Argentina’s economic shock therapy and fintech boom are destroying peso notes

One of the most resilient bastions of cash use in Argentina has been gratuities at restaurants and bars. Tipping on a debit card is legal up to 15%, however in practice this option is rarely offered. As a result, patrons – especially tourists – carry bills to dinner, making stacks of tip-only pesos a common sight, given that the largest bill in the country was until recently only 2,000 pesos ( about $1.50).

But advice is finally going digital in Argentina, thanks to both a financial technology boom and a footnote in President Javier Mila’s “shock therapy” plan to overhaul the economy.

E-commerce giant MercadoLibre Inc.’s payments unit, Mercado Pago, has designed a new feature into its widely used app specifically for tipping. The change reflects how fintech has been integrated into cash-rich Argentina, which had 312 firms in the sector last year, up from 72 in 2017, according to a report by the Inter-American Development Bank.

The latest update to the app — which is only available to Argentine residents — builds on a growing, if uneven, trend of employees offering customers their personal Mercado Pago moniker for tips on how Americans use Venmo or Zelle.

“The spread of digital payments and the decline in the use of cash have started to have a negative impact on the amount of tips received by waiters,” Agustin Onagoity, senior director of Mercado Pago Argentina, said in a statement. “Our food service users and workers have really been asking for an advice solution.”

Mercy, in the meantime, will propose a law to formalize tipping for credit and debit cards, while his government paves the way for commuters to pay for public transport with QR codes or a card like in New York or London. Cash is still required to load a public transport card at Buenos Aires metro station kiosks, although digital top-up options are also available.

To be clear, another type of cash — US dollars — still thrives in Argentina, one of the world’s top recipients of US bills, according to Federal Reserve research. Argentines hold billions in US cash outside the formal banking system, economists estimate.

Dollars aside, all tangible signs suggest that the reign of peso notes is coming to an end. Cash payments at supermarkets in May accounted for just 17% of all purchases, down from 36% at the start of 2020. Credit card payments have surged as Argentines take advantage of interest-free payment rates to pay their expand purchasing power in a country where 270% annual inflation erodes wage growth.

Pedro Filippini, a 23-year-old barista at Zuka Cafe in Buenos Aires, allows customers to send tips to his Mercado Pago account, even though the cafe has a traditional cash jar at the register. Filippini says gratuities tend to be more generous at Mercado Pago, around 1,000 pesos, while tips are reduced to whatever bills a customer has with them.

While Filippini favors digital payments, he still sees the case for cash in a country where half the population struggles to make ends meet. Lately, as cell phone service prices have risen, he runs out of data before the end of the month, relying on WiFi — when he can get it — to access his Mercado Pago account.

“If you’re on the street without mobile data, you can’t rely on Mercado Pago,” he said. “Cash will always be indispensable, but Mercado Pago has been very successful because it really offers a lot of advantages.”

Recommended newsletter: CEO Daily provides the key context news leaders need to know from around the business world. Every weekday morning, more than 125,000 readers trust CEO Daily for information about – and from within – the C-suite. Subscribe now.