The old “cash is king” adage is losing stock in Costa Rica, and banks are cashing in on the new proclivities of Ticos who are charmed by plastic currency, online banking and mobile technologies. According to a comprehensive series of investigative articles on the prominent newspaper La Nacion, Costa Rica is a nation that is ripe for a cashless transformation, much to the delight of payment processors and banks and the dismay of some merchants.

Since early August, La Nacion has been publishing a series of articles that take an in-depth look at credit and debit cards in Costa Rica as part of its “Enfoque” (Focus On) series. A recent article by Pablo Fonseca reported on Movifacil, a new Tico business that aims to create a system of micropayments by Short Message Service (SMS). The system is currently undergoing beta trials in Grecia, whereby consumers purchase a prepaid card in the amounts of 2,000, 5,000 and 10,000 colones -between $4 to $20. The next step is to activate the card and tie it to a mobile phone number. Whenever consumers encounter a store that accepts Movifacil as a merchant processing system, all they have to do is send a text message to make a purchase.

To make the Movifacil system enticing, both merchants and shoppers will be offered incentives in the way of discounts or monetary commissions. About 3,000 beta testers are using the system, and they are transacting a collective average of 800,000 colones per month -about $1,600. Movifacil manager Johnny Arroyo explained to La Nacion that the goal is to enable micro payments so that people don’t have to scramble for cash or look for ATMs.

Other SMS Payment Initiatives and the Benefit to Banks

The Municipality of San Jose expects to implement a text messaging service to pay for parking later this month. Later this year, Spanish firm Movilway will start offering SMS banking services in Costa Rica specifically designed to those who do not have access to banking. As previously reported in The Costa Rica Star, the the Central Bank (BCCR) and ICE are working together to develop a simple solution that will enable Ticos to transfer funds via SMS. Costa Rica may still be far from Near Field Communications (NFC) technologies, but it seems that electronic wallets will initially rely on mobile SMS.

It is important to remember that strict anti-money laundering laws in Costa Rica have managed to alienate many residents of Costa Rica from banking services. This is a problem that affects people in all segments of society, from housewives to residents of rural communities and migrant workers. Many Nicaraguan workers who can’t get a bank account in Costa Rica and are paid in cash are often targeted by criminals.

While cashless systems may benefit consumers, banks are the real winners. Comments made by Carlos Melegatti, a high-ranking official of the Central Bank, to Pablo Fonseca of La Nacion indicate that banks in Costa Rica spend about $150 million each year in cash handling. The Central Bank spends about $8 million each year in the printing and minting costs of issuing new currency. Banks in Costa Rica can’t wait for NFC technology to become commonplace, as it will require a bank account, but even with SMS payments they stand to cash in as facilitators and investors; for example, the recent partnership of Banco Nacional with PayPal.

As with any brave new technological paradigm shift, there are some concerns as well: banks may reduce their payrolls by laying off cash-handling employees and distributors of supplies and equipment to handle cash may see their business diminish. Another concern, which applies to all modern monetary systems, is the potential of intrusion and manipulation by hackers.