mobile money scoping report - mexico - ifc

IFC Mobile Money Scoping Country Report: Mexico

JULY 29, 2011

2

Overall Mobile Money Readiness 3 (Good)

Current Mobile Money Solution N/A

Population 112 million (Very High)

Mobile Penetration 79% (High)

Banked Population 30% (Low)

Remittance % of GDP 1.45% (Moderate)

Percent under poverty line 18% (Relatively Low)

Economically Active population 42% (Moderate)

Adult Literacy 86% (High)

Main banks Bancomer, Banamex, Santander, Banorte, HSBC

Mobile Network Operators Telcel (71% market share), Movistar (21%), Iusacell (4%), Nextel (4%)

Ease of doing business 35th out of 183

Comments Mexico is one of the largest economy and one of the most populated countries

in Latin America. Mexico’s banking sector is mainly dominated by foreign banks

with the exception of Banorte and to a lesser extent Inbursa. The mobile

sector is almost a monopoly of Telcel, however its main competitors are

gaining market share (Movistar). There were few examples of mobile banking

solutions and no mobile money solutions until recently, but the market is

starting to show signs of activity, leveraging a favourable regulatory

environment for simplified bank accounts and use of non banking agents.

Mexico Summary

Mobile Money readiness (1-5)

Regulation 4

Financial Sector 3

Telecom Sector 1

Distribution Channel 4

Market Demand 3

• Macro-economic Overview

• Regulations

• Financial Sector

• Telecom Sector

• Distribution Channel

• Mobile Financial Services Landscape

3

• Population: 112,322,757 (57ppl/sqm)

• Age distribution:

• 0-14 years: 28.2%

• 15-64 years: 65.2%

• 65 years and over: 6.6%

• Urban/rural split: 80/20 (1.5%

urbanization rate 2005-2010)

• GDP (PPP): $1560Bn in 2010

• GDP per capita (PPP): $14,932

• Literacy rate: 92.43%

• Banking penetration: 30%

• Mobile phone penetration: 79%

• Remittance (% of GDP): 1.45%

Key Country Statistics

Sources: IOM world, Wikipedia, CIA WORLD FACTBOOK, GSMA

• Actual potential market size of 60-70m people

is favorable for both a “volume approach” and

a “value approach” and a rapid adoption of

mass-market services (P2P…)

• Median age and high literacy rate are enabling

factors: more elaborate mobile money

technology is relevant in Mexico

• Price sensitivity is likely to be high due to the

population distribution (youth proportion,

under poverty line rate…) and will be a key

element of a successful value proposition

• G2P payments and domestic transfers could be

sizeable enough to represent an interesting

opportunity

• Value wise, international remittance (IMT) is

significant, IMT to be considered at a later

stage once basic MM services have gained

ground

Macro-Economic Overview

Insights

4

1. Banking infrastructure availability, though

relatively good overall, is low for certain

segments of the population: • Infrastructure network is far more developed

in urban areas than in rural areas

• Overall, 10.6 bank branches / 100,000 Mexican

residents

• 32 ATMs / 100,000 Mexican residents

• 415 PoS terminals / 100,000 Mexican residents

2. Some banks, like Banco Azteca, focus on

low income population

3. A rather “elitist approach” of some other

banks (corporate like IXE Banco, high-end,

middle-class)

Several factors limit banking growth

Sources: IOM world, Wikipedia, CIA WORLD FACTBOOK, GSMA

Mobile & Banking Penetrations

Whereas mobile penetration has increased steadily

Despite a relatively well organized

banking sector, banking

penetration remains low compared

to mobile penetration.

21758 25928

30098

38451

47129

55396

66559

75303

83528

88797

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2001 2002 2003 2004 2005 2006 2007 2008 2009 Q3-2010

Thousa

nd p

eople

Mobile penetration rate evolution in Mexico

Customer base Penetration rate

5


• Regulations


• Telecom Sector



6

Role: Ensure stability of the Mexican

financial system, foster its development and

efficiency for the benefit of Mexican citizens

Comisión

Nacional

Bancaria y de

Valores (CNBV)

Role: legal authority to supervise, promote,

regulate and coordinate an efficient

development and the social coverage of the

telecommunication sector

Cofetel – Comisión Federal de Telecomunicaciones (Telecom Regulator)

Buoyant regulatory environment:

Recent introduction of a new

regulation on branchless banking

that paves the way to broader

financial inclusion through mobile

phones

Wal-Mart Bank was the first to inaugurate

the agency model, after a long

authorization process by the CNBV

Banks may provide a number of services

through a network of banking agents

Regulator is open to Mobile Banking;

several mobile banking services have

already been launched

Recent regulation (Feb 2010) allows

MNOs to set up agent networks and

manage mobile accounts on behalf of

banks, based on outsourcing agreements

Role: Responsible for receiving, analyzing,

and disseminating STRs (Suspicious

Transactions Reports) and CTRs (Cash

Transactions Reports), as well as reports

on the cross-border movements of currency

Unidad de Información

Financiera (UIF)

Role: Issuing regulations and criteria to

interpret AML regulations

Banking, Securities

and savings Unit (UBVA)

Regulatory Bodies

Implications Roles & Responsibilities

7

There is no regulation on e-money.

The “Niche bank” system encourages non-

banks to offer financial services. E-Money

Commercial Code defines a deposit as

repayable funds

Nonbanks excluded from the deposit-taking

business

Only authorized banks can have banking

correspondents

Banks can open mobile accounts via

agents (including MNOs), and must

produce a file with the clients’ name, birth

date and address

Monthly deposits are limited to MXN 8,720

Retail Agents

Regulatory Framework & Requirements

Implications Current Regulations

Deposit Taking

Only registered banks or non-banks will be

able to offer mobile financial services. MNOs’

role is limited by the law.

Non-banks are still authorized to issue prepaid

cards used for purchases of goods that belong

to the same business as the issuer

Increasing number of banking correspondents

(around 16,000 as of today) should foster

financial inclusion and give the unbanked

population access to basic type of accounts

Financial consumer protection law and the

transparency law (Condusef specialized

financial consumer protection agency)

Basic consumer protection principles,

conflict resolution procedures, and

penalties for noncompliance

Require banks to provide all-inclusive price

information by displaying fees and charges

in branches

Customer

Protection

Mexicans usually own an ID or other type of

identification form

Existing consumer protection agency should

make it easier to deal with the specificities of

consumer protection applied to mobile

financial services

8

Source: CGAP

Based on several laws: Ley General de

Organizaciones y Actividades Auxiliares del Crédito,

Ley de Instituciones de Crédito, Ley de Mercados de

Valores, Ley de Ahorro y Crédito Popular, Ley de los

Sistemas de Ahorro para el Retiro, Ley General de

Instituciones y Sociedades Mutualistas de Seguros,

Ley Federal de Instituciones de Fianzas. The Penal

Code defines the crimes related to AML/FT in its

articles 139, 148 Bis and 400 Bis.

Customer identification: Banks are required to

know the identity of all their clients and depositors

Customer verification: ID, tax card, and proof of

address (if address is different from the address

noted in the identification document)

Transaction verification & thresholds:

All transactions in cash exceeding $10,000

are treated as suspicious under the law.

CNBV licensed entities are required to report

all suspicious transactions to the UIF.

In the case of money transferors, this limit is

at $3,000

High-risk clients and users or those whose

transactions exceed the equivalent of

US$100,000 per month should be subject to

stricter monitoring.

In 2008, UIF received 36,934 STRs and

6,513,147 CTRs

Record keeping: 10 years

KYC/AML

Requirements



Account opening:

Customer identification /verification

is less restrictive given the low

value account regulation.

Unbanked and under banked are

directly targeted

Financial services:

Daily and monthly transaction

limits already defined by the law

and the thresholds depend on the

type of account

However, the law has no clear

definition yet on repeated

transactions and number of

accounts owned by a single user.

9

Source: CGAP

There are four types of transactions

according to AML/CFT risks and security

controls: Micro payment (<24 US$/day),

Low amount (<86 US$/day), Medium

amount (<520 US$/day), High

amount(>520 US$/day)

The regulation also introduces the concept

of low value account targeting people

underserved by financial services

KYC/AML

Requirements

(con’t)

Four types of banks with different levels of

initial capital requirements and types of

operation

One is categorized under the label

“traditional banks” and three under the label

“niche banks”

Traditional banks require higher min capital

requirements and benefit from broader

scope

The Payment System Law (PSL)

designates Banxico (Banco de Mexico) as

the regulator and supervisor of the payment

system

A payment system will only be subject to

the PSL if at least three licensed financial

institutions participate and if it processes

the equivalent of US$37 billion or more per

year



Niche bank regulation allows non-banks to

convert more easily into banks and offer

limited financial services to clients

MNOs and MFIs could envisage applying for it

but additional entry barriers to be expected

(organization and reporting constraints)

This regulation creates a more attractive entry

door for nonbanks to provide some financial

services without need to apply for a full

fledged bank license.

A bank or prudentially regulated institution will

need to be involved Payment Services

Banking

10

Source: CGAP

The legislation provides for recognition of

electronic signatures when the authenticity

and integrity of the original electronic

document is preserved according to

specified parameters

Integrity of the original electronic document

is preserved according to specified

parameters

Electronic documents can be used as proof

in court and in complaints filed in consumer

protection agencies.

CNBV has issued extensive regulation on

security requirements for electronic

transactions

No specific data privacy law yet (draft law

in Congress)

Some ATMs and Pos terminals are

interoperable allowing withdrawal and

payments with cards from any bank

Deposits can be made only at ATMs and

branches of the bank where the account is

held

Additional Regulatory Considerations


Given its complexity and strictness, regulation

on security requirements for electronic

transactions may eventually create obstacles

for emerging branchless banking models, as

described by some industry actors

Penalization of digital crimes is reportedly

slow and difficult

High cost of withdrawing money in a different

bank Interoperability

Data Privacy

Tax on cash deposits (law of 2007)

IDE (Impuesto a los Depositos de Efectivo)

is a 2% witholding tax on all cash deposits

Each agent’s operating account subject to

the IDE

Taxation High level of taxation will have a significant

impact on the final price of the service to

consumer

11

Source: CGAP


• Regulations


• Telecom Sector



12

Source: Prodesarrollo.

Financial Infrastructure

Facts:

Strong banking system, increasingly dominated by foreign

institutions: Citi-Banamex, BBVA-Bancomer, Santander

and HSBC among the leading banks (with the exception of

Banorte)

In recent years, the government and the CNBV have

passed several banking reforms aimed at fostering

financial inclusion and strengthening the nation’s financial

network and system

Significant low income masses once out of the financial

system are today more addressed by the agency banking

model

The microfinance market is one of the most dynamic in

Latin America with 85 registered MFIs, 1522 branches and

4.3m clients (85% are women)

Banks

Public 41

Private 6

Branches

ATMs 35 932

POS terminals 457 677

Debit cards 12 000 000

Credit cards 26 000 000

Microfinance Institutions

> 100,000 customers 5

20,000 to 100,000 customers 9

< 20,000 customers 71

Clearing and Settling

Clearing house settlement system (SICAM)

•Ownership: Banco de México

• Description: provide clearing and settlement of interbank

documents, including checks, electronic funds transfers, direct

debit operations, and interbank cash operations.

• Participating banks: banks offering checking accounts, direct

debits, and electronic funds transfer.

Credit Bureaus

Buró de Crédito

•Ownership: private organization collectively owned by

Mexico's banks

•Participants: Mexico’s financial institutions

•Users also include Sofoles, real estate co, automobile finance

companies, credit card companies…

TransUnion de México (collects and distributes credit

information on individual consumers for Buro de Crédito)

•Ownership: JV between TransUnion, Fair Isaac Corp and

Mexican commercial banks

Dun and Bradstreet (focuses on the activities of firms and

individuals with entrepreneur activity for Buro de Crédito)

Ownership: Dun and Bradstreet, TransUnion and Mexican

commercial banks

13

• 1,797 Branches

• 6,760 ATMs

• 1,395,319 checking accounts

• 7,882,143 savings accounts

• 6,576,455 payroll accounts

• 297,774 deposit accounts

Bank Snapshot

• 1,696 Branches

• 5,855 ATMs


• 33,347 savings accounts



• 1,075 Branches

• 4,439 ATMs





• 1,134 Branches

• 5,004 ATMs

• 580,132 checking accounts

• 5,731,214 savings accounts



• 1,144 Branches

• 6,331 ATMs





• 255 Branches

• 745 ATMs

• 312,525 checking accounts


• 111,639 payroll accounts


• 647 Branches

• 1,492 ATMs



• 627,945 payroll accounts


BBVA Bancomer

Banamex

Santander

Banorte

HSBC

Inbursa

Scotiabank

14

• 1,625,151

Customers

• Loan portfolio: $US

705,453,215 • Average loan: $US 434.1

MFI Snapshot

• 1,343,900

Customers


445,603,315 • Average loan: $US 331.6

• 34,582 Customers • Loan portfolio: $US

65,319,439 • Average loan: $US 1,888.8

• 104,155

Customers


61,340,548 • Average loan: $US 588.9

• 72,240 Customers • Average loan: $US 816.1

• 198,550

Customers • Average loan: $US 233.5

• 109,502

Customers • Average loan: $US 284.7

Compartamos

Financiera

Independencia

Eurekasoli

Apoyo Económico

Familiar

Fincomún

Came

Finca México


58,957,706


46,371,979


31,180,005

15

Large Financial Flows Opportunity analysis summary

Bill payments ●

35m clients

for CFE

•Bills (electricity, water) can be paid at partner banks’ branches and also in stores (Soriana, Wal-

Mart)

•Companies exploring mobile bill payment services with partner banks (e.g. CFE bills with

several banks)

P2P

(domestic) ● N/A

•Strong domestic migration from rural areas to the main metropolitan areas

G2P ● N/A

•There are several government programs in place in Mexico (e.g. Oportunidades, a government

social assistance program providing cash payments to 5m families)

•Bansefi & Diconsa partnership to create a network to provide access to government benefits

B2B, B2C or

B2Employees ● N/A

•Some banks have expressed interest in exploring salary payment opportunities through mobile

Credit &

micro-finance ● N/A

•Compartamos is by far the dominant player in the MFI landscape while many other MFIs have

yet to be more mature in their operations

•Potential for microfinance remains high

Remittances

(international) ●

US$ 21.7bn

•US-Mexico corridor is one of the largest worldwide corridors for international remittances

•Market is competitive, highly fragmented and already well addressed leading to relatively low

prices

•Banks benefit from their large distribution network to serve most of the incoming remittances

Source: Amarante analysis ● Significant

opportunity ● Potential

opportunity ● Weak

opportunity

16

Additional opportunities: Public transport, Payroll (informal market)


• Regulations


• Telecom Sector



17

• 100% América Móvil • 61.24 M subs (July 2010)

• 70.8% Market share

• Partnership with Banamex to

provide SMS-based mobile

banking services

Mobile Network Operators

Name

• 100% Telefonica • 18.26 M subs (July 2010)


• JV partnership with MasterCard

in Latin America to provide

mobile banking solution

Name

• 76% Grupo Salinas

• 23% Publicly Traded

• 3.79 M subs (July 2010)


• No known projects under way

Name

• 100% NII Holding • 3.19 M subs (July 2010)


• No known projects under way

Name

18

Mobile Outlook - a Dynamic Market

Key Learning:

Dynamic market, subscribers base will reach 107.3M people by the end of 2014 according to forecasts

Telcel dominates the mobile landscape in Mexico and any of its decisions in the MFS space shall significantly

influence the overall industry

Telcel has a very dominant position in the market but competition is on the rise (monthly churn rate for Telcel is

3.6%). According to forecast, its market share is likely to decrease and reach 67.4% by 2014

While Movistar’s market share, and to a lesser extent Nextel and Iusacell’s will increase (Movistar’s market share

is predicted to reach close to 25% in 2014)

0

10

20

30

40

50

60

70

80

2010 2014

Millions

subsc

ribers

Mobile subscribers forecast

Telcel Movistar Iusacell Nextel

Source: ie Market Research

19

Relatively low ARPU: around $12 (at

the exception of Nextel that does not

target prepaid customers)

Note: Iusacell has not reported any

figure on its ARPU.

Mobile data applications usage’s growth

should sustain ARPU’s growth and

compensate potential lower revenue per

user on voice

Consequence

Potential revenue growth from

volume recruiting new customers

(around 80% penetration rate as of

today)

And from additional services

providing new revenue stream

Key learning and conclusions

Mobile Outlook - ARPU Trend

ARPU/Operator ($US equivalent)

Need for value creation and new revenue streams beyond

traditional voice to sustain ARPU levels

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2008 2013

ARPU/Operator ($US equivalent)

Telcel Movistar Iusacell Nextel

Sources: ie Market Research

20

Key figures:

As of Q3-2010, Prepaid customers

account for 87% of total customer

base

However since 2008 postpaid share

is on the rise with MNOs developing

medium/high-end segments

targeted offers

Nextel is clearly targeting postpaid

customers

Consequence:

MNOs are trying to be innovative

offering new VAS

We can expect MNOs to rapidly

introduce additional MFS in Mexico

Key learning and conclusions

Mobile Outlook - a Prepaid Market

Prepaid vs. Postpaid customers (as a %)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 Q3-2010

PREPAID POSTPAID

Source: Cofetel

21


• Regulations


• Telecom Sector



22

Retail network structure

Specialized /

Convenience

Stores

Corner Stores

Department

Stores

Hyper

Super

Markets

3,398 stores

14,177 stores

1,473 stores

Source: ANTAD, August 2010

Offer a large variety of items (grocery products, clothing,

home products, electronics…).

Typically located around urban areas with over 100,000

inhabitants.

Industry leaders are: Wal-Mart, Mega Com Mexicana, Soriana,

Superama, HEB, Chedraui

Mexico has a large number of department stores, including the

Mexican chains: El Palacio de Hierro, Liverpool, Suburbia,

Sanborns, Coppel and Elektra

Oxxo and 7 eleven are the two largest chains with Oxxo having

more than 7,300 stores in Mexico and 7 Eleven more than

1,000.

They both offer financial services partnering with banks as

well as airtime mobile recharge.

There is no exact figure on the number of corner stores in

Mexico.

Distribution Landscape

23


• Regulations


• Telecom Sector



24

Const

rain

ts t

o p

rovid

e t

he s

erv

ice

Regulatory barrier to obtain a MM license -

+

+

Operator-led model

• Service entirely distributed and managed by the operator under its own license and own brand

Joint Venture model

• Service co-branded and co-distributed with the operator and/or the bank

Bank-led model

• Mobile channel is only seen as an access channel (bearer) to banking services

Operator-driven model

• Service distributed and managed by the operator under a partnering bank’s license

Highlights

Third-party led

Model

Current MFS Initiatives in Brazil

•Several banks offer

traditional internet m-

banking services

•As of today, no known

MFS services have been

launched in Mexico

•Several initiatives taking

place at present in the

market:

•Since 2011,

Mastercard/Movis

tar JV partnership

•Bill payment

initiatives from

several banks

25

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mobile money scoping report - mexico - ifc

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