Source: Dowell/Moment via Getty Images

More than a year after launching, the Mexican central bank's digital payments system, CoDi, is still struggling for relevance.

So far, the initiative has garnered 6.4 million users, far short of Banco de México's goal for 18 million accounts by September's end. Usage is also weak, with just over a million transactions so far; the central bank wanted 28 times that amount by now.

"Most people on the street still don't even know what CoDi is, and very few small stores have implemented it," said Felipe Carvallo, a Mexico City-based senior credit officer at Moody's.

Much of the disappointment stems from the COVID-19 pandemic, as lockdowns stymied in-person transactions. Some observers also blame weak efforts to publicize the payments system, which primarily uses QR codes to support digital transactions.

Miguel Díaz, the executive leading the central bank's CoDi effort, said Banxico based its initial targets on banks' assurances that they would make "a very profound effort" to bring their customers onboard.

"Banks' branch and sales staff were supposed to lead the implementation," said Díaz, who is Banxico's general director of payment systems and market infrastructures. "But banks' plans changed... The pandemic changed all of that significantly."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

No 'immediate benefit'

So far, a trio of banks have been responsible for the majority of CoDi adoption, chief among them Grupo Financiero BBVA Bancomer SA de CV, Mexico's largest commercial bank by assets; its clients make up 65% of all CoDi accounts. BanCoppel SA Institución de Banca Múltiple, a far smaller bank that ranks No. 17 nationally, and Grupo Financiero Citibanamex SA de CV, Mexico's No. 3 commercial bank, account for another 25%.

The remaining 10% is spread thinly across more than two dozen other institutions, including top-tier players like Grupo Financiero Banorte SAB de CV and Banco Santander México SA.

As Banco Base analyst Luis Alvarado noted, many banks held back on the investments needed to make their own platforms work with CoDi.

"Some banks did not see the immediate benefit, and it has been a very tight year for investment," Alvarado said.

To be sure, CoDi doesn't offer banks a short-term cost-reward benefit: financial institutions have to front the bill for implementing it, yet will earn no fees from doing so.

The technological and personnel expenses involved are substantial, said KPMG financial services audit partner Ricardo Lara. While banks eventually hope to realize savings elsewhere — as broad adoption lessens the need for vast branch and ATM networks — "banks have not seen the benefit yet, and they haven't recovered their investment," he said.

Fintech flak

To some extent, the low level of CoDi adoption has validated early criticisms from Mexico's financial technology firms, many of which were ostracized from fully participating because the platform uses an interbank payment system that only connects to traditional bank accounts.

Some fintech executives predicted their firms' exclusion would slow implementation. And while CoDi adoption has fallen well short of expectations during the pandemic, fintech usage overall has soared in Mexico, with the number of digital transactions skyrocketing some 80%.

CoDi's underperformance also deflates optimism for banks. The platform was expected to generate high usage from the get-go, as it promised safe and instantaneous payments with no fees for users on either end of the transaction.

"Last year we saw CoDi's launch as very positive, considering Mexico's low level of financial intermediation and high use of cash," Moody's Carvallo said.

About 90% of Mexico's population uses cash as a daily means of payment. Fewer than 40% of Mexicans have a bank account; of those who do, many withdraw the cash soon after receiving it. CoDi, the hope was, would encourage more Mexicans to use the payment method instead of cash, giving financial institutions a stickier deposit base and valuable information on clients' spending habits.

"But that hasn't happened," Carvallo said, "and now it's hard to say how much or when it could continue to grow."

A 'vested interest'

Despite the setback, there is still hope CoDi adoption will gain traction once the pandemic ends.

"We do still see a trend of growth at higher rates, and several large retail chains are coming onboard," Banxico's Díaz said. "The results aren't consistent with banks' initial projections, but they're positive."

Citibanamex, for one, is working to set up more than 800,000 Mexican small businesses with the payments system. Others may follow.

"With the end of lockdowns next year, the pace of implementation should pick up across the board," said Alvarado, the Banco Base analyst. "It is in banks' interest for Mexicans to adopt a digital financial culture as soon as possible, because that ultimately will mean a larger client base for lending."

More banks are coming to accept the importance of CoDi. Banorte, Mexico's second-largest bank, has averaged just 158 CoDi accounts per day; that's about 5% of the average at Citibanamex, its smaller rival. However, Angelica Arana, Banorte's architecture government director, maintained that the bank still has a "vested interest" in working toward a more banked society.

"That implies a virtuous cycle that leads toward prosperity for the whole country," she said in an interview. "So aside from being able to place more of our products, there is a very important social responsibility component."

The upside of lockdowns

For as much as the pandemic has depressed CoDi's results, it may also prove to be an accelerant next year. Lockdown restrictions have forced a greater proportion of Mexico's cash-dependent population toward digital alternatives, creating an opportunity for consumers to become more accustomed to using fintech products generally.

"I think we can capitalize on the change in consumer habits towards digital solutions this year," Banxico's Díaz said. "Generally, people said we would need tons of education to bring people into digital finance and away from cash, but I think people simply do so when they see the convenience and benefit."

The executive also recognized that having more fintechs and other non-regulated financial institutions involved could help to broaden CoDi's reach. "We want fintechs to participate," he said. "The more the merrier."

But Díaz also placed the onus on those firms to join, asserting that some major fintech players have opted not to take part based on the belief that "their network is sufficiently large, and so a single platform that brings an even playing ground for everyone isn't necessarily in their interests."

Regardless, Díaz is convinced the CoDi platform ultimately will prevail: "CoDi's advantage over any other platform is that it has no objective to close off its network or leave people out," he said. "Our scheme will always end up beating a closed network, because in payments ecosystems, the size of a network is very important, and we are sure we will end up having the largest one."

When that happens is still uncertain. "As result of the complexities there have been around forecasts, we don't currently have estimates for transactions and accounts in 2021," Díaz said. "It largely depends on banks' efforts."

Still, he added, "We do expect a lot of growth, and much more publicity, starting around Christmas."