Argentine banks have launched a concerted effort to gain relevance in the country's digital payments segment, though they will have to contend with both competition from market leader Mercado Pago and fresh regulation for the sector.

More than 35 financial institutions with operations in Argentina collectively launched mobile payments platform Modo in December 2020, a solution for account-to-account money transfers and in-store QR payments, among other features.

The platform, which has a stand-alone version and can also be used via the banks' mobile apps, has attracted a million users in less than three months, while 302,000 vendors have implemented the solution since its launch, Modo CEO Rafael Soto said in an interview.

Banks will look to capitalize on a shift in consumer behavior brought on by the pandemic, during which more than 66% of Argentines increased their usage of e-wallet solutions such as Modo and Mercado Pago, according to a report from market research firm Minsait.

Mercado Pago, a unit of e-commerce giant MercadoLibre Inc., pioneered QR payments in Argentina in 2018 and currently boasts more than 4.7 million active users in the country. The company has sold 2.1 million physical point of sale units and its QR solution has been implemented at 1.3 million vendors.

Strategy

While Modo could face an uphill battle as it attempts to make inroads into Mercado Pago's market share, Soto pointed to the competitive advantage of automatically integrating all of a client's bank accounts and debit and credit cards on one platform, along with details about bank-specific promotions and discounts.

"We also operate on an open loop scheme, meaning that merchants can accept Modo payments on different point of sale products, including those supplied by Prisma, Fiserv, Getnet and Toque de Naranja X," Soto said.

Mercado Pago, on the other hand, operates a closed loop, meaning that both vendors and individuals must be users of the platform.

In terms of convenience, Modo offers simpler account-to-account money transfers by allowing individuals to send funds directly to a phone number, with the recipient receiving a WhatsApp notification. "That means no longer dealing with long account numbers," Soto said.

Banks are counting on Modo to help boost electronic transactions volume and steer Argentines away from the use of cash, which is the preferred payment method for 82% of the population, according to a study by the UADE university.

"Cash use means money isn't deposited in bank accounts, so banks lose out on profits from intermediation. It also implies higher logistics expenses, and third, it means they don't see profits from fees on electronic transactions," Soto said, adding that "banks around the world have organized themselves to provide payments ecosystems with mobile phones as the protagonists."

Fresh regulation

The budding showdown between Modo and Mercado Pago faces a new layer of complexity following the recent introduction of Transferencias 3.0, a regulatory initiative from Banco Central de la República Argentina that set a 0.8% cap on fees merchants can be charged for transactions in which funds are debited directly from account balances.

Fees on QR payments linked to credit and debit cards were not capped, however.

The regulation also calls for all QR codes for such transactions to be readable by any app. That means Modo users will be able to transact in stores that have only implemented Mercado Pago's QR codes, and vice versa.

A source at the Argentine central bank said the obligation regarding the interoperability of QR codes has so far been implemented in a "representative group of retail chains and will be gradually expanded to reach all retailers."

As Modo is only just starting out, Transferencias 3.0 should benefit the platform in the short term by expanding its reach to Mercado Pago's near-80% market share of QR payment solutions at Argentine retail stores, said Ignacio Carballo, director of the fintech and digital banking program at the Pontifical Catholic University of Argentina.

"In the long term, the regulation should promote client base growth for both, however," he added.

Modo's Soto, for his part, acknowledged a potential impact on payment solution providers that charged more than 0.8%, although he welcomed the regulatory measure as a positive development toward the ultimate goal of reducing cash usage.

Alejandro Melhem, Mercado Pago's director for Argentina, also approves of the regulation, noting that electronic methods are currently used only for 20% of payments. "If this measure is successful, that number could double in a few years, which will allow growth for all providers of such solutions," he said.

According to Carballo, the launch of Transferencias 3.0 could represent the Argentine central bank's first step toward the implementation of an open banking model like the ones proposed or adopted in Brazil, Mexico, Chile and Uruguay.

Argentine banks have always been very reluctant to share data and such a model would lower the barriers for fintech firms, some of whom have already integrated QR payments into their own apps, to enter the market, Carballo concluded.