The possibility of paying salaries and pensions through virtual wallets such as Mercado Pago or similar, included in the official labor reform project, sparked criticism in the banking sector. One of the Association of Argentine Banks (ADEBA) to the consulting firm CML&A, Pablo Curatthe ten main risks that the measure would entail for users as well as for the financial system and the state.
Apart from some specific questions related to, among others, the lack of deposit insurance, the lack of protection in the event of bankruptcy, cash management and the impact on bank credit, the report supports the trend of millions of Argentines: to withdraw their money from the bank but to spend it with a wallet. “This pre-existing solution offers the best of both worlds“, analyzed the report commissioned by ADEBA.
“Current interoperability already allows users to combine theThe security of CBU (for collecting) with the agility of CVU (for spending)to meet the desire for profitability by taking on more risk for a portion of the monthly income. Once the employee or pensioner receives his income at a secure financial institution (CBU), he can, if he wishes, transfer all or part of it to a CVU immediately and free of charge,” he noted.
According to the CML&A document, these are the key risks that banks object to the idea of wallets being able to credit salaries and pensions:
1. Reduced legal protection for salary and retirement. The report states: “The greatest risk is the removal of legal protection” for the recipient of these assets. The virtual wallets They do not guarantee the nutritional value of the funds, which leads to users being exposed to total embargoes or unilateral debt settlements (collection of the payment of a loan by debiting it from the salary), practices that are prohibited in the traditional banking system.
2. Lack of a deposit insurance system. According to the document, “user funds are not protected” if a wallet fails. Unlike banks, payment accounts (CVU) are not covered by SEDESA’s deposit insurance, which covers up to $25 million per account per customer. “This lack of protection is further exacerbated by the lack of ‘privileged liability’ status for bank deposits or the special resolution procedure in the event of insolvency,” he added.
3. History of fraud and bankruptcies in the fintech sector. In the last 30 years, 28 financial companies have closed in Argentina. The legal mechanisms and the SEDESA system “enabled the coverage of all bank deposits.”
The report draws a contrast with fintech, warning that “international and local experience shows that the risk is not marginal.” Cases like Wirecard, FTX And Wenance have shown that fintech users can lose all their money in the event of fraud or default, with no possibility of rescue from central banks or government guarantees.
4. Less free access to cash. “Providing free cash is a basic obligation of banks for salary and retirement accounts. Retirees, especially those earning minimum wages, withdraw the majority of their assets in cash.” The report warns of a critical point: daily ATM replenishment is banks’ main operating cost.
If the wallets capture salary accounts without their own ATM network, there could be “cross-subsidization of banks serving fintech companies, which would impact the profitability of the sector and the quality of service.” Another possibility would be for wallets to use the non-bank ATM network, which not only has a limited reach but would also force users to pay additional fees to withdraw their money.
5. Difficulty accessing cash in foreign currencies. In a bimonetary economy like Argentina’s, the ability to withdraw dollars or other foreign currencies is a service sought after by savers. The virtual wallets They are not allowed to trade on exchanges or spend cash in foreign currencies, which limits users’ options.
6. Risk of a wallet ransom. If there is no explicit deposit insurance system and a major virtual wallet has liquidity problems, “the central bank will face the dilemma of supporting it (which entails moral hazards and potential expenses) or allowing millions of users to lose their savings and investments, with high social and political costs.”
7. Reduction in banks’ lending capacity. According to the report Adeba commissioned from CML&A, the profitability with instant liquidity that remunerated accounts provide comes at the expense of reduced credit availability to the rest of the economy. And it estimates the decline in deposit borrowing capacity as a result of the increase in wallets at 60%.
The migration of funds from bank accounts to virtual wallets has a negative impact on banks’ ability to provide medium and long-term loans. The document estimates: “The higher the proportion of funds captured by wallets, the lower the borrowable capacity of the system will be for more than 30 days and therefore the lower the degree of banking (loans/GDP). In the extreme case, if all CBU balances were to go to CVU, all bank loans would disappear to the private sector for more than 30 days.”
8. Lack of technical and legal capacity to process judicial seizures. The report warns: “There is a high risk that PSCPs do not have the technical or legal capacity to process the data properly.” Documents for judicial seizure“, which may lead to errors, litigation and impairment of the fundamental rights of users.
9. Loss of traceability and formality in payments. The supervision of the virtual wallets “is less stringent than the banking system, which leads to regulatory “gray areas” and can make it difficult to prevent money laundering and trace funds. This risk also exists when dealing with people who are obliged to the Financial Information Unit (UIF).
10. Legal contingent liabilities for employers and the state. The report concludes that authorizing the payment of salaries and pensions in non-bank accounts creates a legal emergency: “In the event of bankruptcy of the PSPCP, when the funds do not have deposit insurance or a privileged liability status, the employee can take action against the employer and the State to recover his salary, relying on the nutritional nature of the funds.”
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