Mexican banks are using non-bank correspondent agent networks, cellphones, and prepaid cards to reach the country’s unbanked consumers, Robin Arnfield reports.
Correspondent agents such as convenience stores, department stores, and pharmacies provide a low-cost way for Mexico’s banks to provide banking and payment services to the country’s unbanked and underbanked population. According to the World Bank, in 2011 only 27% of Mexicans aged 15 and over had an account at a formal financial institution.
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"In Mexico, bank branches are heavily concentrated in cities," says Mike Alford, CEO of UK-based Alaric which provides payments software to three Mexican retailers operating correspondent agent networks. "From the perspective of bancarisation, Mexico’s geography is very challenging, as there are a large number of villages scattered in rural areas. The banks don’t put branches or ATMs into these rural communities."
The Bank for International Settlements says that there were 12,382 bank branches and 1,925 credit union branches in Mexico in 2011 for a population of 115 million, up from 11,882 and 1,725 in 2010.
The Mexican government first authorised banks to set up correspondent agent networks in October 2009, when it issued a licence to Banco Walmart to provide banking services through Wal-Mart’s Nueva Wal-Mart de México, Operadora VIPS and Suburbia chains.
Agents are allowed to offer banking transactions at the point of sale such as balance enquiries; fund transfers; payment of utility bills by cash, card, or cheque; deposits by cash or cheque and withdrawals; purchase of prepaid debit cards; payment of credit card bills and other bank loans; and cheque-cashing.
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By GlobalDataBancarisation
"Correspondent agent services have grown out of Mexican government initiatives to get more people banked and into the formal economy, which results in their paying more taxes," says Alford. "This model works, as there is a proliferation of convenience stores and utility company offices in places where there are no bank branches."
"Correspondent agents are a proven way to encourage growth of banking and financial service access in less served geographic areas or social classes," says Janice Horan, pre-sales director for Latin America at US-based cards analytics firm FICO.
According to Mexican regulator Comisión Nacional Bancaria y de Valores (National Banking and Securities Commission/ CNBV), at 31 December 2011, 15 Mexican banks had correspondent relationships with 29 retail chains, including two government-owned organisations, Telecomunicaciones de México (Telecomm Telégrafos) and Diconsa.
Telecomm Telégrafos operates a network of 1,600 agencies in rural locations providing telecoms services, basic banking services, domestic money transfers, disbursement of government benefits, remittances, and bill payment services. It provides correspondent agent services for six banks, Banorte, BBVA Bancomer, Citigroup’s Mexican subsidiary Banamex, HSBC, Inbursa and Scotiabank. In calendar 2012, Telecomm Telégrafos handled 9.5 million banking correspondent transactions, up from 8.1 million in 2011. Diconsa operates 25,000 convenience stores in rural locations, of which 95 provided banking correspondent services in 2011.
According to the CNBV, at the end of 2011 there were 21,071 correspondent agents in Mexico, up from 6,050 in Q3 2010. The largest network is operated by convenience store chain OXXO which at the end of 2011 had 9,964 agents, followed by Nueva Wal-Mart de México with 1,662.
New entrants
Banco Compartamos, Mexico’s largest microfinance institution, launched its correspondent agent network in 2011, under the brand name Yastás. In 2011, Compartamos had 38% of the Mexican micro-lending market, according to Deutsche Bank and microfinance data provider Mix Market. In January 2013, Compartamos received approval from the CNBV to make Yastás available to other banks which want to offer payment services to low-income consumers.
In 2012, Compartamos took its first steps into the deposit-taking market, when it launched a pilot of a deposit account and linked debit card in two cities, Coatzacoalcos and Minatitlán. Customers can deposit funds at Compartamos branches and ATMs in these cities.
At 31 December 2012, the Yastás network comprised 1,600 small merchants in four states, Veracruz, Chiapas, Puebla and Estado de México, who collectively carried out 2.7 million correspondent agent transactions in 2012. In Q4 2012, Compartamos had 65,000 debit card accounts with MXN 17 million ($1.33 million) in deposits.
"We have plans to sign up 20,000 mom’n’pop stores for the Yastás network," a Compartamos spokesperson tells EPI. "We’re giving these stores a basic technology infrastructure so they can offer deposit services and bill payments to our customers."
"By operating up its own correspondent network, Compartamos will become more cost-effective," says Xavier Faz, senior financial sector specialist, technology program, and regional manager for Latin America at World Bank subsidiary CGAP (Consultative Group to Assist the Poor). "Compartamos will reduce its need to outsource collection of its loan repayments to other bank and retailers. It will also be able to expand its deposit operation by selling deposit accounts through its agents. Thirdly, Compartamos will be able to establish correspondent agents in regions where it wants to expand its loan portfolio. Finally, by opening Yastás to other banks, Compartamos will be able to generate additional transactional revenues through commissions."
Faz says most Mexican banks have concentrated on setting up correspondent relationships with established retail chains, which are concentrated in middle-income urban and semi-urban areas, whereas Compartamos’ agents are mom’n’pop stores. "This means that Compartamos will be able to target segments that are less well served by larger banks, such as moderately-sized towns with lower-income consumers," he says.
Another new entrant to the correspondent agent market is Estado de México-based BaraRed, which operates telephone kiosks in 1,200 small convenience stores in semi-urban areas. In October 2012, BaraRed joined Banamex’s Banamex Aquí (here) correspondent agent network, which in February 2013 had 4,000 locations across Mexico. To keep costs low, BaraRed’s telephone kiosk agents will provide Banamex Aquí-branded correspondent transactions using tablet devices, which BaraRed says is a first for the Mexican correspondent agent market. BaraRed’s initial objective was to have 300 Banamex-affiliated agents in operation by December 2012.
"Mexico is one of a handful of countries with a specific mandate from its government to increase financial access and inclusion."
CGAP (Consultative Group to Assist the Poor), 2011 annual report.
Regulation
The Mexican government is using regulation to improve financial inclusion. In 2009, it introduced a law simplifying the capital requirements for start-up banks that restrict themselves to offering savings, micro-loans and transactional products such as prepaid cards. The first so-called "banco de nicho" (niche bank) licenses were issued in 2012 to Banco PagaTodo, rural agricultural lender Banco Agrofinanzas, former credit union Banco Bicentenario, and micro-lender Banco Forjadores. PagaTodo’s Red PagaTodo correspondent network enables customers to pay bills, top up their cellphones, and carry out domestic money transfers.
"The advantage of the ‘banco de nicho’ approach is that it grants access to the Mexican retail payments system to non-bank new entrants," says Faz.
The first shake-up of Mexico’s banking market occurred in 2006, when the government granted Banco Walmart a banking licence. The new bank opened its first branches in 2007. "Mexico’s regulatory approach is to encourage bank competition as a means of increasing financial inclusion through the provision of additional banking service options," says Horan. "When the government invited Wal-Mart to set up a bank, it signalled to the Mexican banking industry that it wanted a more inclusive banking regime. Wal-Mart’s retail presence across Mexico, as opposed to the incumbent banks’ concentration in urban areas, and its general ‘value-priced’ positioning were seen as contrasting with the more exclusive distribution and pricing that characterized traditional banking."
In August 2011, Banco de México, the Central Bank, introduced regulation stipulating four different levels of bank account, with different limits on monthly deposits and different KYC (know your customer) requirements. The tiered structure aims to ensure provision of low-cost, basic bank accounts with simple KYC requirements to unbanked consumers, which have a low level of identification requirements. The lowest level of account, an anonymous prepaid card, requires no proof of identification, while the highest level, a traditional bank account, requires standard KYC procedures.
"The fact that this regulation eases account-opening for low-balance accounts enables non-bank institutions to set up payments businesses making money from their customers’ transactions," says Faz.
"An important driver of bancarisation is the Ministry of Finance’s mandate in 2012 that all federal government welfare payments must be paid electronically to an account with a card, instead of being disbursed as cash," says Bob Hughes, managing partner at US consultancy Bank Solutions Group.
The largest government welfare scheme is Oportunidades, which subsidises 5.8 million families, mostly in rural areas. Currently, only customers of Mexican government-owned bank Bansefi are able to receive Oportunidades deposits electronically, either through a basic prepaid card account or a Bansefi savings account with a linked debit card. Speaking in April 2012, Ignacio Deschamps, chairman of the Mexican Banking Association’s (Asociación de Bancos de México/ABM) Financial Inclusion Committee, said that 85% of Oportunidades recipients were being paid electronically either through prepaid cards or debit cards.
"The Mexican government says it wants to open up the prepaid welfare card market to other banks apart from Bansefi," says Bertrand Sosa, president of US-based prepaid card program manager Rêv Worldwide. "Rêv will work with Mexican banks to enable them to pay government benefits to prepaid cards and mobile wallets."
Mobile payments
With 95 million cellphone subscribers, Mexico provides significant opportunities to use mobile devices to increase financial inclusion. "Offering mobile banking to the unbanked is viable, as there is such a high cellphone penetration in Mexico," says Alford.
In September 2012, Banorte, Mexico’s third largest bank, and Rêv announced the nationwide availability of MiFon, a MasterCard-branded general-purpose reloadable (GPR) prepaid card which has a mobile payments capability. The nationwide launch followed a trial in Santiago Nuyoó, a remote village in the Mexican State of Oaxaca, which Banorte, Rêv, and Telecomm Telégrafos began in January 2012. MiFon is based on Rêv’s mobile payments and prepaid card processing platform.
Consumers can use their MiFon account to carry out mobile person-to-person transfers via SMS, including payments to merchants, and bill payments. Banorte leverages its correspondent relationships with Telecomm Telégrafos and 7-Eleven to provide facilities for customers to deposit and withdraw funds from their MiFon accounts. Currently, customers can only open MiFon accounts and obtain MiFon cards at Telecomm Telégrafos stores, although Banorte plans to offer MiFon cards from 7-Eleven stores as well during 2013.
"What we offer in MiFon is a level-two bank account, which requires customers to provide their name, place and date of birth, and residential address," says Miguel Valero Cañas, the Banorte director responsible for MiFon and for the bank’s correspondent agent network. "We’ve noticed that people living in cities use their MiFon card heavily for purchases and for ATM withdrawals, while customers in rural areas use their MiFon mobile account to make purchases, and to pay utility bills such as cable TV and electricity. This means they don’t have to travel to the utility company’s office to pay their bill. Also, people in rural areas are using MiFon to build up savings, instead of keeping cash at home."
"Banorte is seeking to grow bottom-up by focusing MiFon on rural and provincial customers rather than urban segments," says Faz. "Its close partnership with Rêv brings the added advantage of flexibility to tailor products to fit consumer demand. The data from the Santiago Nuyoó trial showed MiFon adoption rates of over 30%, with customers using their mobile accounts for savings and P2P transfers."
"I think 10-15% of the Mexican population can be brought into the financial sector through bancarisation efforts such as MiFon," says Roy Sosa, Rêv’s CEO. "A lot of companies are looking at entering the Mexican prepaid card market, and this can only help improve bancarisation."
"We aim to migrate MiFon customers to a higher level of Banorte bank account, and cross-sell micro-insurance and micro-loans to them," says Valero Cañas. "Cross-selling is necessary to make this segment profitable for Banorte. We also plan to offer electronic disbursement of government welfare payments to MiFon accounts, and will be carrying out a benefits payment trial with the government in the next three months."
In addition to its MiFon partnership with Banorte, Rêv is working with Banco Agrofinanzas to provide micro-merchants in rural areas with a mobile card acceptance device called Rêv COIN which fits into a cellphone. The initiative is intended to increase card acceptance among previously cash-only merchants.
"Offering mobile banking to the unbanked is viable, as there is such a high cellphone penetration in Mexico."
Mike Alford, CEO of Alaric.
Transfer
"MiFon works with any Mexican mobile operator’s handsets, and is targeted at previously unbanked consumers," says Valero Cañas. This differentiates MiFon from Transfer, a mobile banking and payment service launched in Mexico in 2012 by Banamex, Latin American mobile carrier América Móvil’s Mexican subsidiary Telcel, and Inbursa.
"Transfer is currently being marketed at customers who already have bank accounts, and it only works with Telcel handsets," says Valero Cañas. "Admittedly, Telcel is the largest Mexican mobile carrier."
"Mexican banks are getting involved in mobile payments as they want to help shape the development of the services, while mobile payment initiatives in other countries have largely reduced or omitted the involvement of banks as financial intermediaries," says Horan.
"Transfer has been getting some customer traction in Mexico, but it’s still early days for the Transfer platform," says Serge Elkiner, CEO of Latin American mobile banking and payments firm YellowPepper.
As of February 2013, Miami-based YellowPepper offers mobile banking services targeted unbanked consumers in partnership with banks in Bolivia, Colombia, Ecuador, Guatemala, and Peru. Over the last two years, YellowPepper has been building its own correspondent agent network in Mexico with the aim of offering mobile banking and payment services in the country, says Elkiner.
"We currently have 290 locations in our Mexican network that offer bill payments and airtime top-up," Elkiner says. "From March 2013, we will also sell micro-insurance though our agent locations. We will be announcing mobile banking partnerships with several Mexican banks during 2013, once they have received approval from the CNBV to use our correspondent network."
Sanborns
In November 2012, Alaric and local partner Stratus Mexico completed the installation of Alaric’s Authentic payments platform at Grupo Sanborns’ 500 department stores and pharmacies in Mexico and Central America. In Mexico, Sanborns provides correspondent agent services for Inbursa, which, like Grupo Sanborns and América Móvil, is owned by Mexican entrepreneur Carlos Slim Helú.
"Sanborns is one of three banking correspondent clients that we have in Mexico," says Alford. "It uses our platform to process correspondent agent transactions at the point-of-sale, as well as credit and debit card purchases and Sanborns loyalty and gift card transactions. In total, Sanborn handles 43 different services at its 10,000 POS terminals, including payment for airline tickets, credit card bills, insurance, utility bills and mobile top-up."
In addition, Authentic processes all payments arising from Grupo Sanborns’ e-commerce sites.
All the transactions taking place at Sanborns’ POS terminals go through Alaric’s gateway, which routes them to the appropriate destination. "For example, we route credit card or debit card payments to the issuer, and correspondent agent transactions to the bank," says Alford.
"People prefer to get cash from a Sanborns store even in Mexico City, rather than use an ATM in the street," Alford adds. "They feel safer getting cash from a retailer, rather than risk being robbed at an ATM."
Scotiabank enters Mexican microfinance market
In August 2012, Scotiabank bought Mexican micro-lender Crédito Familiar from Banamex, completing the acquisition in December 2012. Crédito Familiar, which was founded in 1996, has 246 branches across Mexico. The firm, which was acquired by Banamex in 2007, has 145,000 customers with an average loan size of US$1,500.
Scotiabank’s acquisition of Crédito Familiar is part of the Canadian bank’s strategy to focus on consumer finance and microfinance in emerging Latin American markets. "We believe there’s a lot of potential for synergies between our consumer finance and microfinance and retail businesses as customers succeed and their need for banking services grows," Troy Wright, Scotiabank Mexico’s president and CEO, said in a statement.
In 2012, as part of Scotiabank’s focus on consumer and microfinance, it created a specialized divisional segment team, based in Peru, to manage its consumer and microfinance businesses across the Caribbean and Latin America.
Mexico – key facts
Estimated population, July 2012 – 115 million*
Population below poverty line – 51.3%*
Est. 2012 unemployment rate – 4.5%*
Est. 2012 per capita GDP (purchasing power parity) – US$15,300*
Microfinance loans to GDP – 0.17**
Consumer loans to GDP – 4%***
Sources: * CIA World Fact Book. ** Deutsche Bank and Mix Market. *** Deutsche Bank and Banco de México.
Mexican payments data, Q3 2012 ending 30 September 2012
Total credit cards in issue – 25.19 million
Total credit card accounts – 13.04 million
Total debit cards in issue – 104.04 million
Total debit card accounts – 44.01 million
Total ATMs – 40,077*
Total ATM transactions – 348.55 million
Value of ATM transactions – MXN 539.83 billion
Total POS transactions, credit/debit cards – 375.33 million
Total value of POS transactions, credit/debit cards – MXN 226.53 billion
Source: Banco de México. * Includes 16,468 non-branch ATMs.
Mexican banking correspondent agent networks, 2011
Sears Roebuck de México – 92
Suburbia – 93
Others (11 networks) – 94
Diconsa – 95
Sanborn Hermanos – 164
Tiendas Comercial Mexicana – 204
Tiendas Chedraui – 223
Radio Shack de México – 223
Blockbuster de México – 324
Operadora VIPS – 372
Tiendas Soriana – 563
Coppel – 916
Farmacias Guadalajara – 949
Farmacias Benavides – 1,065
Banamex Aquí – 1,143
7-Eleven México – 1,328
Telecomunicaciones de México – 1,597
Nueva Wal-Mart de México – 1,662
OXXO – 9,964
Total banking correspondent agents – 21,071
Source: CNBV
Mexican banks working with correspondent agents, 2011
Banco Afirme
American Express
Banamex
Banco Walmart
BanCoppel
Banorte
Bansefi
BBVA Bancomer
Compartamos
HSBC
Inbursa
Invex
Monex
Santander
Scotiabank
Source: CNBV
