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Retail Banking
in Mexico
An Industry Outlook
Selected
Information
about Retail
Banking
April 2015
Index
Introduction .............................................................................................................................................................. 3
Mexican Economy .................................................................................................................................................... 4
Inflation..........................................................................................................................................................................4
Trade Balance ................................................................................................................................................................ 5
Competitiveness.............................................................................................................................................................6
Mexican Banking Overview ...................................................................................................................................7
Profitability ................................................................................................................................................................... 8
Solvency .........................................................................................................................................................................9
Government Debts ...................................................................................................................................................... 10
Exchange Rate and Int. Reserves ............................................................................................................................... 11
Credit Risk ................................................................................................................................................................... 12
Non-Performing Loans ............................................................................................................................................... 13
Performing Loans ........................................................................................................................................................ 14
Regulations and Institutions....................................................................................................................................... 15
Hot Topics ................................................................................................................................................................ 16
Correspondent Banking .............................................................................................................................................. 16
Payment Methods ........................................................................................................................................................ 17
Financial Inclusion ...................................................................................................................................................... 18
Mobile Banking ............................................................................................................................................................ 21
Digital Currency .......................................................................................................................................................... 24
Credit Card Fraud ........................................................................................................................................................25
Financial Reform ........................................................................................................................................................ 26
Technological Innovation ........................................................................................................................................... 28
Mexican Banking Forecast .................................................................................................................................. 29
Overview ..................................................................................................................................................................... 29
Future Priorities ......................................................................................................................................................... 30
Megatrends .............................................................................................................................................................. 31
Summary ...................................................................................................................................................................... 31
Shift in Global Economic Power ................................................................................................................................ 32
Technological Breakthroughs .................................................................................................................................... 33
About KC ................................................................................................................................................................... 37
Reach us .................................................................................................................................................................... 38
Retail Banking in Mexico
PwC Mexico
2
Introduction
Mexican economy is the 11th largest in the world in regards to its GDP (in purchasing power parity) and the
second largest in Latin America1. The country is entering a post-financial crisis recovery, which is visible in the
increasing lending and deposit figures in its banking system. Over five years after the global crisis, the banking
sector in Mexico has been maintaining its financial and operating strength making possible a healthy expansion
of credit.In 2013, the country had 22 financial groups, 46 multiple banks and six development banks operating.2
Retail banking is a main component of the banking industry, focusing on individual costumers’ credit and
giving them the necessary liquidity to purchase in order to keep the economy engines working. Additionally,
retail banking provides a place for consumers to deposit money in saving accounts, certificates of deposit and
other financial services such as: checking accounts, mortgages, personal loans and debit/credit card.
In this report, we begin with giving an overview of the Mexico’s retail banking system, followed by a section
about the profitability, solvency, credit risk, and performing & non-performing loans in the Mexican banks
during the past years. Furthermore, five hot topics are explored in this report: mobile banking, credit card
fraud, alternative payment systems (i.e. bitcoin), the Mexican financial reform, and the innovation in the sector.
Mobile banking is currently a bet that most major banks are taking, since it has the potential to provide access
to banks to an otherwise left-out sector of the population, as well as having several other benefits. On the other
hand, other crucial challenges Mexico’s banks have to face are:
 Credit fraud, considering the growing amount of credit/debit cards in the country; banks need
to tackle the insecurity associated with these cards in order to please their customers.
 The financial reform presented in 2013 and ratified in 2014, will affect both banks and their users in many
ways, such as: improving the loans access, lowering interest rates, and enhancing banks protection against
non-payment. The changes in legislation, aimed to modernize the country’s financial systems and
consequently, will be one of the main forces behind the Mexican economy growth.
 The main innovation & technological developments in the industry.
The forecast section contains projections on the overall health of the banking system for the following years,
mainly on its growth and profitability expectations for the medium- and long-terms, which is tightly connected
with the Mexican macroeconomic outlook in the following years. At the end of this publication you will find the
megatrends that influence the future of the industry such as the shift in economic power and technological
breakthroughs.
1
2
IMF
CNBV
Retail Banking in Mexico
PwC Mexico
3
Mexican Economy
Mexico, the second largest economy in Latin America, has remained resilient to the U.S. slowdown and the
financial turmoil from Europe. Although the country is closely integrated with the U.S. industrial production
sector and international capital markets; its strong fundamentals, sound policy frameworks and management,
have resulted in favorable financial conditions that have supported the national economic activity. Since the
economic downturn in 2009, the economy has managed to keep a steady but slow growth percentage. However,
as predicted , 2013 signified a fall down on the GDP growth pace when it reached only 1.1 %.After this
slowdown, the first quarter of 2014 followed the same trend, forcing to adjust the growth projections for this
year down to 2.5%. Nonetheless, the economy is expected to recover in the years to come due to its strong
manufacturing exportation products and public spending, as well as an increasing domestic demand.
Additionally, an enhancement in the private investment (mainly in the infrastructure and energy sector) will
give the final boost towards an economic recovery path. 3
Key Mexican Indicators, 2008-13
2008
2009
2010
2011
2012
2013
14,030
13,780
14,590
15,650
15,910
16,110
114.97
116.42
117.89
119.36
120.85
122.33
1,099,073
895,313
1,035,071
-1,051,627
1,186,460
1,260,914
GDP growth (annual %)
1.19
-5.95
5.28
3.89
3.92
1.1
Life expectancy at birth,
total (years)
76.2
76.5
76.7
76.9
77
n/a
GNI per capita, PPP
(current international $)
Population, total (in
millions)
GDP (current US$, in
millions)
Source: World Bank
Inflation4
Mexico has an established permanent goal for annual inflation, setting it at 3%. Since the late 90’s, inflation has
hovered around those levels, with a variability of ~1%. In 2012, inflation was at the highest levels seen in the
past years with 4%; this was a consequence of temporary shocks that particularly affected the price of
agricultural products and other goods. These shocks began to lose force during the last trimester of the year,
which led to declination up to 3.5% at the end of the year.
By December 2013, this indicator was 3.9%, and the annual underlying inflation (an indicator of the mediumterm tendencies of general inflation) reached an average of 2.6% during the last quarter of 2013. The most
updated data on inflation in 2014 was in September, reporting an average of 4.2%. Non-underlying inflation in
2013 had an annual variation of 7.8% with wide fluctuations throughout the year given the increments on the
prices of some products and services belonging to this index (agriculture products and government’s authorized
rates).
3
4
WorldBank
IMF& Banco de México
Retail Banking in Mexico
PwC Mexico
4
In the last quarter of 2013, the average annual variation of energy prices and government authorized rates was
8.5%, slightly higher than 8.3% reported during the same period in the previous year. This upward trend came
as a result of price changes of fossil fuels, the standardization of VAT on electricity rates in border cities, and the
increased rates of public transport in some areas. The most updated data of inflation in 2014 was in September,
reporting an average of 4.2%.
Mexico’s Inflation, Consumer Price, (annual % ), 1999-14
16
14
12
%
10
8
6
4
2
0
1999
2000
2001
2002
2003
2004
General Index
2005
2006
2007
2008
2009
Underlying
2010
2011
2012
2013 sep-14
Non-uderlying
Sour Source: Banco de México
Trade Balance5
Overall, the Mexican economy has seen a moderate growth since 2010. The total amount of 2013’s exports &
imports was 380,027 and 381,210 million USD respectively. In September 2014, the economy had 294,006
million USD in exports and 295,768 million USD in imports. Historically, the most important trade partner for
Mexico is and has been the United States, representing in 2013 over 78% of all the export destinations,
followed by the European Union (5.2%). As for the import destinations, the United States is the strongest
partner with a share of 49.1 %, only followed by Asia with 31.3%.
Mexican Export & Import Destinations (%), 2013
Mexican Export & Import (USD),
2010-2014
North America
European
Union
31.3%
294,005.9
295,768.1
380,026.6
381,210.2
370,769.7
370,751.6
349,433.5
350,842.8
298,473.2
301,482.0
4.9% 3.2%
5.2%
3.3%
5.2%
Imports
51.7%
Asia
2.5%
11.2%
81.5%
2010
2011
2012
Exportation
2013
South
America
Other
sep-14*
Importation
Exports
Sour Source: Banco de México
5
Sour Source: Banco de México
Banco de México
Retail Banking in Mexico
PwC Mexico
5
Competitiveness 6
Mexico moved down to the 55thplace (out of 148 places) in the World Economic Forum’s 2013-2014 Global
Competitiveness Report, compared with the 53rdposition achieved in the previous year. Despite this overall
position downward, the country persists to place itself in the top positions within competitiveness strengths,
such as its large and deep internal market (11th), a sound macroeconomic framework (49th), a practically good
transport infrastructure (39th), and properly sophisticated businesses (55th). Moreover, following the Pacto for
Mexico agreements, there will be measures taken to improve the labor market and education as well as in the
goods and service market.
Aside from these strengths, Mexico has a long way to enhance its general competitiveness. The functioning of
public institutions and the fight against corruption is one of the biggest issues faced (99th), that is also
associated with the increasing levels of insecurity (135th). Furthermore, the labor market is among the most
rigid worldwide (99th), having its origin in a poor-quality educational system (119th), which leads to a poor
domestic competition (100th).
Finally, Mexico’s innovative potential sees its largest weakness on the relatively low use of ICT (Information
and Communication Technologies) (83rd), decreasing its already lagged innovation capacity (75th).
The main problem when it comes to doing business in Mexico, as pointed out by the WEF’s survey, is
corruption.
Main problems when doing business in Mexico, 2012-13
Corruption
18
Crime and theft
14
Inefficient government bureaucracy
13.9
Tax regulations
10
Access to financing
9.9
Restrictive labor regulations
7.5
Inadequate supply of infrastructure
6.7
Tax rates
4.6
Insufficient capacity to innovate
4.5
Inadequately educated workforce
4.2
Poor work ethic in national labor force
2.8
Policy instability
Inflation
1.5
0.8
Poor public health
0.6
Government instability/coups
0.5
Foreign currency regulations
0.3
% of responses
Source: WEF
6
WEF
Retail Banking in Mexico
PwC Mexico
6
Mexican Banking Overview
7
Given the improving funding costs and higher spreads, the Mexican banking system continues to have upward
incomes and margins, although it still has to deal with rising credit costs and lower interest rates. The growth
pace in traditional deposits and consumer credit is tightly related to the overall economic outlook. The
increasing acceleration in the two indicators previously mentioned, can be seen closely related with the
Aggregate Economic Activity Index (IGAE).
In April 2014, the IGAE picked up to reach 2.9%, 2.4 points higher compared to the same period in 2013.
%
Mexican Interest Rates (%), 2010-14
8
7
6
5
4
3
2
1
0
Money Market Rate
Lending Rate
Deposit Rate
Treasury Bills
Government Bonds
Source : IMF
The forces behind the enlargement of this sector are associated with cautious policies taken by banks and as
mentioned before, the national economic situation and its stable inflation, ascending GDP and descending
public debt. Moreover, these encouraging results found its source in the lower provisions, higher trading profit
and the above average loan growth to consumers and government institutions.
The Mexican Government, searching for a way to increase economic growth, initiated in December 2012 a
banking reform with the purpose of making a credit to be more accessible and lower coasted.. The restructured
banking law was finally signed in January 2014 by the President Enrique Peña Nieto, and is expected to
improve competition between banks, as well as encourage the credit access, extend lower rates and open room
for flexibility.
Mexican Banking Consumption Credit (million MXN) & IGAE
(index), 2008-14
110
600,000
109.7
539,908
366,251
400,000
MXN
2008=100
500,000
105
100
300,000
98.6
95
200,000
IGAE
Credit Consumption
Source: Banco de México & INEGI
7
Mergent,IMF,Banco de México& INEGI
Retail Banking in Mexico
PwC Mexico
7
Profitability8
Despite the slowdown in the growth rate of the Mexican economy between 2013 and early 2014, credit has seen
a boost with the newly recovered jobs and consumer spending, going from a record credit growth downward of
4.5% in 2013 per year in real terms to an improved 4.9% in April 2014 and 5.6% in May 2014.As for deposittaking, it grew at annualized real rate of 9% in April and 8.1% in May. The overall economy recovery has given a
pushup to the banking market, as it translates into more funds channeled into the banking system via deposits
products.
There are 46 bank entities in the retail banking sector in Mexico, generating earnings of 104,384 million MXN
in the last quarter of 2013.This represents an increase in comparison with the same period in 2012 when its
accounted revenue was 8,689 million MXN.
The profitability relatively to the assets of this sector had a steady percentage since 2010 until the first half of
2013. It had a remarkable upsurge between the first months of 2013, reaching its highest peak in September
with 2.2%. Additionally, its return over equity followed the same increasing trend, going from 14.1% in
September 2012 to 17% in the same month in 2013. However, its uttermost percentage since 2009 was achieved
between last quarter of 2013 and the second of 2014 with 21% and 19.5% respectively.
Return Over Assets of the Mexican banking sector (%), 2008-14
4
2.9%
3
%
2.2%
2
1
1.1%
0.9%
0
Source: CNBV
Return Over Equity of the Mexican banking sector (%), 2008-14
25
20.9%
21%
20
%
15
10
10.5%
5
7.6 %
0
Source: CNBV
8
CNBV
Retail Banking in Mexico
PwC Mexico
8
Solvency9
By August 2014, the banking industry in Mexico presented a capitalization index of 15.8%, which was less than
the one observed a year before during the same month (16.2%). While capitalization indexes are much higher
than the minimum required by regulation, banks could increase their capital base to maintain the dynamism
seen in the last two years. In the medium-term, due to the Basel III regulations, banks are forced to substitute
circulating subordinate obligations, which they can easily do in part to their solid utilities.
On the other hand, there is a noticeable declination in the Liquidity and Operational Efficiency indexes since
2012. In the case of Operational efficiency, the last reported percentage in September 2014 was 3.3%, a
declining figure in contrast to the first quarter of 2012 (3.8%). But one of the most noteworthy changes
throughout the years are seen in the liquidity index. Unable to fully return to its stage before the financial crisis,
it decreased from an 80% during the first quarter of 2009 to 25% in the third quarter of 2014.
Mexican Capitalization index (%), 2011-14
18
17
16.8%
15.8%
%
16
15
15.3%
14
Source: CNBV
Operational Efficiency of the Mexican banking sector index, 2008-14
6.0
5.5
%
5.0
4.7%
4.5
4.0
3.3%
3.5
3.0
3.2%
Source: CNBV
9
CNBV
Retail Banking in Mexico
PwC Mexico
9
Government Debts10
The total public sector debt in 2013
represented 38.3% of the GDP, which
Mexico Public Sector Debt (million MXN),
means this ratio has increased
2011-14
approximately by 2% in comparison
with the previous year11.
Throughout 2013, the total financial
obligations of the public sector
signified 36.4% of the GDP (5,891
4,278.9
billion MXN), and the biggest debt
3,801.9
concentration was placed within the
3,633.7
3,015.6
internal debt, accounting for 28.6% of
the GDP. On the upside, these figures
remain at low levels in contrast with
the international context where there
1,614.6
1,587.9
1,731.9
1,897.2
are countries with a public debt
2011
2012
2013
Aug-14
overpassing 100% of their GDPs.
The projections set a long-term
External
Internal
positive outlook, following the peaking
point of debt in 2015 with 41% of the
Source: Banco de México
GDP in 2015, debt levels are
forecasted to decline to 38% by 2019.
Government debts are “a debt security issued by a government to support government spending, most often
issued in the country's domestic currency. Government debt is money owed by any level of government and is
backed by the full faith of the government”.12 Mexico divides its bonds in UDIBONOS, CETES, BONDES D and
BONDS, which translated into a total government bond value of 5,543,800.5 investment units by October 2014.
Mexican Government Bonds in circulation each December (millions of investment units),
2008 – 2014
Years
UDIBONOS
CETES
BONDES D
BONDS
Total Government
Values
2007
59,834.3
359,443
354,886.6
941,534.7
2,028,700.9
2008
80,043.9
377,185.6
434,234.2
1,111,978.4
2,316,327.2
2009
100,011.0
518,971.5
469,552.4
1,248,634.1
2,691,822.3
2010
117,480.9
565,116.7
400,754.1
1,494,540.1
2,992,165.6
2011
138,160.9
705,609.1
701,716.9
1,638,841.9
3,694,120.3
2012
154,854.4
822,570.8
912,492.7
1,810,428.0
4,300,348.2
2013
177,668.8
964,019.1
1,067,452.4
2,034,372.0
4,964,622.2
oct-14*
211,395.9
964,973.8
1,135,380.1
2,344,464.8
5,543,800.5
Source: Banco de México
10
Banco de México
SHCP
12 Investopedia
11
Retail Banking in Mexico
PwC Mexico
10
Exchange Rate and
International Reserves13
FIX Exchange Rate ( MXN per USD), 2010-14
After the
period of asset purchases
16
finished in October 2014, it is time for
markets to focus on rising federal fund
15
rates; therefore, it is forecasted that the
14.3
exchange rate by the During the same
14
period the international reserves were
13.4
upward to 191,717 million USD due to the
13
13
sale of USD from PEMEX to Banco de
México for 1,500 million USD.
Since 2011, there have been several events
12
which have affected Mexico’s exchange
11.5
rate and international reserves, such as:
11
 The uncertainty generated by Greece’s
debt renegotiation.
 The United States’ higher than
Source: Banco de México
expected growth in 2012.
 During the second trimester of 2012, the value of the peso dropped to levels not seen since 2009 due to
unfavorable economic situations in both the United States and Europe.
 In 2014, the tensions evolving the Ukraine crisis augmented the volatility of the exchange markets
worldwide.
MXN per USD
Fed’s14
Mexican International Reserves (million USD), 2008-14
Years
PEMEX
Net International Net International Net International
Net
Assets
Reserves
Assets Net Flows
Flows
Federal
Government
Net Flows
Market
Operations
Other
Net
Flows
2008
95,231.7
85,441
6,492.1
817.7
3,155.9
-797
3,315.5
2009
99,870.1
90,837.8
9,154.7
-295.1
10,290.3
-261
-579.6
2010
120,620.5
113,596.5
3,174.6
3,124.7
-742.4
501
291.4
2011
149,242.3
142,475.5
2,020.5
1,362.7
1,385.6
-
-727.8
2012
167,081.9
163,515.4
-1,238.7
-1,941.7
1,282.3
-
-579.2
2013
2,084,274.7
2,039,179.4
13,150.4
17,297.2
-425.1
-
-3,721.6
Oct 2014*
1,901,161
1,871,965.7
16,826.7
16,599
-36.2
-
264
Source: Banco de México
13
14
Banco de México
Federal Reserve System (USA)
Retail Banking in Mexico
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11
Credit Risk15
There are the following broad categories of
credit: residential, consumer, or commercial,
as well as product variations within such
categories.
Delinquency Rate
The delinquency rate index measures the share
of non-performing loans within the overall
credit portfolio16. Moreover, a credit portfolio
is considered non-performing when the users
fail to make their payments on time. This index
is one of the most important measurement
tools used in credential risk.
Subsequent to the financial crisis, the
delinquency rate oscillated between 2010 and
2012 in a range of 2.2% and 2.3%. Nevertheless,
this index augmented up to its highest levels
since 2008 with a 3.1% in 2013, same
percentage presented during the third quarter
of 2014.
Consumption credit presents the highest rates
of delinquency with 5.2% in 2013 and 5.4% in
September 2014. However, these rates are
considerably lower in comparison with the 7.9%
reported in 2008 and 2009.
The second highest delinquency rate belongs to
Housing credit with 3.7% in 2013 and 3.6% in
September 2014, being the most invariable rate
throughout the last 10 years Finally,
commercial credit has the lowest delinquency
rate levels with a steady 2.4 % in 2013 and
September 2014, an increasing percentage since
2008, though.
Line of Credit
Businesses
Financial Institutions
Commercial
Government entities
Credit Card Portfolio/Non-revolving consume
Consumption
Personal Portfolio/Acquisition of long-lasting goods
Payroll/Automotive
Acquisition of movable property/Others
Medium & Residential
Housing
Social Interest
Others
Total Mexican Delinquency Rate by Line
of Credit (%), 2008-14
3.6%
sep-14
5.4%
2.4%
3.7%
2013
2.4%
3.3%
2012
4.9%
1.4%
2011
1.5%
3.5%
4.4%
3.6%
2010
5.2%
1.3%
Housing Credit
Consumer
Credit
Commercial
Credit
4.7%
4.6%
2009
7.9%
1.3%
3.5%
2008
7.9%
1%
Source: CNBV
Coverage Rate
Another indicator used to evaluate credit risk is the Non-performing credit portfolio coverage rate. This index
reports the percentage with which the non-performing loans portfolio is supported by reserves. After its
upsurge in 2010 (188.2%), this indicator has declined to its lowest level since 2008 (169%) with a reported
127% in September 2014 and 139.8% in 2013.
Mexican Coverage & Delinquency rate (%), 2008-14
200
4
3.1%
0
16
127.6
%
2
1
0
Source: CNBV
15
139.8
178.7
182.8
188.2
50
2.3%
2.2%
162.6
100
3
2.7%
169.2
%
150
Coverage Rate
Delinquency Rate
CNBV
Banco de México
Retail Banking in Mexico
PwC Mexico
12
Non-Performing Loans17
“A loan is non-performing when payments of interest and principal are past due by 90 days or more, or at least
90 days of interest payments have been capitalized, refinanced or delayed by agreement, or payments are less
than 90 days overdue, but there are other good reasons to doubt that payments will be made in full” 18.
For multiple banking this portfolio has gone from 49,783 million MXN in 2008 to 95,120 million MXN in
September 2014. Throughout 2013, 52.7% of this portfolio credit belonged to commercial, 28% to consumption
and 19.3% to housing.
In 2008, the largest percentage of Past-due credit used to belong to consumption (53.7%); nevertheless, in the
last seven years commercial has grown up to place itself in the first place, going from 24.6% in 2008 up to
51.8% in September 2014.
Commercial Credit signified 48,036 million MXN by 2013, followed by Consumer credit with 25,547 million
MXN and Housing Credit with 17,603 million MXN, summing up a total Past-due Credit Portfolio figure of
91,186 million MXN.
Total Mexican Past-due Loans (million MXN), 2008-14
17,603
14,165
25,547
27,578
48,036
49,306
13,618
10,809
15,422
26,752
21,335
13,582
12,222
17,534
19,000
13,142
Commercial Credit
18,236
15,917
24,786
Consumption Credit
21,223
25,980
Housing Credit
Source: CNBV
17
18
CNBV
IMF
Retail Banking in Mexico
PwC Mexico
13
Performing Loans19
“Performing loans are those where the payment of interest and principal are less than 90 days past due”20.
Since 2008, this credit portfolio has increased from 1,816,583 million MXN to 2,992,215 million MXN in
September 2014. The largest percentage within Performing Loans is Commercial credit, signifying over 65% of
the entire portfolio in the last seven years. In 2013, Commercial credit held 68% (1,961,539 million MXN),
followed by Housing credit with 16.6% (478,778 million MXN) and Consumption credit with 16.2% (466,498
million MXN). As an overall outlook, the percentages of each line of credit have remained steady over the last
years.
As mentioned before, the line of credit with the largest share of performing loans is commercial credit, and
within this line, businesses has the largest figure of 1,312,677 million MXN in September 2014, followed by
Government entities (428,693 million MXN), and Financial Institutions (280,115 million MXN).
The second largest line of credit is Housing, accounting for 406,439 million MXN in September 2014 for
Medium and Residential loans, and 77,420 million MXN for Social interest loans.
Finally, the most significant portfolios within Consumption credit in the past 4 years had Non-revolving
consumer and Credit card with 349,145 million MXN and 137,725 million MXN in September 2014,
respectively.
Total Mexican Performing Loans (million MXN), 2008-14
478,778
483,860
466,498
486,871
1,961,539
2,021,485
439,799
395,646
295,890
312,274
317,835
247,852
1,208,419
1,314,884
Commercial Credit
358,926
409,082
348,870
276,155
1,416,099
Consumption Credit
1,632,330
1,821,977
Housing Credit
Source: CNBV
Mexican Performing Consumption Credit (million MXN), 2011-14
400,000
349,145
Credit Card Portfolio
326,666
350,000
Non-revolving consume
278,617
300,000
Personal Portfolio
MXN
250,000
223,410
Payroll
200,000
150,000
125,460
100,000
50,000
130,465
139,832
137,725
Acquisition of long-lasting
consumer goods
Automotive
Acquisition of movable property
0
Others
19
20
Source: CNBV
CNBV
IMF
Retail Banking in Mexico
PwC Mexico
14
Regulations and Institutions
Central bank: Banco de México (Banxico)
The Mexican central bank's role is defined by the constitution and by the Bank of Mexico
Law 1994.
Its main objective is to provide the economy with domestic currency and to keep the
stability of the currency's purchasing power. Banxico also promotes the development of the
financial system and oversees the functioning of payment systems. It runs monetary policy
to achieve an inflation target of 3%, issues notes and coins, and is the banker to the banks
and the government.
Regulatory
Institutions
Comisión Nacional Bancaria y de Valores (CNBV)
CNBV is governed by the CNBV Law 1995. The commission is the regulator of banks,
deposit-taking institutions and the financial markets.
Banking Trade Association: Asociación de Bancos de México (ABM)
The ABM, established in 1995, represents the common interests of Mexico's commercial
banking sector to the government and other interested parties. It also aims to promote
knowledge of banking products, services, accords and relevant themes.
Other
Number of Commercial Banks:
Currently there are 46 commercial banks (banca múltiple) which are members
of Asociación de Bancos de México (ABM).
These institutions make up the universe of Mexican commercial banks.
The ABM's affiliates are representative offices of foreign banks.
Retail Banking in Mexico
PwC Mexico
15
Hot Topics
Correspondent Banking 21
Correspondents are businesses and
institutions that establish business
relations with a bank to offer, on
behalf of it financial services to its
customers. However, the
correspondent bank is not a branch
and its staff is not employed by the
bank, it is a distribution channel that
the financial institution uses to make
transactions.
Regulation
With the purpose of giving the public
an easier access to the most
demanded banking product, the law
regulating Credit Institutions was
changed in December 2008, allowing
the financial institutions to provide
services through third-parties
entities. This scheme is known as
Correspondent Bank. The first
bank received its authorization to
implement this new product on the
13th of November, 2009.
Coverage of financial services (n° of municipalities),
2010-12
1,502
1,482
1,410
1,351
1,329
1,273
1,049
1,096
1,168
2010
Access to bank branches
Access to Correspondents
1,197
1,152
1,095
2011
2012
Access to ATM's
Access to POS (Point of Sale)
Source: Banco de México
Operations Performed
The services provided by banks
through correspondent banking are
mainly conducted in supermarkets, convenience stores, miscellaneous, telegraph offices, pharmacies,
restaurants, gas stations and many other establishments. The regulation allows this establishment to perform
the following operations:
• Withdraw cash, up to 1,500 UDIs 22 per day per account (approximately 6,600 MXN).
• Make deposits in cash or by check issued by the bank to bearer or third-party. The deposits can go up to 4,000
UDIs (17,700 MXN).
• Pay loans on behalf of the institution or others in cash, charged to a credit/debit card, or check.
• Pay services (water, electricity, telephone, rent) in cash or charged to credit/debit card, or by check issued by
the bank itself.
• Collecting checks issued by the bank.
21
CONDUSEF & Banco de México
The Mexican Unidad de Inversion is an index unit of funds used in Mexico. It can be traded in many currency markets because its
value changes with respect to currencies. Unlike currencies, it is designed to retain its purchasing power and not be subject to inflation. The
Mexican credit system (especially mortgages) uses the UDI rather than the peso because of its stability.
22
Retail Banking in Mexico
PwC Mexico
16
Payment Methods23
During the past years, payment methods, both online and offline have increased significantly. Although digital
buyers in Mexico only have 8% of penetration, the consumers and sellers are open to alternative payment
methods. The most frequently used online payment method is credit card, accounting for 64% of the overall
online payment. This goes in hand with the increase of number of credit card users, going from 8,394,895 in
2009 to 16,189,002 by April 2014. Nevertheless, cash continues to be an important source of payment on-and
offline.
Number of credit card users in Mexico, 2009-14
14,489,796
8,394,895
8,198,905
2009
2010
2011
15,833,076
16,119,342
16,189,002
2012
June 2013
april 2014
Source: Banco de México
The usage of cards as a payment method has considerably increased over the past years in Mexico. The average
growth from 2010 to 2014 represented 18.4%. In fact, 580 million credit/debit cards transactions were
registered for 2006 and 1,938 million for the first half of 2014. It is reported that the number of credit cards in
2013 remained 20 million, and debit cards went up to 100 million in the same year. The most widely used credit
cards during 2011 were Visa (56%), followed by MasterCard (37%) and lastly, American Express with only 7%.
In 2013, 64% of the online commerce was paid by credit cards, making it the most popular payment method in
this sector.
Other frequently used payment system for online purchases were Bank branch deposits with 12%, followed by
Electronic transfer (11%), Convenience store –cash-(9%) and others with 4% (Banwire; Pay safecard; MITE;
pago fácil).
Mexican banking system has two major issues to resolve when it comes to online shopping: fraud and data
theft. Therefore, in order to give its customer the confidence of purchasing online, some trustworthy online
payment systems have become commonly used by Mexicans.
Most Widely Used Credit Cards in Mexico
(%), 2011
Most frequently used online
payment methods , 2013
Credit Card
4%
7%
9%
11%
37%
56%
12%
64%
Visa
Mastercad
Source: AMIPCI
23
American Express
Bank Branch
Deposit
Electronic
Transfer
Convenience
store(Cash)
Others*
*Banwire; Paysafecard; MITEC; Pago fácil.
Source: AMIPCI
Banco de México & AMIPCI
Retail Banking in Mexico
PwC Mexico
17
Financial Inclusion 24
Financial inclusion is defined as “the process of ensuring access to appropriate financial products and services
needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and
transparent manner by mainstream Institutional players.”25
It has been indicated that as of 2012, the adult population (+15) of Mexico accounted for 83.3 million person,
from which 56% uses at least one formal financial service, overpassing the 50% target set by the government.
These 56% had during the same year 96.6 million savings accounts and 32,5 million credit accounts, translation
into 1,159 saving accounts per 1,159 saving accounts per 1,000 adults, and 390 credit account per 1,000 adults.
In addition, it was reported that Mexico had 1,360 financial branches, 23,626 banking agents, 40,609 ATM’s
and 621,628 point-of-sales (POS). This accounts for 18.4 financial branches per 100,000 adults, 48.7 ATM’s per
100,000 adults, and 745.7 POS per 100,000 adults.
As for country financial services coverage, there are 2,455 municipalities in Mexico, and 1,793 of them had
access to at least one access point (branch, banking agent, ATM or POS).
One of the most recent and successful measures taken to enhance financial inclusion was banking agents,
allowing banking institutions to contract commercial third parties to offer basic financial services, such as
taking deposits, performing cash withdrawals, payment of credits, payment of services, balance enquiries, etc.
on behalf of the contracted bank. By December 2012 there were 14 banks with 860 banking agents and
approximately 23,850 banking agent access points in 1,410 municipalities.
Financial Inclusion Indicators for Mexico, 2012
Access
Indicator
Definition
Value
Access points per
10,000 adults
Regulated cash-in and cash-out access
points per 10,000 adults
9.6
Percentage of
municipalities with a
least one access point
Municipalities with at least one regulated
cash-in cash-out access point
68%
Percentage of adults
living in a municipality
with a least one access
point
Municipalities with at least one regulated
cash-in cash-out access point
97%
Usage
Indicator
Definition
Value
Deposit per 10,000
adults
Total number of banking sector contracts for savings,
transactional accounts, term deposits, and popular savings
and credit institutions
11,544
Debit Cards per 10,000
adults
Number of banking sectors and popular savings and credit
institutions debit card contracts per 10,000 adults
11,326
Cash withdrawals in
ATM’s PER 10,000
adults
Cash withdrawals with bank card at ATM’s per 10,000
adults during the last quarter of 2012
45,062
Source:INEGI
24
25
OECD
CNBV& INEGI
Retail Banking in Mexico
PwC Mexico
18
Indicators for the main access points, 2012
Branches
Through the 4th quarter of 2012, the number of branches was
16,097, 1.93 branches for every 10,000 adults
ATM’s
There were 40,770 ATM’s as of December 2012, 4.9 for every
10,000 adults
POS
There were 66.7 POS for every 10,000 adults
Banking Agents
There were 23,626 points of sale
Mobile Banking
There were 883,657 accounts for mobile phone transactions.
Internet Banking
There were 2,370 Internet banking users for every 10,000
adults.
Source: INEGI
Retail Banking in Mexico
PwC Mexico
19
From a comparative standpoint against Latin America, according to the data from a financial access survey,
countries like Brazil and Chile, and even Peru have a larger range of channels for accessing banking services
than Mexico. Only when the number of bank accounts and loans used is taken into account, do the figures
improve slightly for Mexico; although they continue to be low. Furthermore, one of the fastest growing
segments within the mobile banking in Mexico is Mobile Money, going from 247,473 accounts in 2011 up to
2,699,378 in 2013.26
Number of Bank branches per 10,000
adults,
2011-13
Mexican
number of registered
Number of Deposit bank accounts per
10,000 adults, 2011-13
Number of ATMs per
10,000 adults, 2011-13
3,000
140 2,500
120
100 2,000
80 1,500
60
40 1,000
20 500
0
160mobile
money accounts, 2011-13
140
2,699,378
120
Untit
Unit
100
80
60
40
20
0
883,657
0
247,473
201120112012201220132013
2011
3,000
3,000,000
2,500
2,500,000
2,000
2,000,000
1,500
1,000
2012
2012
2013
2013
Number of registered mobile money
accounts , 2011-13
Unit
Unit
Number of Deposit bank accounts
per 10,000 adults, 2011-13
2011
1,500,000
1,000,000
500
500,000
0
0
2011
2011
2012
2012
2013
2013
Source: IMF
26
IMF
Retail Banking in Mexico
PwC Mexico
20
Mobile Banking
In 2013, 8 out 10 Mexican reported using bank portals, and those stating not using online/mobile banking,
argument they prefer to go to a physical branches (54%) or think that is not secure enough (49%). Additionally,
42% of the non-online/mobile users said that they will start accessing through the online/mobile banking if the
system were to be simplified.
As for the customers already using these electronic channels, they majority (37%) admitted having three years
using this type of services. In addition, they informed that 36% uses it between 2 and 3 times a week, 21% just
one per week, and 12% on a daily basis. In relation with the mostly used devices to use bank portals are:
PC/Laptop (96%), Smartphones (29%), Tablets (21%), and other type of mobile phones (15%). In addition, the
accounts from which Mexicans accessed the most to internet banking were: payroll (34%), savings (22%) and
credit cards (22%).
Mobile banking users informed that the operating systems utilized to access their account were mainly android
(52%), iOS (41%), blackberry (20%) and windows mobile (16%). According to the latest government report, in
June 2014, 42% of the mobile banking transactions were done through smartphones and48% through tablets.
Moreover, the top 3 transactions performed through mobile banking during the previous mentioned period
were: check bank balance, bank transfers and check purchase’s history. 27
Mexican banking transactions through mobile banking, June 2014
76%
58%
56%
51%
43%
42%
33%
31%
27%
25%
14%
14%
7%
Check bank
balance
Bank transfers
Smarthphone
27
Check purchase's Pay credit cards Pay bills (other
history
than credit cards)
Managing
investments
10%
Pay a fine
Tablet
AMIPCI
Retail Banking in Mexico
PwC Mexico
Source: AMIPCI
21
Mobile Banking Opportunities & Challenges
• The parties are proactive and open to experimentation.
• The regulating body is highly committed and open to increasing financial
inclusion.
• The mobile infrastructure for payment and ATM systems is adequate.
• International mobile money transfers could play a very important role
as a payment method for remittances in Mexico.
Mexico
Opportunities
Developing Markets
Challenges
• Limited understanding by the banks of the needs of potential
low-income customers.
• Banks developing business models that make low cost, and high
transactionality accounts viable.
• A regulation of rating deposit accounts: the Credit Institutions Act
establishes that cash withdrawals from ATMs of the same bank must be
free, which limits the scope for banks to develop a range for the lower
income segments.
Consumer adoption:
• Eager adoption to gain access to FS.
• Issues protecting consumers through security feature and payment
guarantee.
Regulation:
• Single biggest hurdle t-central banks see it as a banking service
(e.g. Nigeria).
• Most advanced are Kenya, the Philippines, South Africa and India.
Business Case:
• Profitable at scale, a new revenue stream.
Mobile operators: Reductions of churn, due to majority of accounts are
prepaid (churn: measure of the number of individuals or items moving into
or out of a collective over a specific period of time).
Collaboration among players in the ecosystem:
• Regulation in some territory force collaboration between banks
and telecoms (SA).
Killer apps:
• Simple, intuitive technology solution suitable for lower
end handsets (STK, USSD2, SMS).
• Addressing an existing need (e.g. P2P transfer).
Source: PwC
Retail Banking in Mexico
PwC Mexico
22
Mexico
Mobile Banking Risks & Security

A low index of Internet users in Mexico.

Creation of new model: the banks and agencies like the National Banking
and Securities Commission (CNBV) and the Association of Banks of Mexico
(ABM) have worked in the highest security schemes for operations with
minimum risks. Therefore, new accounts models were generated to prevent
practices such as money laundering, having a low ceiling on the amounts per
transaction and minimizing the risk if the phone is stolen.
•
Risks
Mobile Banking in General
•
•
•
•
•
•
Mobile
Authentication
& Mobile
Security
Concerns
•
•
•
Accessing financial services through mobile banking entails submitting
personal information through a text messaging platform: hackers can try to
access those messages through unsecure Wi-Fi hot spots. Other risks involve
the bank not investing in enough encryption security of its technology.
This would leave the customer’s personal information open for interception.
The use of independent or franchised telecom agents: makes it difficult for a
country’s central bank to regulate banking operations to have a universal set
of standards. This means that different banks can establish different mobile
banking rules, use substandard banking security software and charge high
fees for mobile banking. These issues can cause customer confusion.
Viruses and hacking mobile information.
Implementation costs or risks associated with investing in the platform.
Customers losing their mobile phone: this implicates risking losing their
financial information and opens up the customer to the possibility of fraud.
Malware: bad software installed onto device either surreptitiously or
inadvertently.
Spoofing:
• Phishing: invalid URL invites via email.
• SMiShing: SMS with bad URL or invalid info demands.
• Vishing: being duped in a call to disclose sensitive details.
Hijacking: taking over the session communications between device and
valid FI and masquerades.
Man-in-the-middle: positions between device/user and financial
institution and intercepts messages.
Replay: user session captured and then replayed with small modifications
designed for the benefit of the hacker.
Source: PwC
Retail Banking in Mexico
PwC Mexico
23
Digital Currency: Bitcoin28
Bitcoin is an experimental, decentralized,
global online currency that allows
users to directly send payments to
one another. Bitcoins do not
physically exist - there are only
records of transactions between
different Bitcoin addresses, or
possible destinations for Bitcoin
payments.
Mexico has introduced the new
digital currency (Bitcoin), by
becoming a member of the Bitcoin
Foundation in early 2014. One of
the important uses of Bitcoin in
Mexico is related to the
remittance (a process where an
immigrant makes a money
transfer to someone in his home
country) as Mexico is one of the
largest remittances corridors in
the world. Bitcoin-related
companies are targeting the
remittances in Mexico to build
their businesses. Mexico has 14
reachable Bitcoin nodes,
representing 0.2% of the world
total while, its neighbor, the USA,
has 2,645 nodes, representing 39.32%
(until November 19th, 2014).
Number of Stores that accept Bitcoins in Mexico,2014
Source: PwC
Daily Exchange Volume (No. of Bitcoins) in Mexico, 24/04/2014 - 22/02/2015
120
Number of Bitcoin
100
80
60
40
20
0
Source: PwC
28
PwC
Retail Banking in Mexico
PwC Mexico
24
Credit Card Fraud29
In April 2014, there were over 16 million credit cards users in Mexico, which makes it a ripe territory for
criminals trying to take advantage of the lax security involving credit cards. It is claimed that even though
recent security improvements to credit cards, such as the implementation of a “chip” in every card, have made it
harder for criminals to duplicate a credit card, it is still possible, due to the fact that new and improved methods
are being constantly created in order to circumvent new security technologies.
During the last quarter of 2013, the biggest compounds of disputes channeled by CONDUSEF were related to:
Credit Card (73,063), Credit Bureau (29,888), Personal Credit (15,175) and Debit Card (13,514).
The PIN (Personal Identification Number), is a measure useful to counter this sort of fraud, not only for ATM
transactions, but for every single transaction the user takes part in, as well as users having to present their ID
when using their credit card.
Top 10 CONDUSEF product (in # of disputes), Q4 2012-13
Q4 2012
Q4 2013
Variation
Credit Card
76,196
73,063
-4.1%
Credit Bureau
27,597
29,888
+2.4%
Personal Credit
14,821
15,175
+5.2%
Debit Card
12,848
13,514
3.5%
Damage Insurance
11,028
11,410
+4.4%
Life Insurance
10,557
11,018
+20%
Savings Account
6,963
8,358
+9.6%
Check
5,942
6,514
+9.6%
Worker Register
(Afore)
6,295
5,356
-14.9%
Balance (Afore)
2,977
5,050
+69.6%
Source: CONDUSEF
29
CONDUSEF& Banco de México
Retail Banking in Mexico
PwC Mexico
25
Financial Reform30
The financial reform was ratified in January 2014 and includes 34 amendments and 13 new bills. Therefore,
it will denote the amendment of hundreds of legal provisions, managed by the new powers conferred to the
national financial authorities, in particular to the National Banking and Securities Commission (CNBV), the
Secretary of Finance (SHCP) and the National Commission of the Protection and Defense of User Financial
Services (CONDUSEF). Following these new regulations, there are several expected projects, e.g. the multiple
banking institutions performance assessment. The SHCP will be in charge of its preparation, and the CNBV will
be issuing the rules in connection with the prudential measures required of Multiple Banking Institutions when
the persons exercising control or maintaining significant influence face control, bankruptcy, insolvency and
other such proceedings.
The Four Pillars of Mexico’s Financial Reform
New laws and
regulations for
Development
Banking
This sector of the
banking industry will
be given more financial
and regulatory
flexibility in order for
it to be able to provide
more loans,
particularly in areas
which are a priority to
national development.
How will this affect the
retail banking system
and its users?
Theoretically, this will
give a wider access to
credit (and more
financing options) to
families, small
businesses and other
sectors of the
population that
traditionally have not
had access to the
system (such as rural
communities).
30
Banks will not be
allowed to offer
“Tied Sales”
“Tied Sales”, which
are sales conditioned
to the acquisition of a
different product, will
be outlawed. Several
measures will be
taken for operations
between institutions
to be simpler.
How will this affect
the retail banking
system and its users?
Users will have an
easier time, since
theoretically they
won’t need to have all
their requirements
met by a single (or a
few) bank(s). This will
lead to increased
competition in the
sector, which in turn
should lead to better
incentives on behalf
of banks for clients
(lower interest rates,
for example).
Financial authorities
will be strengthened
Banks will be granted
with more securities in
the execution of
contracts and
collection of
guarantees. Several
laws, such as the
transparency and
mercantile contest
laws will be modified.
How will this affect the
retail banking system
and its users?
It will be easier for
banks to collect money
from users who haven’t
paid. On a case by case
basis, jail is now an
option in these
scenarios. On the other
hand, lower risks for
the banks should
translate to lower
interest rates, thus
increasing the amount
of loans given out to
users in Mexico.
The sector will be
strengthened
Norms with regards
to capital quality
requirements will be
turned into laws. The
savings of users of the
systems will be
protected in all cases
of bankruptcy.
How will this affect
the retail banking
system and its users?
Users will not have to
worry about losing
their savings in case
of the collapse of a
bank (or multiple
banks, as in a
financial crisis). The
risk of this happening
will be lower, due to
tougher capital
requirement laws.
Users will be more
aware of which banks
play by the rules, and
which ones do not.
CNN
Retail Banking in Mexico
PwC Mexico
26
13 Decrees of the Financial Reform
1
Strengthening
CONDUSEF
CONDUSEF, which is in charge of protecting the users of the financial system, will be given more
power compared to its current state.
2
Popular Credit
and Savings
Correspondents
Correspondents will help banks reach far away sectors and communities in Mexico, which so far have
not been favored by the services of retail banks.
3
Credit Unions
Non-bank financial intermediaries will be strengthened, considering they have been useful in
supporting several economic sectors.
4
Development
Banking
The initiative will aid development banking in increasing access to credit.
Granting and
Execution of
Guarantees
Creditors will have more certainty of terms of the recovery of resources when contracts are not
fulfilled.
5
6
7
Mercantile
Contests
Multi-purpose
non bank banks
(SOFOM)
Mercantile contests will be more harshly enforced, giving creditors more power to handle abuse.
These organizations, which previously did not have to be registered at CONDUSEF, will now have to
meet that requirement.
8
Banking
Liquidation
The figure of “banking liquidation” will exist, which means insolvent institutions will now be
liquidated when they can’t meet certain payment obligations.
9
Investment
Funds
Current legislation involving investment funds will be modernized.
10
Stock Market
11
Sanctions and
Foreign
Investment
The reform aims to make the operation of the stock market more efficient, increasing the speed of
emissions and making the process clearer for users of the market.
The CNBV will be given more power, such as being able to post the sanctions it hands out over the
internet, thus “shaming” offending banks. It will also ease restrictions on foreign investment
requirements.
12
Financial
groups
Financial Associations will have a new law modernizing the financial system.
13
Guaranteed
Credit
This reforms hopes to increase the amounts of household credits given out, not only for buying of
houses but also for construction, remodelling or refinancing of these houses.
Sources: “Secretaría de Hacienda y Crédito Público” &“ADN Político”
Retail Banking in Mexico
PwC Mexico
27
Technological Innovation31
01
SPEI (Sistema de pagos
electrónicos
Interbancarios)
It is a hybrid system owned
and operated by the central
bank. This payment system
was developed by Banco de
México and commercial banks
to enable bank clients to send
and receive money transfers in
a matter of seconds.
31
03
02
Prepaid Cards
Until 2011, prepaid cards
were mainly used for
social benefit transfers
and domestic use. A
prepaid card is a
payment card that is
loaded with money by
the owner or third
parties without a line of
credit. Nowadays, some
cards have biometric
authentication.
04
Tiered deposit accounts
Correspondent Banking
In 2011, Mexico approved a tiered
scheme for opening deposit
accounts at credit institutions,
implementing risk-based account
opening requirements for lowvalue accounts; therefore, it
incorporates several levels of
simplified accounts.
Correspondent Banks are
businesses and institutions that
establish business relations
with a bank to offer on the
behalf of it, financial services to
its customers.
PwC
Retail Banking in Mexico
PwC Mexico
28
Mexican Banking Forecast
Overview32
Latin America & Mexico GDP growth (%),
2010-16*
7
6
5
4
%
It is foreseen that the Mexican
banking sector will endure stability
and strong fundamentals over the
next 12-18 months on account of
the recovery of profitability and
asset quality. Therefore, the levels
of profitability and capitalization
will give the resources needed to
maintain steady scenery for the
banking system. On the downside,
bank’s margin will possible decline
in 2014 along with trading income.
However, this is expected to be
offset by lower loan loss
provisions. Moreover, one of the
biggest issues that banks are
dealing with is solving problem
loans, as loans to deposits ratio
will continue to rise driven by loan
growth and stronger economic
prospects. In line with the GDP
growth rate forecasted, Mexico will
grow by 4% in 2016; thus; bank
lending along with domestic
demand personal income and high
exportation levels will upsurge.
3
2
1
0
2010
2011
2012
2014*
2015*
2016*
*Forecasted
Source: World Bank
Mexico
2013
LATAM
Mexico Banking Sector Predictions (in millions of MXN unless stated as ratio), 2009-17
*estimated/forecasted
Source: IMF
That said, an optimistic long-term outlook for the sector is maintained, given the constructive assessment of
Mexico's multi-year growth prospects combined with the sector's broad-based stability. Increased uncertainty
as a result of a slowdown in the Mexican economy looks set to weigh on the growth and profitability of the
banking sector in the coming quarters.
In 2018, the Mexican banking sector is projected to have a value of 511.1 billion USD, which represents an
increase of 59.6% since 2013. The compound annual growth rate for this sector between 2013–18 is predicted
to be 9.8%.
32
Mergent, Wold Bank,IMF, & Marketline
Retail Banking in Mexico
PwC Mexico
29
The Mexican commercial banking sector is expected to have an accelerated growth rate in the second half of
2014 (10.5%) and 2015 (11.5%), mainly driven by the expansion in credit growth, the public investment
recovery, and the increase of export and privet consumption.
Consumer loan will remain the fastest growing line of credit , enhanced by the implementation of the financial
reform that will consequently lead to lower interest rates, and an upsurge on competition in the consumer
credit segment. This consumer credit growth is expected to re-accelerate by the end of 2014, as unemployment
declines in the coming months. Within consumer loans, a payroll credit is the most prominent line of credit in
terms of share and pace of growth, as it has become progressively popular in recent quarters among borrowers,
and also among lenders, given the fact that it has lower delinquency rates.
Finally, there is a positive outlook for deposits in 2015, as a result of higher employment rates and the
disposable income and savings that this implies. By May 2014, the y-o-y growth of deposits was 11.8%, and it is
forecasted that will reach 12.8% in 2015.
12.2%
6,250.7
9.1%
5,978.5
9.4%
5,463.9
8.2%
4,960.5
8.7%
10.1%
4,421.2
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
4,086.7
MXNbn
Mexican Banks Sector Value Forecast (MXN bn) & Growth (%),2013-18*
2013
2014*
2015*
2016*
2017*
2018*
* Forecast
Billion MXN
% Growth
14%
12%
10%
8%
6%
4%
2%
0%
Source: Marketline & BMI
Future Priorities33
6 priorities for success in retail banking for 2020
Developing a customer-centric
business model
Banks need to develop a much more
complete understanding of their
customers and simplify their product set.
Therefore, they will provide an improved
customer experience with lower levels of
operational risk. The goal is to understand
which the real needs from the
customers are.
Proactively managing risk,
regulations and capital
Leading Banks are taking a pragmatic,
proactive approach, as well as getting
increasingly integrated into “business as
usual”. This is a consequence of the
complexity of the rules, the suspicious of
regulators and their low flexibility.
Optimistic Distribution
In 2020, it is expected that all banks are
direct banks, and branch banking will be
changing fast. There would be services at
the time and place of convenience of the
customers.
Digital channels are becoming the most
popular channel to do transactions and
sales. Therefore, if branches cannot be
digitalized, they will be forced to close
and transform.
Enabling innovation, and the
capabilities required to foster it
Banks are not known for being the forces
behind innovation. This lack of innovation
could be due to the few professionals
working in banks within the software
engineering and innovation industries. But
as the most important factor driving
sustainable to-and bottom line growth to
banking is innovation, this should be the
area of focus.
Simplifying business and operating
Models
Banks have extremely complex business and
operating models that must be simplify.
This complexity has such consequences as
poor customer experience, high cost and
operational risk, employee frustration and
regulator unease. As a result, it is believed
that there will be a decrease of costs,
increase of customer base, as well as an
improvement of the profitability, time to
market and service.
Obtaining an information
advantage
Nowadays, enormous amount of
information is generated by customers
and banks. This data will permit Banks to
have a competitive advantage in several
areas (customer experience, underwriting
and pricing, operations, risk management
and financial/ cost management).
However, only a small percentage of
banks will manage to integrate, analyze
and act upon the insights from the ever
increasing amount of data.
33
PwC
Retail Banking in Mexico
PwC Mexico
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Megatrends
Summary
PwC has identified five megatrends (demographic shifts, shifts in global economic power, accelerating
urbanization, climate change and resource scarcity, and technological breakthroughs) that will impact the
future of both PwC and its clients over the next decade and reshape the global marketplace. Within these five
megatrends, there are two that will have the strongest influence in the retail banking industry: Shift in Global
Economic Power and Technological Breakthroughs.
In the Shift in Global Economic Power, the increasing rates of gross national savings in the advanced economies
will push up the levels of global liquidity, allowing banks to move their capital to emerging markets where there
will be a higher consumer credit demand.
Underlying
trend
Impact on
the society
Shift in Economic
Power
> Cross-border
banking
> Excess of deposits
in advanced
economies
> Consumer Credit
demand in emerging
markets.
> Global Liquidity
>Credit risk
diversification
> Capital flow
across borders
Technological
Breakthroughs
>Safety &
Authentication
>Digitalization
>Cybercrime
concern
>Ultimate positive
client experience
>Digital Banking
used to buy products
and make
transactions.
>Efficient
authentication
methods: (2FA)and
biometrics
>Online and mobile
channel becoming a
digital bank
>Emphasis in
online sales
Retail Banking in Mexico
PwC Mexico
Industrial
impact
Trend
Additionally, in technological breakthroughs, customers are using with more frequency than ever mobile and
online banking; thus, their concern in respect to cybercrime and the demand on more efficient authentication
systems is growing. Finally, banks sales and product offering are shifting their traditional channel (physical
branches) to a digital bank outlook.
31
Shift in Global Economic Power
Underlying Trend: Cross-border Banking
The anticipated moves of capital will also help the global
banking system to diversify its credit risk by distributing
their loan portfolio across many regions. Global banks
will hold a portfolio of loans to regional banks, which will
reduce the credit risk for regional shock, but there is still
undiversifiable global risk.
Gross national savings in Advanced
economies as (%) of GDP,2014-19*
23
21.9%
%
21.3%
21%
to 2019”
20.6%
21
20.4%
20
2014
2016*
2017*
2018*
2019*
34
33
32.6%
32.6%
2014
2015*
32.7%
32.8%
32.8%
32.8%
2016*
2017*
2018*
2019*
32
Gross national savings in Mexico as (%)
of GDP, 2014-19*
22.6%
23
21.7%
%
22
22.1%
21.2%
21
20.3%
19.8%
20
19
2014
*Forecast
2015*
Gross national savings in Emerging
market and developing economies as
(%) of GDP, 2014-19*
“Gross National
Saving in Advanced
Economies will grow
by 1.5% from 2014
21.6%
22
%
As the world becomes more connected, the financial
sector is revolving around the notion of global liquidity,
which is defined as permissive credit conditions in
financial centers transmitted across borders to others
parts of the world.34 The gap between banks across
countries is becoming a thin line that allows the banking
system to move easily capital across different jurisdictions
without constraints. As a consequence, it is forecasted
that cross-border banking partnerships will grow in the
years to come, particularly due to the projected excess of
deposits in advanced economies and the need of fulfilling
the consumer credit demand in the emerging markets. 35
39In line with this projection, it is expected that advanced
economies will increase their gross national savings
(GNS) by 1.5% between 2014 and 2019, which will
translate in their GNS as percentage of the GDP, going
from 20.4 % to 21.9% during the mentioned period On
the other side, emerging markets and developing
economies will grow only by 0.2% (2014-2019); however,
Mexico will see its GNS grow by 2.8%, climbing up its
savings from 19.8% to 22.6% as a percentage of its GDP
over 2014 to 2019. 36
2015*
2016*
2017*
2018*
2019*
Source: IMF
34
BIS
PwC
36 IMF
35
Retail Banking in Mexico
PwC Mexico
32
Technological Breakthroughs
Underlying Trend: Safety& Authentication
(Biometrics)
Cybercrime is one the main concern of mobile banking
clients, as they are the ultimately most affected victims
of data breaches. For instance, a consumer that has an
online account compromised will have its personal
details used by an attacker to gain access to their
accounts. With this information, an attacker can
authorize bank account transfers or use financial details
to create fraudulent credit or debit cards and steal their
money. In fact, most of the cybercrimes are caused by
inefficient authentication methods.37 Therefore, with
clients accessing mobile accounts through phones,
tablets and laptops, mobile identity authentication has
become one of the most important issues addressed by
financial institutions. 38By On the other side, emerging
markets and developing economies will grow only by
0.2% (2014-2019); however, Mexico will see its GNS
grow by 2.8%, climbing up its savings from 19.8% to
22.6% as a percentage of its GDP over 2014 to 2019. As
for the mostly used security system, it was reported that
Antivirus (66%), Key Electronic Devices (53%), Firewall
(48%), Antispam (35%) and Antispyware (29%) were the
mostly used ones Additionally, Mexican users stated that
the top 3 personal security measures taken are: (1) don’t
share Keys/Passwords (90%); (2) don’t answer email
asking for personal information (89%), and (3) don’t
leave Keys/Passwords in accessible locations (78%). 39
Mostly banking security systems used
by Mexican in (%), 2013
Other
None
Operating system
update
Antispyware
Antispam
Firewall
Key Electronic
Devices(ORP/Netkey
/Token)
Antivirus
3%
5%
24%
29%
35%
48%
53%
66%
Source: AMIPCI
Security Measures taken by Mexican when using mobile banking in (%),2013
Other
Don't access in public computers
Don't leave Keys/Passwords in accessible…
Don't answer emails asking for personal…
Don't share Keys/Passwords
2%
76%
78%
89%
90%
Source: AMIPCI
37
Norton
Financial Brand
39 AMIPCI
38
Retail Banking in Mexico
PwC Mexico
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The financial concern of Mexican towards financial security has been yearly measured by
the Unisys security index, which ranks it as the third most worrisome threa in the
country. By 2014, three quarters of Mexicans were highly concerned about other people
obtaining and using their credit or debit card details, and half of themhave the same level
of concern when it comes to security of shopping or banking online. Moreover, the
number one security concern is linked to identity theft, with 86% of the population
manifesting being largely preoccupied about it. Contrasting these key findings, only 7%
reported being a victim of bankcard cloning, 6% of identity theft and 4% of online
shopping fraud. 40
Percentage of scams reported by Mexicans, 2014
Credit/Debit
card cloning
Identity theft
7%
6%
Online shopping
fraud
7 out 10
Mexicans are
concerned
about people
obtaining and
using their
credit or debit
card details
4%
Source: Unisys Security
In order to tackle cybercrime, the financial institutions have embraced the two-factor authentication (2FA)
security system where user provides two means of identification:
1. Something the user has (a security token or smart card).
2. A security code mostly memorized (such as a password or personal identification number). 41
Along with the 2FA system, comes the new factor to take into account for authentication in the future:
biometrics. They are unique and unchanging (e.g. fingerprints, voice recognition or others), and are the
hardest to forge but the most expensive system to implement for the banking system. Nevertheless, is the
predicted factor to be implanted by banks to ensure their mobile banking security system.
The possible types of biometrics that could be used are:
Signature dynamics: is based on the individual had signature and the way it is produced,
such as differences in pressure and writing speed.
Typing patterns: it is similar to signature dynamics, but is focused on the keyboard typing
by recognizing not just a password but the intervals between character and the overall speed
and pattern in which it is typed.
Eye scans: two parts of the eye are scanned, using two different technologies to recognize the
retina and the iris. However, the hardware for this system is expensive and specialized,
as well as inconvenient and slow for the client.
40
41
Unisys security
Search Security
Retail Banking in Mexico
PwC Mexico
34
Fingerprint recognition: fingerprints are unique, easily accessible and require little physical
space either for the reading hardware or the stored data.
Hand or palm geometry: it relies on devices that measure the length and angles of individual
fingers.
Voice recognition: it verifies the individual speaker against a stored voice pattern.
Facial recognition: it uses distinctive facial features, including upper outlines of eye sockets,
areas around cheekbones, the sides of the mouth and the location of the nose and eyes.
Nowadays, the broadly mostly used biometric system is fingerprint authentication due to its convenience and
the increasing implementation of fingerprint readers in notebook PC’s and computer peripherals. 42
42
Computer World
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Technological Breakthroughs
Underlying Trend: Digitalization
Digitalization in banks is providing the ultimate client experience due to the digital transformation of sales and
after-sales service, combined with face-to-face interactions when a more complex service is needed. Therefore,
by 2015 it is forecasted that 60% of the sales of products in the global banking system will be either transacted
online or influenced by online marketing, given mobile banking the major credit for this
expected scenario.
Until now, banks only provide services to customers online, but the future tendency will
be to put the emphasis on online sales. As a result, online and mobile channels will
become a digital bank, and give clients a coherent and well-designed page where they
can easily use their services and purchase their products. 43 By 2014, in Latin American
digital innovation played an important role in the customer’s positive experience. Thus,
when choosing a bank, 51.1% selected a bank based on the quality of their internet
banking service and 27.8% on the quality of Mobile banking service. These preferences are strongly marked in
younger generations, which translate on a demand of personal digital technology. In
consequence, physical bank branches are primarily used for advisory services and
8 out of 10
alternate channels such as mobile and internet are used for basic transactions. 44
Mexican
internet users
In Mexico, 83% of internet surfers stated having a bank product, and showed an
used bank
increase on the use of mobile banking of 4% between 2012 and 2013, with 78% of
portal to make
Mexicans affirming to have visited one or more bank portals by 2013. In addition, 8
a transaction
out of 10 internet users made a transaction in internet banking during the same
mentioned year. Nevertheless, a steady 54% still refuses to use bank’s portals due to
their predilection towards physical branches. From this 54%, 42% identified the
difficulty of using internet banking as the main reason they don’t do their transactions within this channel.
45
Online Banking in Mexico, 2013
There is an average of
2.1 internet banking
accounts per person in
Mexico
53% of Mexicans have
a bank product
32% of Mexicans make
internet banking
transactions
There are 45.1 million
internet surfers in
Mexico
41% of Mexican visit
bank portals
Source: AMIPCI
McKinsey
Capgemini
45 AMIPCI
43
44
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36
About KC
Knowledge Center Mexico acts as a knowledge, innovation and best practices provider to PwC practitioners.
This enables the practitioners to successfully identify new service offerings, approach the market and complete
projects.
The expert staff of Knowledge Center designs innovative solutions for PwC partners and managers.
The Knowledge Center delivers knowledge and experience through:
Provide consulting and training
in the use of various knowledge management tools.
Research and information searches,
based on the information needs of PwC staff & partners.
Participating in the strategy design, related
to global Knowledge Management & Innovation Management.
Retail Banking in Mexico
PwC Mexico
37
Reach us:
José Antonio Quesada
Partner, Clients & Markets
[email protected]
Manuel Flores De Orta
Manager, Knowledge Management and Knowledge Center
[email protected]
5263-8543
Alexandra Mendes
Consultant
[email protected]
5263 6000 ext. 7536
Ekaterina Ponkratova
Consultant
[email protected]
5263 6000 ext. 7586
Itzel Andrade
Consultant
[email protected]
5263 6000 ext. 5574
Gladys Aguirre
[email protected]
5263 6000 ext. 5683
© 2015 PwC Mexico. All rights reserved. PwC (www.pwc.com) provides industry-focussed assurance, tax and advisory services to build public trust and
enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and
solutions to develop fresh perspectives and practical advice.
“PwC” refers to PwC Mexico which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal
entity and does not act as agent of PwCIL or any other member firm. No member firm is responsible or liable for the acts or omissions of any other member
firm nor can it control the exercise of another member firm’s professional judgement or bind another member firm or PwCIL in any way.
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