In recent years, Mexico’s credit card market, currently valued at about $6.9bn, has boomed, growing by about 40% a year since 2001, according to the Association of Mexican Banks. To date, credit card activity in Mexico is second only to Brazil in Latin America. At the end of 2003, nearly 10 million cards were in circulation in a nation of around 100 million, with the average purchase at about $55, say officials.
Untapped market
For credit card issuers, the target is clear: the still largely untapped universe of Mexican consumers, preferably those with some credit history and a disciplined record. And with plenty of room for growth, competition is becoming fierce. In rapid fire, banks have linked up with every imaginable promotional outlet in Mexico, from elite universities and airlines to non-profit groups and the most beloved soccer clubs.
Most promotions are standard, with interest-free payment periods and airline mileage plans. Some are Mexican-specific but there are also the “bi-national” cards, which facilitate money-transfers and purchases between Mexicans and their relatives living in the US.
In September 2004, Santander Serfin launched a service with its most elite credit card that protects against losses incurred if a customer is “express” kidnapped (when the victim is forced to use an ATM or buy big-ticket items with their credit card). “We’ve had some kidnapping reports, but it’s not reaching a concerning level,” Jorge Alfaro, head of consumer credit for Santander Serfin in Mexico, told The Banker.
Beyond banks
Realising that many Mexican shoppers still lack credit history or even a bank account, retailers are joining in – and faring well. Higher-end Mexican department stores like Liverpool and Palacio de Hierro, along with more mainstream retailers like Wal-Mart, now offer their own cards. In the case of Liverpool, more than half of all purchases in its stores are made with its proprietary credit card.
“Mexico’s credit card market is becoming very competitive and very dynamic,” says Ignacio Deschamps, general director of retail banking in Mexico for Spain’s BBVA Bancomer. “You’re seeing new product development and new customer acquisition at a fast rate.”
Ignacio Deschamps, general director of retail banking in Mexico at BBVA Bancomer
BBVA Bancomer claims about 32% of the market share and trails the market leader, Citigroup-controlled Banamex, which controls about 40% of the market, according to the National Banking and Securities Commission, Mexico’s banking and securities regulator.
Market reform
To boost competition, Mexico’s central bank chief, Guillermo Ortiz, issued rule changes that took effect on January 1. They require Banamex and BBVA Bancomer, the two banks that dominate the credit card market, to open their payments systems (which they set up and run together) so that customers can swap their balances to credit cards issued by other banks. The US introduced a similar rule about 10 years ago but in Mexico the concept of balance transfers has been largely restricted to paying utilities and phone bills.
It is a restriction, argues the central bank, that has stunted credit card growth. “The change will force banks to be on their toes and to maintain a strong and solid customer base,” says Daniel Greaves, executive director of credit cards for Banorte, the only major, fully Mexican-owned bank.
In the past, when Santander Serfin customers wanted to settle debt with Banamex or BBVA Bancomer, Santander Serfin would send street messengers to hand-deliver payments to the branches, explains Mr Alfaro. Santander Serfin, which sells about 65% of its credit cards through its telemarketing drives, says it will wait, along with HSBC and other banks, to tap the payment-swapping option once it goes electronic – this is expected to happen later this year.
Improving rates
Mexican authorities also hope that the changes will knock down loan rates and boost consumer spending. It helps that the country’s inflation rate, which was moving up in 2004, in now in decline. This means that monetary officials will loosen up their policy and stop raising the overnight interbank rate, which was 8.7% in January, up from 5.5% in February 2004.
Currently, the interest rate that both Banamex and BBVA Bancomer charge for their standard credit card hovers at about 38%. However, rates can go as low as 17% for premium customers with a sparkling credit history. Although these rates are astronomical compared with the average US rate of 14%, they represent a steep drop from nearly 70% in 1998.
Despite efforts to get Mexicans to use plastic, cash is still king, particularly among poorer households. And many Mexicans believe that credit cards should be for emergencies only.
To target nervous and lower-income newcomers, a number of banks now offer cards with fixed payments. Here, the typical target customer would be the head of a family that earns between $200 and $400 a month – a category that includes about 15 million Mexicans, says BBVA Bancomer. It also helps that more lower-income customers are using debit cards for day-to-day transactions, a trend that makes newcomers more comfortable with plastic in general.
Branching out
The drive is also on to increase the point-of-sale (PoS) stations for credit cards, and thus boost usage. Bank executives say that most credit card holders can be found in Mexico City (45%), the country’s megalopolis, followed by Monterrey (15%) and Guadalajara (10%).
“In small villages, you don’t have many acceptance points,” says Mr Alfaro. “So we’re working with the government and the banking association to increase the PoS significantly.” The number of PoS terminals could increase from 150,000 to 450,000 within about three years, Mr Alfaro says.
The overall outlook for Mexico’s credit card market is that it will continue growing at a strong rate as long as the country’s economy stays healthy. For now, Mexico appears a safe bet. Its economy is closely tied with the US, its biggest trade partner, inflation and exchange rates are steady, and consumer spending is strengthening. This year, the economy is expected to grow by a respectable 3.8%, down a notch from the 4% expansion estimated for 2004, says the finance ministry.
As anybody who follows emerging markets knows, a positive economic scenario can turn sour fast. To protect themselves from an economic roller coaster and the credit-card delinquencies that could result, banks are being cautious and still not lending large amounts to riskier customers. “We also have a large network of collection centres and the country’s biggest branch network,” says Mr Deschamps. “I think we could react quickly, if we needed to, in order to manage risk.”
