Risky digital wallets help Argentines fight inflation

Ever since June 12, Andrea Álvarez, a famous Argentine musician, feels like she’s been rebuilding her entire life. It all started when a man stole her phone on the bus in Buenos Aires. Right after the theft, people warned her to block her Mercado Pago account as soon as possible. They were referring to the payments app which Álvarez — alongside 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 told Rest of World.

The scammers contacted her soon after, posing as Mercado Pago representatives. “They told me that 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 for them to empty her accounts. “They got me,” she lamented. 

Álvarez lost all of her savings through this payment app scam. She hasn’t recovered her money yet, but she’s pursuing justice after filing a suit both against MercadoLibre — Mercado Pago’s parent company — and her bank, which was linked to her app’s account. When she made her story public, dozens of users who had been victims of exactly the same scam reached out: They were all Argentines who had lost everything after depositing all their money in, or connecting their debit cards to, payment apps outside the official banking system. 

With Argentina close to reaching an inflation rate of almost 100%, measures taken by people to keep their money’s value have been wide-ranging. While the wealthiest opt to buy dollars on the black market or turn to cryptocurrency, the middle and working classes can’t afford — or do not know how to get their hands on — dollars or crypto​​. Their adoption 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 offers access to mutual funds that, at the moment, provide a return of around 60% annually. It’s not an investment, but rather, a way of preventing pesos from losing their value as quickly as they would by being parked in a normal bank account.

Over the past months, stories shared across social media have shown the risks of relying on digital wallets to stash one’s savings. Rest of World spoke to Mercado Pago users, scam victims, cybersecurity experts, and economists to see how the combination of economic instability and the generalized use of these payment apps is leading customers to expose their savings to scams and theft.

Rest of World reached out to Mercado Pago but received no comment by the time of publication.

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

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

A major risk arises due to the ease with which anyone can access anyone else’s Mercado Pago account. Gia Castello, program director at 0xche, a Latin American hacktivist organization, told Rest of 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 simply by placing the card in a new device and resetting the account’s password.

Users should apply as many layers as possible to guarantee safety, according to Castello. “A safe 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 their data protection. “Companies should take ownership in protecting their users’ data, which is very expensive,” said Castello. “The more money they invest in their infrastructure, the safer the wallets will be.”

The problem is often made worse because e-wallets are not required to address scams and theft in ways that formal banks need to. Martín Burgos, an economist from the Cultural Center for Cooperation, a Buenos Aires-based politics and economy research center, told Rest of World that though Mercado Pago “says it helps financial inclusion, its high interest rates risk affecting the most vulnerable.” This, he said, was due to a lack of regulation which allows Mercado Pago to easily loan out 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 issues present in Mercado Pago are common to all digital wallets: as opposed to debit or credit card scams, payment apps have security guarantees like those given by formal banks. “They’re not financial institutions,” he pointed out.

For some users, the lack of in-person attention that traditional banking provides is another downside when it comes to scams and theft. “Some people want to speak to other humans in an office, which doesn’t exist in Mercado Pago,” said Carballo. 

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

“Reaching a [help] hotline was an odyssey, it took me hours and hours,” Tartara told Rest of World. “And when I reached [Mercado Pago staff], they undermined my complaint.” Mercado Pago did not respond to her demands, blocking only some of the loans that the thief had requested. To this day, she has not recovered her money, although she is filing a lawsuit. 

“My advice is: don’t use Mercado Pago, just don’t,” said Tartara. “It doesn’t have any security measures, 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 hearing about the scams, she used to transfer a percentage of her income into her Mercado Pago wallet every time she was paid. “I would make some extra pesos and then use them to buy something for myself,” she said.

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

Acosta ultimately feels like she has no option: “Just take my money and let me buy what I need.” She told Rest of World that she plans to use Mercado Pago until better options appear. “I don’t trust the system, and they’ll screw you either way,” she said. “I guess I’ll keep playing with fire until it happens to me.”