Risky digital wallets help Argentines fight inflation

Ever since June 12, Andrea Álvarez, a famous Argentinian musician, has felt that she has rebuilt her entire life. It all started when a man stole her phone on the bus in Buenos Aires. Immediately after the theft, people warned her to freeze her Mercado Pago account as soon as possible. They were referring to the payment app that Álvarez – along with millions of other Argentines – uses to store large amounts of her money. “First a lady, then a boy, then another person – four or five people approached me about it,” she said The rest of the world.

The fraudsters contacted her soon after, posing as Mercado Pago representatives. “They told me the thieves were trying to access my accounts, that they were taking out loans in my name,” she recalled. Álvarez panicked and gave them enough data to drain her accounts. “They got me,” she lamented.

Álvarez lost all of her savings through this payment app scam. She hasn’t gotten her money back yet, but she’s seeking justice after filing a lawsuit against both Mercado Libre — Mercado Pago’s parent company — and her bank, which was linked to the app’s account. When she went public with her story, dozens of users who had been victims of the exact same scam reached out: They were all Argentines who had lost everything after depositing all their money on, or linking their debit cards to, payment apps outside of official banking. system.

With Argentina close to reaching an inflation rate of almost 100%, measures taken by people to retain the value of their money have been extensive. While the wealthiest choose to buy dollars on the black market or turn to cryptocurrency, the middle and working class can’t afford—or don’t know how to get hold of—dollars or crypto. Their use of digital payment apps seemed like the solution. Mercado Pago alone has over 5 million users. The app allows users to deposit money into an e-wallet and provides access to mutual funds that currently return around 60% annually. It is not an investment, but rather a way to prevent pesos from losing their value as quickly as they would by being parked in a regular bank account.

Over the past few months, stories shared on social media have shown the risks of relying on digital wallets to hide one’s savings. The rest of the world spoke to Mercado Pago users, fraud victims, cyber security experts and economists to see how the combination of economic instability and the widespread use of these payment apps is leaving customers exposed to fraud and theft of their savings.

The rest of the world contacted Mercado Pago but received no comment by the time of publication.

The use of digital wallets skyrocketed in Argentina, thanks to a combination of high inflation and the digitization of many daily transactions during the Covid-19 pandemic. With Mercado Libres ubiquitous in Argentina, Mercado Pago was well positioned to lead the payment app sector from the start. According to the central bank report from October 2022, half of the adult population uses digital payment products, while the use of e-wallets has doubled in the last two years. The result has been that today digital payments make up 50% of all financial transactions in Argentina.

“Mercado Pago is the most important digital wallet in terms of user and e-commerce adoption [in Argentina]”, said Ignacio Carballo, head of crypto and alternative finance at Americas Market Intelligence, a market consultancy. The rest of the world. But the concentration of so many users and their savings on a single app worries cybersecurity experts and economists alike.

A major risk arises due to the ease with which anyone can access someone else’s Mercado Pago account. Gia Castello, program director at 0xche, a Latin American hacktivist organization, said The rest of the world that after a phone is stolen, “the verification code to unlock a Mercado Pago account is sent to the SIM card.” Anyone can gain access by placing the card in a new device and resetting the account’s password.

Users should put on as many layers as possible to guarantee safety, according to Castello. “A secure password, 2FA [two-factor authentication]and by encrypting the SIM card, at least.” These measures must be taken by users, she said, but companies should encourage them and invest as much as they can in increasing data protection. “Companies should take ownership of protecting users’ data , which is very expensive,” Castello said. “The more money they invest in their infrastructure, the safer their wallets will be.”

The problem is often made worse because e-wallets are not required to deal with fraud and theft in ways that formal banks need. Martín Burgos, an economist from the Cultural Center for Cooperation, a Buenos Aires-based research center for politics and economics, said The rest of the world that although Mercado Pago “says it helps financial inclusion, the high interest rates risk affecting the most vulnerable.” This, he said, was due to a lack of regulation that allows Mercado Pago to easily lend money through its Mercado Crédito option or offer high interest rates for short-term investments through its Mercado Fondo branch.

Carballo, the crypto consultant, highlights that the security problems found in Mercado Pago are common to all digital wallets: unlike debit or credit card fraud, payment apps have security guarantees like those provided by formal banks. “They are not financial institutions,” he pointed out.

For some users, the lack of personal attention that traditional banking provides is another disadvantage when it comes to fraud and theft. “Some people want to talk to other people in an office, which doesn’t exist in Mercado Pago,” Carballo said.

This was precisely the experience Valeria Tartara, an avid user of Mercado Pago, had after being defrauded on 6 November. Apart from draining the app and her linked bank account of funds, the robber who stole her phone went so far as to take out a loan in her name via Mercado Crédito.

“Oh reach one [help] The hotline was an odyssey, it took me hours and hours,” Tartara said The rest of the world. “And when I reached [Mercado Pago staff], they undermined my complaint.” Mercado Pago did not respond to her demands, only blocking some of the loans requested by the thief. To this day, she has not received her money back, although she is filing a lawsuit.

“My advice is: don’t use Mercado Pago, just don’t,” said Tartara. “It has no safeguards, it’s just dangerous. Your claims will not be answered if something happens.”

But for people like Agustina Acosta, a local actress, not using Mercado Pago is not an option. Before she heard about the scam, she used to transfer a percentage of her earnings to the Mercado Pago wallet every time she got paid. “I would earn a few extra pesos and then use them to buy something for myself,” she said.

Then Acosta heard about the fraud. She now transfers less money to her wallet, but is forced to continue doing so. Many of the markets in her Buenos Aires area only accept Mercado Pago as a payment method. “[The app] allows many people to access the digital economy, especially those working informally,” she said.

Acosta ultimately feels she has no choice: “Just take my money and let me buy what I need.” She told The rest of the world that she plans to use Mercado Pago until better alternatives emerge. “I don’t trust the system and they’ll screw you anyway,” she said. “I guess I’ll keep playing with fire until it happens to me.”