Cash remains the predominant payment instrument in Argentina, mainly for day-to-day and low-value transactions. Overall, cash accounted for 78.5% of the total payment transaction volume in 2016
High interchange fees on debit and credit cards are discouraging retailers from accepting electronic payments. The average interchange fees on debit and pay later cards stood at 1.50% and 2.17%, respectively.
Government financial inclusion initiatives and improvements to commercial bank infrastructure have led to a gradual rise in electronic payments. In 2016, the average number of monthly card transactions in Argentina stood at 2.36 – higher than peer countries including Chile (2.32), Brazil (2.24), Peru (1.13), and Colombia (1.02).
The government has been encouraging the use of debit and credit cards by offering tax benefits and by strongly promoting the use of payroll cards in the country.
One initiative was the implementation of a mandatory wage account regulation by the Central Bank of Argentina. The regulation requires payroll funds to be directly credited into wage accounts, to encourage cashless transactions. The regulation was first introduced in 1997 and came into force in 2001. The account is also used for the disbursement of social benefits such as retirement, pensions, and social welfare funds.
In line with these objectives, in 2016 the central bank introduced guidelines for convenient account opening and switching between banks, with the aim of promoting competition.
Debit cards dominate
Debit cards remain the preferred payment card type, accounting for 66.3% of the total payment cards transaction value in 2016. In Argentina, debit cards are offered as complimentary products with savings or current accounts.
In line with the government’s wage account regulation, banks are increasingly offering payroll accounts. All major banks including Banco Nación, Banco Provincia, and Banco Galicia now offer payroll accounts to their customers.
These accounts are usually preferred over current accounts as they are exempted from government taxes applicable to current account deposits and withdrawals. Account holders are also offered a range of benefits such as no annual fees, preferential interest rates on personal and mortgage loans, and cash advance facilities.
While debit cards continue to dominate, the use of credit cards is anticipated to rise due to the abolition of the tax on credit card transactions made in foreign currencies. The rise in Argentina’s middle-class population and increasing household consumption are anticipated to drive demand for consumer credit.
The ‘less-cash’ society
Payment companies are developing voucher-based payments to cater to the significant unbanked population in Argentina, allowing consumers to make payments without the need for a bank account or payment card.
Cash-based payments through vouchers such as Pago Fácil and Rapipago remain the preferred mode of payment among consumers. Pago Fácil users make a purchase, print a voucher, and take it to a local payment location to make cash payment. Payments can be made at 4,000 Pago Fácil locations across the country. Similarly, Rapipago vouchers are accepted at 3,000 locations.
Although voucher-based payments provide a convenient shopping experience for consumers due to their wide acceptance, they are also hindering the government’s vision of turning Argentina into a ‘less-cash’ society.
Preference for prepaid
The number of prepaid cards in circulation recorded a CAGR of 4.6% between 2012 and 2016, rising from 11.2m in 2012 to 13.4m in 2016.
Growth in the prepaid card market can be attributed to improved POS infrastructure, offers and benefits provided by card issuers, enhanced security features, and the adoption of contactless technology. The number of prepaid cards in circulation is anticipated to record a CAGR of 2.7% over the next few years to reach 15m by 2020.
The total transaction value of prepaid cards decreased over the last five years, from $2.6bn (ARS11.7bn) in 2012 to $1.4bn in 2016, due to the significant depreciation of the local currency against the US dollar. In local currency terms, the transaction value of prepaid cards registered a CAGR of 16.1% during the same period.
The unbanked population in Argentina, which stood at 42.4% in 2016, remained the key driving factor for prepaid cards market growth. Prepaid card issuers have partnered with government departments and businesses to extend social benefits to consumers without a bank account.
Gift cards are an alternative to cash and are becoming increasingly popular in Argentina. Banco Galicia offers the free Galicia Visa Gift card, with different designs for occasions such as birthdays, weddings, and Christmas.
Card schemes are also capitalising on the growing prepaid cards market in Argentina. For instance Visa has collaborated with Banco Provincia, Bank Santander Río, BBVA Banco Francés, and New Bank of Santa Fe to issue rechargeable Visa cards.