Opportunities abound: Banks are developing mobile and internet banking services for a growing number of online customers

Mobile and internet banking is at a relatively early stage of development in Mexico, but most players are convinced that it is the shape of things to come, and that banks that do not invest in developing their online and mobile presence are at risk of losing market share.

According to a study by BBVA Research, around 16% of Mexico’s total banking transactions are carried out online, and 6.4% of them are done through mobile phones. For comparison, the study said 40% of Brazil’s transactions are conducted online; the proportion was 32% in Colombia and 4.5% in Peru. There were no comparable figures for mobile phone-based transactions between the different Latin American countries.

Vast Potential

Bearing in mind that according to data from the Mexican Internet Association there are over 50m internet users and 100m mobile phone subscribers in the country, it does seem that the potential for mobile and internet banking is just beginning to be taken up. “Large portions of the Mexican population are excluded from the modern payment scheme, which continues to foster a cash-based economy and high levels of informality. This is an area of opportunity for banks and financial institutions since people are rapidly realising the benefits of online banking. However, the industry must do a better job of offering the right products,” Francisco Meré, CEO of Bankaool, told OBG.

“Digital banking is just beginning in Mexico,” Hugo Nájera, director of BBVA Bancomer’s digital banking division told El Economista, adding that “not one bank here has a good digital banking proposal, if we are looking beyond simply offering additional channels to their branch presence”. Carlos Serrano, chief economist for Mexico at BBVA Bancomer, told OBG, “We’re making a big investment in mobile and digital banking, for two reasons: it allows us to serve our existing customers better, and because we think it will help us increase bank penetration rates. An important part of the population is dispersed and lives in places where it will never be economical to set up bank branches. We have a population of 130m people, and Mexico will soon have 100m mobile phones in service. So that’s a great opportunity to increase our coverage.”

Online Banking Usage

According to another study, Brújula Digital by Banco Nacional de México (Banamex), in 2014 there were 11.5m internet users who also had bank accounts, up by 40% on the level in 2011. One in four of them (25%) actually took up the opportunity and managed their bank accounts online. The number who did so had grown by 16% relative to 2011. In other words, the take-up rate for internet banking was lagging significantly behind the take-up rate for the internet. Among those using internet banking, Banamex found that 75% were using the service to check their accounts, 43% were transferring money between accounts, 19% were paying for services, and 18% were using the internet to pay their credit card bills. While these percentages also point to slow take-up, the Banamex survey found that 52% of those questioned were interested in doing more banking online.

Cris Vrey, head of digital banking at Banamex, told El Economista, “There is enormous interest now in mobile internet services.” Meré also noted, “The financial reform led to certain regulatory changes that have allowed for opening online accounts without a physical interaction, albeit with certain limitations such as capped deposits per month. These online accounts are starting to become more popular and we expect marked growth in the near future.”

Other studies have suggested that the take-up rate is actually higher. A joint report by technology company Tecnocom and financial analysis group Analistas Financieros Internacionales (AFI) says that mobile banking has doubled over the last year, which it attributes to the spread of debit cards and smartphones. This report also highlighted the government’s commitment to making social welfare payments where possible through digital systems, along with other financial inclusion initiatives. It also cited regulations that allow the spread of “non-bank branches” (corresponsales no bancarios), in other words the use of other types of retail outlets (such as drugstores or convenience stores) to carry out certain financial transactions.

Enrique Zorrilla, director-general of Scotiabank Mexico, said that the number of online transactions in the country is increasing at double-digit percentage rates. He has welcomed them as helping overcome existing inefficiencies in the Mexican financial system and increasing its reach. “Mexico’s low banking penetration stems from a lack of financial education and low levels of access to financial institutions. Furthermore, some people have low levels of trust in the modern financial system as a result of certain banking problems the country faced in decades past,” Zorrilla told OBG.

Technology

There is a range of evolving digital and mobile banking or financial services on offer in Mexico, graded by levels of technical complexity and user confidence. Tonatiuh Barradas, vice-president, strategic industries of software and payments systems company SAP, told El Economista, “We need to consider the cultural factor and levels of education: technology adoption has to be progressive and SMS systems are the first step for those who have entry-level mobile phones.” It is estimated that over half of Mexico’s total financial transactions are carried out in cash. But even the unbanked may benefit from mobile technology. For those with basic mobile phones (i.e., not smartphones) SMS payment systems have been developed.

One system developed by BBVA Bancomer, known as dinero móvil, allows the recipient to receive an SMS with details of the cash transfer being sent and a 12-digit code, which allows them to withdraw the money from any of the bank’s 9200 ATMs around the country. The bank says that in 2014 a total of 1.3m cash transfers were sent through the system between private individuals. In a second phase it will be used to make mass payments – for example for government social programmes. Compartamos Banco, a micro-finance specialist active in Mexico, Peru and Guatemala, is in 2015 launching a mobile and digital payments trial in Veracruz, with a view to rolling it out nationally.

In some cases the regulatory framework has lagged behind technology. Enrique Ramos O’Reilly, regional director of Miami-based bank technology services company Temenos, speaking to El Excélsior, argued that Mexico, where payment by cheque remains significant, should adopt the US approach where bank customers can ”cash” a cheque simply by photographing both sides of it and emailing it to their bank. The bank later emails back confirming that the payment has gone through, and requesting that the customer destroy the physical cheque. O’Reilly says if the photograph is blurred or otherwise suspicious, the customer has to take the physical cheque into a bank branch, but in most cases the system works smoothly. He believes it would speed up transaction times and provide a good transitional solution for Mexico, bearing in mind that the cheque is technically obsolete but still a trusted means of payment for many customers.

Small Businesses

One area where digital payments systems are poised to make a major difference is that of small and medium-sized enterprises. Many of these in the retail sector have until recently relied on electronic point-of-sale (EPOS) terminals that can be costly to install and maintain. However, it is now possible to make credit or debit card payments through systems and applications built around web-connected smart-phones or tablets. “In Mexico there are over 5m SMEs, and many of them have a tablet or an iPhone, perhaps not acquired for business purposes, but still able to be used as a payments,” Mariana Tello, former PR manager of Sweden-based technology company iZettle, told local media. Card readers mean small companies can receive payments, at a much lower transactional cost A big surge in online and mobile banking will hit Mexico in approximately three years’ time when a younger generation of intensive smartphone users – currently aged between 12 and 18 – will start to open bank accounts, Rodrigo Santiago of financial technology company Fiserv, told El Financiero. According to Santiago up to 90% of that age group uses smart-phones, and they “will have mobile use in their DNA.”