Traditionally, the provision of personal financial services (PFS) in Mexico was dominated by large universal banks. But in 2003, a new concept was launched under the name of Banco Azteca: a regulated entity, built on top of a retailer, specializing in fulfilling the financial services needs of the lower income brackets. Last year, six new “pure PFS” banks were authorized in a country with less than 40 institutions. LatinFinance, Fiserv and Akya brought together leading corporates, bankers and regulators to discuss the changing landscape for personal financial services in Mexico.
Moderator – Daniel Resindez, AKYA: I am continually surprised by Banco Azteca’s growth figures, and this year the National Banking Commission reported that it had more accounts than [traditional bank] BBVA Bancomer with around 11.7 million. Can all this activity be explained by the fact that Mexico is an under-banked country?
Pedro Guazo, Bansefi: We have always thought that Mexico is very under-banked, and I see this issue in two dimensions. One is the amount of people who have access to financial services, and two is how many different financial services these people can access. Today, we can see that many more people have access to very basic financial services – a savings account, a credit card, a pay slip – but the portfolio of products is still relatively low. We think this process needs to go deeper so that financial services reach all economic sectors, including low income, but also that these people have access to financial services that will help them throughout their life cycle, like long-term investments, mortgages and pensions.
José A. Miramontes, Banco Azteca: Certainly when we launched the bank we were starting from a view that Mexico’s economy was severely under-banked in various ways. With regard to the cost of the banking system’s assets as a percentage of GDP it is definitively one of the lowest in Latin America – we are talking about levels of 27 or 28 percent. And banking penetration is also low. Traditional banks have been focused on the middle and upper-income brackets that make up around 15 percent of the population, while we saw a huge opportunity in the remaining percentage.
I would add that Mexico was also under-banked with regard to the banking culture of the population. All of these people who did not have access to formal, personal financial services were initially even scared to use them. The image that a lot of people in the low-income bracket had of the traditional bank was of this ivory tower institution that was almost impossible to enter and where, in many cases, their accounts were de-activated if they fell below a certain level.
Moderator: How important is this issue of educating people with regard to banking?
Manuel Campos, Su Casita: Technology is indispensable… but the principal challenge is educating people who have not previously had access to credit. And another important point is to learn from what happened in the United States, where exuberant competition was part of the excess.
José A. Miramontes, Banco Azteca: At the end of the day, if we want the clients we must be prepared to educate them, and if we want to keep them we must make them an attractive offer, such as reduced operating costs, which will allow us to maintain a reasonable operation. It is very important to transform a market that is by nature transactional into a relational market, and the education of clients is vital to this.
Miguel Angel Garza Castañeda, National Banking Commission: The [banking] culture will come. What is also important are the banking practices and credit practices that are being promulgated.
Moderator: Following the success of Banco Azteca, other similar operations like Banco Famsa, Banco Wal-Mart, BanCoppel, Banco Facil and Banco Compartamos have emerged on the market. Is there room for two, three or four more 11 million-client banks in Mexico? Or is it not indeed necessary to achieve that scale to generate sustainability and robustness?
Julio Carranza, BanCoppel: I think there is room in the market for everyone. In Mexico today there are 39 banks. So if you compare this with the United States where, even though the conditions are totally different, there are more than 8,600 banks, there are definitely opportunities here. I think we are far from saturation. As people learn to use credit we must expect a rise in non-performing loans. This is simply part of the learning process we are all going through, including the traditional banks, because nobody attended to this [under-banked] market previously.
Miguel Angel Garza Castañeda, National Banking Commission: Evidently there is space for a few more institutions, but the specific conditions of Mexican society would probably only allow for 10, 15 or 20 more institutions. However, I am plucking these numbers out of the air, as it could as easily be two or five. We are returning once again to the so-called “specialized bank”.
Julio Carranza, BanCoppel: We are going to have to pay the cost of the learning curve, but there are things we can do as a banking system and as a country to mitigate the impact. If one looks at the development of any industry there are always casualties and this is part of the cost of serving a market. Although this does not mean we must be timid about approaching this market because the opportunities are there.
José A. Miramontes, Banco Azteca: The fact that there are new competitors makes us feel less alone in this market, and therefore we can really push for more regulatory initiatives than when we were the only ones in the sector. We had to create our own credit records, along with other participants in the popular sector, to give us a better idea of the risks that we faced in this market.
Moderator: What role does technology have to play in this new banking landscape?
José A. Miramontes, Banco Azteca: Our strategy is to offer the people [in lower-income brackets] the same range of services that any other person from any other social stratum has access to, as well as putting a lot of emphasis on technology. A critical variable is being able to keep operational costs down, and the only way to do this is in a large operation is the widespread use of technology.
Pedro Guazo, Bansefi: In fact this type of technology is already here in Mexico. The Bank of Mexico has developed an application that means one can make bank transfers via cell phone using this system. Next January, the Bank of Mexico will be launching a big publicity campaign on all the banks that have implemented this model in order to promote it.
Moderator: What are the other main challenges for this new banking model?
Carlos Danel, Banco Compartamos: What is happening in the financial sector, whether it be via the model of the shop/bank or the micro-credit model, is the application of non-traditional forms of banking and offering financial products. And this “disruptive technology” is coming from non-traditional sectors of the industry and has, to a certain extent, broken the barrier for providing financial services to low-income sectors of the population. The challenge is to continue developing such low-cost models to try to attend to these clients with a transaction cost that is low enough to be financially viable.
Manuel Campos, Su Casita: Interaction with the client has become easier. The cost of transaction, which was what made it difficult to attend to clients in the lower-income brackets in the past, has been reduced.
Julio Carranza, BanCoppel: This segment of the market needs to be treated in a different way than has traditionally been the case. I think it is much more expensive because you need to have more direct contact with the clients. In order to know the clients better, you need high investment in technology, and thus better able to serve this market. And in Mexico I think we are also going to pay the cost of a learning curve in this new market.
José A. Miramontes, Banco Azteca: We envisage that in the future the following three demographic sectors will stand out in Mexican banking: young people, those in low-income brackets and those with no experience of credit. And it is by focusing on these three demographic variables that we need to construct a banking model for the future.