Governments Role in Payment Card Market Development: The Case of Argentina

by Terry X Xie 0

Sometimes it is hard to overestimate thegovernment’s role in facilitating (or demanding) the development ofmodern electronic payments in different countries.

According to a recent article from the Dow Jones News Service, thegovernment in Argentina is pushing merchants to accept cardpayments in place of cash in order to fight tax evasion and dealwith the shortage of bank notes.

The convenience of accepting cash for the purpose of tax evasion iswell known in both developed and developing markets across theworld and not unique to Argentina. But, it has become part of thebusiness tradition and culture – especially for small businessowners in countries such as China, India, Brazil, and Argentina,among many others.

And regardless of the country, during the development of cardmarkets, there was at least one point where small businesses sawthe costs of accepting cards (merchant fees, terminal costs, andtaxes) outweighing the perceived benefits (incremental sales,safety, and cost-saving from reduced cash-handling).

Argentina is at a typical stage of card market development wherethe lack of access to cheap network infrastructure, high perceivedcosts, and low perceived returns by the merchants, and consumers’cash-centric culture (among others) are major barriers for marketdevelopment. Almost all payment card markets around the worldtransition through this period before card payment penetrationamong merchants and consumers reaches a tipping point. And it takestime.

It seems that the Argentinean government can’t wait, for multiplereasons. First of all, tax evasion was estimated to reduce thegovernment’s income by about US$6.75 billion last year alone.Secondly, the recently declining security, particularly somehighlighted violent robberies involving cash, is causing lots ofpublic pressure on the government. Last, but not least, the countryis under increasing inflation pressure and consumers need for cashis peaking due to holiday seasons and vacations.

It is still too early to tell if the government’s initiative wouldwork…it is one thing to have a policy, another to enforce iteffectively and broadly. Nonetheless, we have seen similar caseswith different degrees of success around the world. Opinions varyabout whether and how the government should directly involve itselfin the market development process. In reality, the market oftenjust needs a little bit of extra push to get over the top. And thegovernment’s power could come in handy, as long as the push is inthe right direction and the risks of overcontrolling are withinreasonable range.