about digital account and transaction security are not unfounded. Financial fraud is an ongoing problem in LAC, estimated at 20 percent of total e-commerce revenue by Mastercard, the second highest among world regions after Asia. Consumers are more exposed to account takeover (ATO) fraud and have fewer mechanisms for dispute resolution with digital payments than with cards. In 2022, 44 percent of ATO victims were defrauded up to five times, and ATO attempts increased 131 percent during that period. With real-time payments a common scam is the authorized push payment (APP) where fraudsters use social engineering to nudge the victim to initiate a payment. Brazil reported losses to APP scams of 1 percent of PIX ecommerce. Balancing the tradeoff between payment speed and fraud prevention is an ongoing challenge for platforms and regulators.12 On the positive side, a secure digital payments infrastructure can enhance the security of government to person (G2P) payments of social benefits. An evaluation of India’s transition to digital transfer payments found that it significantly reduced leakage from two large antipoverty programs (Muralidharan et al., 2016). Turning now to the firm side, region-wide surveys of firm barriers to digital payments adoption are not available. Future survey research on this question could be valuable. The vast majority of firms in the region are in the MSME category. These firms face several barriers to adopting digital payments. Reliable access to mobile broadband or payment hardware like POS terminals or QR readers may not be readily available or may be cost prohibitive. As in the case of consumers, awareness of available financial services and the knowledge to use them is as important as access to infrastructure. Entrenched mistrust in the formal financial system and informality can lead merchants to miss opportunities to digitalize their business, establish an online presence, or upgrade their current operations. Firms may also face behavioral barriers, such as present bias and limited memory. An intervention in Mexico where firms received reduced-cost offers to adopt digital payments through a private fintech found that reminders increased take-up by 15 percent on average, and deadlines increased take-up by 8 percent for smaller firms (Gertler et al., 2025). Overly strict and cumbersome know-your-customer (KYC) requirements are another barrier to MSME participation in the digital financial system. As a standard due diligence process, KYC requires banks to verify the identity and assess the risk factors associated with opening accounts for prospective client firms. KYC processes in the region rely on in-person, paper-based 12 Artificial Intelligence (AI) capabilities to create deep fakes posing as real people and opening fake accounts may further complicate efforts to rein in digital fraud. 18 formalities, which can be a barrier to firms operating in rural areas or to self-employed individuals who may not have government-issued identification or knowledge and skills to fill out long paper forms (IDB and WEF, 2022). A lack of internationally recognized standards like the ISO messaging standards and EMVCo can add friction to transactions, increasing costs for merchants and reducing adoption. For example, the Mexican QR payment framework CoDi uses domestic standards rather than EMV international standards, which likely contributed to low adoption by nonbank institutions and MSMEs. In the Caribbean, weak interoperability between digital payments systems has sustained the continued preference for cash. For example, money can be held virtually in a mobile account or even a digital wallet, but the framework is not yet in place to allow for the easy transfer from these types of accounts to a debit or a credit card account (Marius, 2021). 5. Case Study: Demand for Digital Payments in Mexico To better understand the characteristics of the slow adopters and the reasons that delay their inclusion in digital payments, this section presents a more detailed analysis of the latest microdata from Mexico. This is an interesting case because Mexico is one of the largest and most diversified economies in LAC, featuring vibrant tech and financial sectors, yet broad-based digitalization of payments has been relatively slow and uneven. The datasets employed in this section are nationally representative surveys of household income (ENIGH), financial inclusion (ENIF), and information technology access (ENDUTIH). Mexico's digital payments ecosystem has undergone significant transformations in recent years, driven by technological innovation, government interventions, and the fast expansion of online commerce. Mexico’s fintech sector features nearly 1,000 companies. Over the past five years, the domestic sector has witnessed impressive growth, with a notable compound annual growth rate of 18.4 percent in the number of startups. In addition, the central bank developed two public real-time payment systems. CoDi (Cobro Digital, launched in 2019) is a QR (quick response) code-based system designed to facilitate small transactions. DiMo (Dinero Móvil, launched in 2023) simplifies person-to-person (P2P) and business-to-business (B2B) transfers by linking bank accounts using smartphone numbers. Mobile wallets and blockchain technologies are also gaining traction. Mexico has the second-largest online marketplace, after Brazil, and its 19 growth is helping to reduce cash dependence, as more consumers embrace online shopping and digital payment options. Despite these advancements, digital payments penetration remains lower in Mexico than in countries at similar levels of economic development. According to ENIF 2024, cash is still the preferred payment method for the majority of consumers, and about 37 percent of Mexico’s population lacks a bank account. This reliance on cash underscores the need for accessible, affordable, and safe financial services, particularly in rural and low-income areas. Consumer adoption of digital payment methods in Mexico is below the average for the LAC region. The top panel of Figure 8 shows estimates of the percentage of the population that used digital payments for either in-person or online purchases, or both, in the last three months before the survey. Less than a quarter of the population, about 23 percent, reported being users. The bottom panel of Figure 8 presents the percentage of the population reporting that businesses Figure 8 : Digital Payment Usage by Consumers and Acceptance by Firms Note : Based on data from Encuesta Nacional de Inclusión Financiera (ENIF) 2024 Mexico. Usage of Digital Payments is percentage of individuals who pay digitally for either in-person or online purchases in the last three months before the survey. Acceptance of Digital Payments is the percentage of individuals that report that most (all or almost all), some (some or a few) or none (none or doesn't know) of the businesses where the individual regularly shops accept digital payments. Sample size for usage: 13,122 households. Sample size for acceptance: 13,502 households. 20 where they regularly shop accept digital payments. For about 44 percent of the population, merchant acceptance is common, and for another 40 percent digital payments are accepted by at least some of the businesses where they shop. From these data, it appears that merchant acceptance may not a binding constraint. Consumers may prefer to use digital payments for particular types of transactions, thus penetration may differ depending on where the transaction takes place. The left panel of Figure 9 shows the prevalence of different types of transactions in Mexico. Retail purchases are the most frequent, particularly in small stores, followed by utility bills and transportation payments. Online shopping is a frequent transaction for less than a third of respondents. The right panel of Figure 9 shows that cash is still the most common payment form for inperson transactions (first four categories). However, debit and credit cards also have significant usage at large retailers (second category), and digital payments are more common for paying utility bills (third category). For online shopping, digital payments surpass cards and cash; almost 60 percent of respondents report usage. As more commercial activity is moving online, it is expected that digital payments adoption among consumers will expand, with potential spillover effects to in-person transactions. Figure 9 : Forms of Payment for Different Transaction Types, Mexico 2024 Note : Based on data from ENIF 2024. Left panel shows the percentage of individuals who made a payment in any given category. Small retail includes local markets, butcher shops, hardware stores, beauty salons, etc., while large retail includes supermarkets, department stores, pharmacies, etc. Transportation includes both private and public services, including taxis, Uber, Didi, metro, bus, etc. Online shopping consists of purchases made on mobile phones or through the internet on sites such as Amazon, Mercado Libre, Shein, etc. Cards reflects physical use of debit or credit cards. Digital payments consist of electronic transfers or mobile apps. The sample consists of 13,502 individuals responding on behalf of their household. Estimates are weighted using nationally representative individual weights. 21 Digital payment adoption among Mexican consumers is low on average, representing less than a quarter of the population, as shown in Figure 8. Adoption, however, differs markedly across economic and demographic characteristics. Figure 10 presents gaps in digital payment adoption for consumers, in the top panel, and for firms, in the bottom panel. For consumers, low adoption is associated with low socio-economic status, low education, informal employment, elderly, female, indigenous, and rural location. For small firms, low acceptance of non-cash payments (including digital payments) is associated with small size, retail sector, non-home based establishment, agricultural activity, and Figure 10 : Gaps in Digital Payments Adoption, Mexico 2024 Note : Based on data from Encuesta Nacional de Inclusión Financiera (ENIF) 2024 and Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH) 2022 Mexico. Top panel shows share of each subgroup that made a payment using a transfer or mobile app in the three months prior to the survey. Bottom panel shows the share of household firms that accept transfers, direct deposits, or mobile payments. Highincome individuals are those above the median; formal workers are those with access to healthcare plans through their employment; under 60 refers to individuals aged 18–59; and rural areas are those with under 15,000 population. ENIF sample consists of 13,502 individuals responding on behalf of their households. Estimates weighted using nationally representative individual weights. Large firms are those within the top three deciles of expenditure in the past trimester; non-retail household firms are non-agricultural industrial or service firms; and rural areas are those with fewer than 2,500 people. ENIGH sample consists of 41,110 household firms. Estimates weighted using individual weights for firm owner. Ranges are 95% confidence intervals 28 Tailored solutions that address specific segment needs and lifestyles offer the potential to enhance product relevance and usability (Mastercard PCMI, 2024). Informational barriers reflect lack of familiarity with using digital devices or lack of awareness of new payment products. Digital capability and financial literacy can be built through education or experience. Traditional passive educational approaches, however, have proven insufficient for meaningful financial literacy building. Instead, financial education strategies must evolve towards more interactive, engaging, and embedded experiences (Attanasio et al., 2019). Providers could seamlessly integrate financial education into their products and services, allowing consumers to learn and practice financial skills organically as they manage their finances. This approach not only enhances financial literacy but also builds consumer confidence in managing digital financial tools. Gamified methods and intuitive educational interventions, embedded subtly into daily financial interactions, may further solidify financial literacy skills (Araya et al., 2019). Repeated use of digital payments builds experience over time, which in turn can lead to better-informed users: individuals with more experience rely less on agents and are charged lower transaction fees (Breza et al., 2020). Whether accumulated consumer experience spills over into new transaction modes is an important avenue for future research, particularly how consumer experience with P2P transfers affects their willingness to engage in person-to-business (P2B) and person-to-government (P2G) digital payments. Digital payments can be subject to fraud and errors, with negative consequences for user trust. One approach to increasing payments security is by promoting competition among providers. Empirical evidence is lacking, however, on the impact of market competition on fraud mitigation in digital payments services. In designing a payments ecosystem, it would be useful to know if consumers and firms put more trust in public providers, e.g., a central-bank fast-payments system, or in private providers. Other approaches include stronger regulatory oversight, user complaint systems, and public provision of transparent and real-time information about fraud incidence. Low trust in financial institutions by disadvantaged groups may be overcome in some cases through education. In Peru, a randomized evaluation of a 3-hour training session designed to build trust in financial institutions for beneficiaries of a conditional cash transfer program found a 33 percent increase in trust and a lengthening of deposit periods in a public bank (Galiani et al., 2022). Similar interventions can be tested for effectiveness in building trust in private fintech providers. 29 These policy solutions, implemented collaboratively by policymakers, regulators, and financial services providers, can contribute to alleviating remaining barriers and pave the way for deeper, sustained payments inclusion throughout Latin America, ultimately fostering greater economic resilience, opportunity, and growth. 30 References Agarwal, S., W. Qian, Y. Ren, H-T. Tsai, and B.Y. Yeung (2020) “The Real Impact of FinTech: Evidence from Mobile Payment Technology,” SSRN Working Paper. Alvarez-Arango, E., J. Gallego, B. Hoffmann, M.P. Medina, C. Pecha, M. Stampini, D. Vargas, and D. Vera-Cossio (2024) “Social Protection, Short-term Debt, and Access to Credit,” Inter-American Development Bank. Annan, F., C. Cheung, X. Giné (2024) “Digital Payments,” Oxford Review of Economic Policy, 40(1): 118–128. Attanasio, O., M. Bird, L. Cardona-Sosa, and P. 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