OXXO Pay: Cash is King in the Mexican Market

This is the second article in a series called Alternative Payment Methods (APMs) vs. Incumbents, where I will break down each player in the financial ecosystem and determine which payment method is winning the race in terms of adoption and relevance in the region.

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If you missed the last one about PIX and its impact on the Brazilian e-commerce market, check it out here.

Summary

If you have a few minutes to spare, here's what you need to know about OXXO Pay and its importance for e-commerce in the Mexican market.

OXXO Pay is one of the most popular payment methods in Mexico, accounting for 10% of the market's online transactions (i.e., a total payment volume of $6 billion). It enables customers to pay bills and make in-store online purchases with cash. OXXO Pay has a low risk of fraud or unrecognized payments because the customer must make the payment in person.
Mexico remains a cash-based economy. Of the $476 billion transacted in e-commerce and face-to-face retail payments in 2022, $315 billion (66%) was cash, while another $127 billion (27%) was cards, and only $34 billion (7%) was in the form of digital payments. Therefore, to remain competitive, international merchants must add cash payments to their strategies to reach Mexican shoppers.
OXXO Pay is revolutionizing finance for those who find traditional banking costly, inconvenient or intimidating. Its success is due to OXXO's extensive network and a deep understanding of customer preferences and needs, combining convenience with a customer-centric approach. Since its launch, millions of Mexican consumers have turned to their nearest OXXO to make cash payments for more than 5,000 digital services, including Amazon, Netflix, Spotify and Fortnite V-Bucks.
Businesses have adopted OXXO Pay to access Mexico's significant unbanked market, benefit from the security and simplicity of cash transactions, and take advantage of the 24/7 availability of OXXO stores, along with real-time payment confirmation and OXXO's strong brand association, enhancing consumer confidence and transaction reliability.
Building on its success, OXXO Pay is expanding with the introduction of Spin by OXXO, the fastest growing digital wallet and debit card in Latin America, while planning to extend its market reach to other Latin American countries and explore partnerships in the gig economy to enhance its service offerings and consolidate its position as a key player in the Latin American financial landscape.

What is OXXO Pay?

OXXO Pay is a coupon-based payment method introduced by OXXO, the largest convenience store chain in Latin America with more than 20,000 store locations owned by the FEMSA conglomerate, Mexico's fourth most valuable company by market capitalization ($42.4 billion), in partnership with Conekta, a Mexican payment service provider, which was officially launched in February 2017. It allows users to make cash payments for online purchases by generating a unique code that can be scanned at any OXXO store. It operates 24 hours a day, mirroring the convenience store's operating hours, to provide an accessible, secure and simple payment method. This caters to the substantial segment of the population that does not have access to bank accounts (52.8% remain unbanked as of today), nor access to credit (7.7% own a credit card as of today).

How to make a payment with OXXO Pay?

To pay for online purchases using OXXO, consumers simply select OXXO as a payment option at checkout on any e-commerce site that offers it. This action generates a unique payment coupon for the transaction, complete with a barcode detailing the purchase, which can be printed or saved to a mobile device. Consumers then visit their local OXXO store, present the coupon to the cashier and pay the amount in cash. If they prefer a digital approach, OXXO's e-wallet app facilitates payments by scanning a QR code on the store's device. After consumers have paid, the merchant receives a confirmation from OXXO, usually within one business day, indicating that the order can be processed and shipped.

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How OXXO Pay is transforming e-commerce in Mexico

OXXO Pay is making online shopping accessible to the vast segment of the population that does not have access to traditional banking services or prefers cash transactions. As the e-commerce market in Mexico continues to expand rapidly, projected to grow from US$74 billion in 2023 to US$176.8 billion by 2026, OXXO Pay is playing a pivotal role in enabling those without traditional banking services to participate in online shopping. This payment method bridges the gap between digital commerce and physical cash transactions by allowing customers to use cash for online purchases at any of OXXO's many locations. This integration helps mitigate the limitations imposed by the lack of banking infrastructure and access to credit, which affects nearly two-thirds of the Mexican population.

By providing a secure and simple payment alternative, OXXO Pay not only increases consumer confidence in online transactions, but also supports the broader adoption of e-commerce across diverse demographics. Its widespread acceptance and ease of use encourage more consumers to shop online, thereby expanding the customer base for businesses and fostering a more inclusive digital economy. This approach not only leverages an existing cultural preference for cash and vouchers, but also aligns with consumer habits, enhancing e-commerce's growth potential in the changing Mexican market landscape.

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Why did companies adopt OXXO Pay?

Cash-dominated economy: Access a significant segment of the market that does not use traditional banking services, as most Mexicans are underbanked and have limited or no access to credit cards.

Transaction security: Payments made through OXXO Pay have a low risk of fraud or non-recognition because the customer must make the payment in cash, in person, at one of OXXO's convenience stores.

Agility, simplicity and availability: Payments are quick and easy, requiring only the scanning of a 14-digit barcode. Since most OXXO convenience stores operate 24 hours a day, 7 days a week, consumers can make payments on flexible schedules.

Real-time confirmation: OXXO Pay guarantees immediate verification of funds, ensuring fast completion of the transaction for all parties involved.

Partnering with a trusted brand: OXXO is a well-known and trusted brand throughout Mexico, with a reputation for convenience and reliability. By offering OXXO Pay, businesses can partner with this trusted brand, which can help increase consumer confidence and credibility in their own brand.

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What's next for OXXO Pay?

OXXO Digital Wallet: Following the success of OXXO Pay, FEMSA introduced Spin by OXXO in March 2021, a digital wallet and debit card that quickly gained 3 million users in just two quarters, making it the fastest-growing fintech application in Latin America. This platform positions OXXO to dominate the consumer financial infrastructure in Mexico, the world's 15th largest economy. Spin by OXXO could offer new credit opportunities based on customer transaction history, boost Mexican e-commerce and solidify its role as a comprehensive omnichannel solution, integrating both online and offline customer experiences.

Expanding into new markets: Building on its established success in Mexico, OXXO Pay is well positioned to extend its services to other Latin American markets where it already has a retail presence, such as Peru, Colombia, Brazil, Chile, Ecuador and Guatemala. By leveraging these regions, which share similar economic profiles and consumer behaviors, OXXO Pay can capitalize on its reputable brand identity to facilitate market penetration and foster financial inclusion throughout Latin America. This strategic move could significantly enhance OXXO's influence and operational reach in the region's digital payments landscape.

Collaborative economy services: OXXO Pay could partner with ridesharing apps, online freelancing platforms and other gig economy businesses to provide a cash withdrawal option for earnings, thus serving a broader range of the workforce that relies on flexible employment.

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Verdict

OXXO Pay has firmly established itself as a mainstay of Mexico's payments landscape, gaining significant traction among a broad demographic of users. Although it faces competition from emerging digital payment solutions and traditional banking methods, its unique position as a bridge between cash and digital commerce ensures its relevance. As cash remains predominant in the region, OXXO Pay is well positioned to maintain and enhance its influential role in Latin America's evolving financial ecosystem.

As we explore the rapid evolution of OXXO Pay and its profound impact on Mexico's payments landscape, I invite you to join the conversation about this widely adopted payment method. How do you see OXXO Pay shaping the future of e-commerce and beyond? Share your thoughts and experiences with me on social media - let's examine the opportunities and challenges presented by OXXO Pay and spread the word about this cash-based payment system! Share this newsletter and join the dialogue today!

<p style="margin-bottom:0;">Si tienes preguntas o deseas continuar la discusión, no dudes en contactarme directamente en tony@rebill.com.</p>