The emergence of electronic payment methods and cryptocurrencies, and their application in Latin America was the essence I wrote about on the first part of this article. Now, I will delve into more specific characteristics of these modalities, always thinking that they are key tools for the development of the gaming industry in LatAm and the world.
OFFER AND USE OF PAYMENT METHODS
There’s no doubt that digital media (DPMs) efficiently make it possible to offer basic low-value services at large scale, facilitating payment and transfer services. The classification of the means of payment implies a first division between ‘non-electronic payment’, which includes cash and check payments, and ‘electronic payment’, referring to the use of credit and debit cards, bank transfers, bank debits, e-wallets, mobile payments, and digital currencies. On the other hand, these means can be differentiated according to the presence of the payer: ‘face-to-face payments’ versus ‘non-face-to-face payments’, depending on whether the payer is physically in front of the counterpart during transaction process.
TYPES AND SUPPLIERS OF MPDs PRESENT IN THE MARKET
- Cards (in Argentina, there are three types of cards as means of payment: purchase cards, debit cards and credit cards)
- Traditional transfers
- Immediate Electronic Payment (PEI)
In addition to transfers in traditional modality, as of 2016, the Central Bank of the Argentine Republic (BCRA) decided to regulate the extension of the system of immediate transfers to new modalities. Payments are immediately credited to the recipient’s account, making easier to buy, pay, send and receive money, in a more convenient and secure way. These modalities described by the BCRA are listed below:
a) Electronic wallet: these are transfers from one cell phone to another through an application for mobile phones. We can mention the following ones:
a1) Todo Pago (from PRISMA): it comprises cards for online purchases in one single account; and allows transfers to contacts saved on the mobile phone even without a bank account, generating an ATM withdrawal order without a card.
a2) Mercado Pago Wallet: application operated by the Mercado Libre company, which works as a wallet where funds are loaded to make payments and send money to other people.
a3) Link Celular: Red Link mobile application, which links with bank accounts to send money instantly. At the same time, it allows you to generate withdrawal orders in your ATM network.
a4) Vinti: application that can be used to send and receive money through a cell phone with just a WhatsApp message. It also works as a virtual wallet because it allows you to pay for certain types of purchases.
a5) MODO: electronic wallet developed by a union of banks to compete with the Mercado Pago domain.
b) POS and mobile POS: in the case of the traditional POS service, with the credit/debit card reader terminal, the main providers of this service for businesses and professionals are, on the one hand, LaPOS, owned by PRISMA, and, on the other, Posnet, owned by First Data. RedMob (Red Link S.A.) is intended for businesses and self-employed professionals.
c) Payment button: a payment button allows you to buy and sell goods or services through the web. In addition, it helps buyers carry out their operations at virtual points of sale (e-commerce) through immediate transfers with debit to accounts. These buttons can be incorporated into the store’s website, integrated with different social networks or sent by email.
In any of these three PEI modalities, payments are immediately credited to the recipient’s account.
Lastly, since 2016, the BCRA has also promoted a fourth option in this framework, called DEBIN, whose name refers to ‘Immediate Debit’. Through specific functionalities, it allows the collection of goods and/or services through “online” debit in the bank customer’s account once the operation has been authorized, with “online” credit in the receiving customer’s account. Basically, it allows financial institutions and new players in the payment industry to debit, with prior authorization from customers, money from their bank accounts. This tool lets you pay by direct transfer and also from PC or cell phone.
d) Gateways or integrators of one or multiple DPMs: when making a purchase from a remote channel, connectivity is obtained through platforms provided by the payment facilitators or Gateways. They offer a technological solution for a payment, providing what could be called an “online substitute” to a POS terminal. In other words, a payment facilitator is an entity that enables secure online payment transactions to be carried out and reduces the risks for both sellers and buyers. The role of these payment facilitators is to provide services that stimulate the adoption of electronic payments in businesses and that directly compete with banks to include companies that accept their cards.
In Argentina, there are two companies that act as Gateways: GlobalCollect (NPS/Sub1) and SPS Decidir.com (from PRISMA). In the case of payment facilitators, various actors can be mentioned: PayU (E-Payments S.A.), MercadoPago (Mercadolibre S.R.L.), Mango, CobroDigital, CuentaDigital, and Todo Pago (from PRISMA), among others.
EFFICIENCY OF DIGITAL PAYMENT MEANS
In addition to the distributional impact in terms of financial inclusion, the deployment of digital means of payment would bring about efficiency gains in payment systems. This would respond, fundamentally, to the reduction of transaction costs and processing times compared to cash payments. Digital payments no longer require the presentation of a physical instrument. Instead, they can use virtual or digital card accounts that allow payment through digital portals, mobile apps, social media, and APIs.
On the other hand, the operating cost of cash includes the direct expense of production, collection, storage and protection, counterfeiting costs, and the time spent processing cash payments at merchant stores, administrative offices, government agencies and banks. While most of these costs are directly incurred by banks and merchants, the economy bears them indirectly in the form of fees, lost interest, higher consumer prices, and reduced corporate dividends.
The rates and commissions received by the different agents are relevant due to the impact they have on companies and consumers, users of the different means of payment. In addition, they can offer signs of anti-competitive practices, directly impacting on the degree of efficiency of the sector.
Regarding these costs, we can mention: a) Commissions, fees and terms; b) Cost of necessary hardware or connectivity.
Indirect costs and taxes of the use of DPMs
Along with the direct costs mentioned above, there are a number of indirect costs that affect users of digital means of payments. Those considered most relevant are listed below:
a) Withholdings and tax advances: Tax on Bank Debts and Credits. Some taxes, such as taxes on Gross Income, are calculated on the basis of invoicing, that is, including VAT and the charges of operators of the means of payment.
b) Risk of fraud in the DPMs. The security of digital payments depends mainly on two factors: the information technology and the person. Regarding the first point, payment means providers have adopted security measures, both in the information systems (technical infrastructure and security control and monitoring components), as well as in the payment process. The main mechanisms include authentication, that is, the confirmation of the identity of a person registered as an account holder, and authorization, which consists of giving the user access to a series of functions once he/she has logged in, but not to others, or to make additional requirements to execute certain operations. Basically, there are three ways to authenticate a person: (i) by using something that only the person to be identified has (for example, a token), (ii) something that only the holder knows (for example, a key question), and (iii) something that relates to a physical characteristic of the holder (for example, the fingerprint).
When looking at a person as a focus of risk, we must distinguish between those that affect buyers or payers and those that focus on sellers or collectors. On the buyer’s side, the main aspects to take into account are theft and fraudulent use of data related to payments. While the first refers to theft by unauthorized third parties, the second can be carried out even by sellers, such as the realization of unauthorized charges. In the case of the seller, the main reasons for fraud are identity theft, making use of a means of payment to replace the true owner, and backward payment, when the owner of the means of payment denies having received the merchandise in the established conditions.
CONCLUSIONS: CHALLENGES TO ACHIEVE BUSINESS SUCCESS
The greater penetration of the Internet in Argentina, the growth of household broadband, the entry of young people to the network have been the main accelerators of the continuous progress of electronic commerce in this country and throughout Latin America in recent years. Likewise, another important factor has been the learning curve and user experience, even more during the pandemic. The professionalization and the increase in the number of companies, goods and services offered, as well as the greater availability of means of payment, explain the successful performance of electronic commerce in Argentina.
In recent years, the BCRA has actively promoted the development and implementation of new and better digital payment methods. In its objectives to spread banking and financial inclusion, it has sought to promote the massive use of electronic means of payment, introduce faster, more agile and secure means of payment, and reduce the use of cash, improving the formality of the financial market, and expanding the Profits of the Banks and the channels of commercialization of goods and services, by lowering costs and increasing the speed of transactions.
The great challenge faced by Argentine small and medium-sized companies to incorporate new means of payment is to make decisions taking into account tax variables and direct management costs, and combine them with the costs of integration and interoperability between the different MPDs. In relation to the fiscal aspect, the changing of operations that were usually carried out in cash by transactions via digital means of payments constitutes an advance for tax transparency, since it facilitates the visibility of income and expenses for the treasury.
There is no doubt that, for gambling and its platforms to be truly commercially successful, a great deal will depend on the use of electronic means of payments, including cryptocurrencies. It will be difficult to move forward if old analog means of charging credit or payments continue to be utilized. In another article, I’ll talk about computer security and the protection of personal and commercial data of these gambling marketing means, an issue that is becoming increasingly important. Regarding this article, I want to highlight that it was developed in collaboration with company OS City.