Mexico - Banking SystemsMexico - Banking
Mexico's commercial banks offer a full spectrum of services ranging from deposit accounts, consumer and commercial lending, corporate finance, trusts and mutual funds to foreign exchange and money market trading. Currently, 48 banks are operating in Mexico; seven of which (BBVA Bancomer, CitiBanamex, Santander, Banorte, HSBC, Inbursa, and Scotia Bank) control 78 percent of the market share by total assets. Mexico's commercial banking sector is open to foreign competition. Almost all major banks, except for Banorte, are under the control of foreign banks.
Following the 1994 Peso Crisis, banks in Mexico have been very cautious in their lending, preferring to provide loans only to their most valued customers. However, banks are now beginning to implement programs for lending to a wider range of companies, although at relatively high rates. Average interest rates on loans in Mexico hover around 25 percent and are some of the highest in Latin America. In general, small and medium-sized enterprises (SMEs) have trouble accessing credit.
According to a first-quarter 2019 Bank of Mexico (BANXICO) survey of established companies, their main sources of financing were suppliers (76.9%), commercial banks (32.2%), other companies and/or their own headquarters (19.5%), foreign banks (5.7%), development banks (4.3%), and debt issuance (1.8%).
The Mexican Government has enacted several incentives to encourage more lending to SMEs, and banks have followed suit with new lending policies, but it remains to be seen whether the largest segment of the Mexican economy will gain better access to credit. In January 2014, then-President Enrique Peña Nieto announced a set of financial reforms to redefine the mission of development banks, promote private financing, and encourage financing with lower rates. Now more than five years later, these reforms have started to reduce borrowing costs and to increase access to credit, albeit slowly. The four goals of the financial reform are to 1) promote lending through the development banks; 2) expand credit from private financial institutions; 3) increase competition in the financial sector; and 4) ensure the security of the Mexican financial system.
The Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito Público or SHCP), the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or CNBV), and BANXICO are the principal regulators of the banking system. SHCP is concerned with institutional issues, such as licensing, and sets credit and fiscal policies. CNBV, a semi-autonomous government agency, is responsible for supervision and vigilance. BANXICO (the Central Bank) implements these policies and operates inter-bank check clearing and compensation systems. The Institute for the Protection of Bank Savings (Instituto para la Protección al Ahorro Bancario or IPAB, replacing the former institution FOBAPROA) acts as a deposit insurance institution. The Mexican Banking Association (Asociación Bancaria Mexicana or ABM) represents the interests of Mexico's banks.
One objective of the Central Bank is to promote the development of the Mexican payments system. The Central Bank supervises the operation of the Inter Banking Electronic Payments System (Sistema de Pagos Electrónicos Interbancarios or SPEI), not only for large but also for retail payments transactions and it also regulates the retail payments systems which include electronic funds transfers, card payments, direct debits and checks. SPEI is an electronic funds transfer system owned and operated by the Central Bank. The system has allowed participants to transfer money in real time since August 2004. The system is used for both large-value payments and low-value transactions such as payrolls and person-to-person transfers. SPEI is a hybrid system, clears operations every few seconds, and the results are settled immediately on the participants’ cash accounts.
In January 2019, the Central Bank, the Secretariat of Finance and the Mexican Banking and Securities Commission announced a new payments system through QR (Quick Response) code. The system called Cobro Digital or CoDi is part of the Government’s efforts to increase financial inclusion and reduce cash economy. CoDi’s users/customers must have a smartphone, and a level 2 bank account (accounts that can be opened with customer’s basic information). The sellers must have a static QR Code, a smartphone to download the CoDi app (for face-to-face transactions) or a web page to generate the CoDi requests for online sales. Mexican authorities expect that this new platform will be completely operational in the last quarter of 2019. The CoDi system was officially launched in March 2019 during the Annual Convention of the Mexican Banking Association. On September 30, Banxico announced all banks required to offer CoDi on their mobile platforms were in compliance.
With over nearly 400 fintech start-ups, Mexico is currently the second-largest fintech market in Latin America after Brazil. In 2018, the Mexican fintech industry grew by 23.4 percent. Most of the Mexican fintech companies focus on payments and remittances, personal financial management, crowdfunding and lending. According to Fintech Radar Mexico 2018, the segments with most activity and dynamism in Mexico are payments and remittances (30%), lending (20.6%), enterprise financial management (13%), crowdfunding (7.4%), insurance (6.6%), identity fraud (4.1%), digital banks (3.8%), trading & capital markets (3.3%), wealth management (2%).
In addition to these fintech segments, the Mexican market has activity in personal finance management, financial education and saving, and scoring solutions.
Due the growing importance of the fintech industry in Mexico, in 2017 and 2018 financial regulators drafted Mexico´s first financial technology regulation law to reduce operational risk, enhance transparency and improve security. On March 10, 2018 the Fintech Law was published in the Official Gazette.
The law covers four broad areas of fintech services. They include crowdfunding and P2P lending, electronic money services, virtual assets, and application programming interfaces (APIs). The law was drafted to foster financial inclusion, consumer protection, financial stability, competition, and financial integrity.
The law allows companies and financial entities to obtain a special temporary authorization to offer financial services using technological tools through a regulatory sandbox. The Fintech Law also mentions the creation of a Financial Innovation Group formed by financial authorities and the private sector to share ideas, discuss innovations in the financial arena between the private and public sectors, and achieve better planning and development of the law. The law also establishes that SHCP, CNBV, and BANXICO are the main regulators for the fintech sector.
The Fintech Law includes an option to obtain a special temporary authorization to offer financial services using technological tools subject to certain terms and conditions. The CNBV reported in late September 85 fintechs applied for this authorization. The Fintech Law was approved in March 2018 but most of the substantive content was established by secondary regulations published in September 2018.
According to Fintech Radar Mexico, following the passage of the Fintech Law, the payments and crowdfunding sectors grew by 18% in 2019 over the previous year. As noted above, payments and remittances are the most active industries in the sector, and digital banking has experienced the most important growth (around 200%) compared to 2018.
The mission of development banks is to fill financing shortfalls in the commercial banking sector. Mexico has seven government-owned development banks that provide services to specific areas of the economy. The dominant institutions are Nacional Financiera (Nafinsa) and Bancomext (Banco Nacional de Comercio Exterior or National Bank for International Trade). These institutions have become primarily second-tier banks that lend through commercial banks and other financial intermediaries such as credit unions, savings and loans, and leasing and factoring companies. Nafinsa's primary program funds SMEs and micro businesses. Nafinsa also undertakes strategic equity investments and contributes equity to joint ventures. Bancomext provides financing to Mexican exports and to SMEs. It also offers working capital, project lending, and training to firms in several specific sectors that require support, such as textiles and footwear.
The other Mexican development banks are Banobras (Banco Nacional de Obras y Servicios Públicos or National Development Bank for Public Works and Services), Financiera Rural (Financiera Nacional de Desarrollo Agropecuario, Rural, Forestal y Pesquero or Rural Agriculture Bank), Bansefi (Banco del Ahorro Nacional y Servicios Financieros or National Savings and Financial Services Bank), Banjercito (Banco Nacional del Ejército or Mexican Army, Air Force and Navy Bank), and Hipotecaria Federal (which finances Mexican homeownership through financial intermediaries).
The non-traditional banking sector in Mexico is comprised of exchange houses, credit unions, leasing, factoring companies, and financial lending networks with authority to operate multiple business lines for extending credit (known collectively under the acronym SOFOMs, for their legal corporate structure called Sociedad Financiera de Objeto Múltiple). SOFOMs are divided in two categories: Entidades Reguladas, or Regulated Entities (SOFOM ER); and Entidades No Reguladas, or Non-Regulated Entities (SOFOM NR).
Due to the financial reform, regulation and supervision of SOFOMs has increased. SOFOMs have the obligation to maintain up-to-date information with the National Commission for the Protection of Users of Financial Services (CONDUSEF), and they are required to give information about their borrowers to at least one credit bureau.
SOFOMs may offer financial factoring, leasing, and loans and/or other credit services but they are not allowed to receive deposits from the public.
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Following the 1994 Peso Crisis, banks in Mexico have been very cautious in their lending, preferring to provide loans only to their most valued customers. However, banks are now beginning to implement programs for lending to a wider range of companies, although at relatively high rates. Average interest rates on loans in Mexico hover around 25 percent and are some of the highest in Latin America. In general, small and medium-sized enterprises (SMEs) have trouble accessing credit.
According to a first-quarter 2019 Bank of Mexico (BANXICO) survey of established companies, their main sources of financing were suppliers (76.9%), commercial banks (32.2%), other companies and/or their own headquarters (19.5%), foreign banks (5.7%), development banks (4.3%), and debt issuance (1.8%).
The Mexican Government has enacted several incentives to encourage more lending to SMEs, and banks have followed suit with new lending policies, but it remains to be seen whether the largest segment of the Mexican economy will gain better access to credit. In January 2014, then-President Enrique Peña Nieto announced a set of financial reforms to redefine the mission of development banks, promote private financing, and encourage financing with lower rates. Now more than five years later, these reforms have started to reduce borrowing costs and to increase access to credit, albeit slowly. The four goals of the financial reform are to 1) promote lending through the development banks; 2) expand credit from private financial institutions; 3) increase competition in the financial sector; and 4) ensure the security of the Mexican financial system.
The Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito Público or SHCP), the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or CNBV), and BANXICO are the principal regulators of the banking system. SHCP is concerned with institutional issues, such as licensing, and sets credit and fiscal policies. CNBV, a semi-autonomous government agency, is responsible for supervision and vigilance. BANXICO (the Central Bank) implements these policies and operates inter-bank check clearing and compensation systems. The Institute for the Protection of Bank Savings (Instituto para la Protección al Ahorro Bancario or IPAB, replacing the former institution FOBAPROA) acts as a deposit insurance institution. The Mexican Banking Association (Asociación Bancaria Mexicana or ABM) represents the interests of Mexico's banks.
Mexican Payments System (SPEI)
One objective of the Central Bank is to promote the development of the Mexican payments system. The Central Bank supervises the operation of the Inter Banking Electronic Payments System (Sistema de Pagos Electrónicos Interbancarios or SPEI), not only for large but also for retail payments transactions and it also regulates the retail payments systems which include electronic funds transfers, card payments, direct debits and checks. SPEI is an electronic funds transfer system owned and operated by the Central Bank. The system has allowed participants to transfer money in real time since August 2004. The system is used for both large-value payments and low-value transactions such as payrolls and person-to-person transfers. SPEI is a hybrid system, clears operations every few seconds, and the results are settled immediately on the participants’ cash accounts.
Digital Payment System (Cobro Digital or CoDi)
In January 2019, the Central Bank, the Secretariat of Finance and the Mexican Banking and Securities Commission announced a new payments system through QR (Quick Response) code. The system called Cobro Digital or CoDi is part of the Government’s efforts to increase financial inclusion and reduce cash economy. CoDi’s users/customers must have a smartphone, and a level 2 bank account (accounts that can be opened with customer’s basic information). The sellers must have a static QR Code, a smartphone to download the CoDi app (for face-to-face transactions) or a web page to generate the CoDi requests for online sales. Mexican authorities expect that this new platform will be completely operational in the last quarter of 2019. The CoDi system was officially launched in March 2019 during the Annual Convention of the Mexican Banking Association. On September 30, Banxico announced all banks required to offer CoDi on their mobile platforms were in compliance.
Mexican Financial Technologies (Fintech) Law
With over nearly 400 fintech start-ups, Mexico is currently the second-largest fintech market in Latin America after Brazil. In 2018, the Mexican fintech industry grew by 23.4 percent. Most of the Mexican fintech companies focus on payments and remittances, personal financial management, crowdfunding and lending. According to Fintech Radar Mexico 2018, the segments with most activity and dynamism in Mexico are payments and remittances (30%), lending (20.6%), enterprise financial management (13%), crowdfunding (7.4%), insurance (6.6%), identity fraud (4.1%), digital banks (3.8%), trading & capital markets (3.3%), wealth management (2%).In addition to these fintech segments, the Mexican market has activity in personal finance management, financial education and saving, and scoring solutions.
Due the growing importance of the fintech industry in Mexico, in 2017 and 2018 financial regulators drafted Mexico´s first financial technology regulation law to reduce operational risk, enhance transparency and improve security. On March 10, 2018 the Fintech Law was published in the Official Gazette.
The law covers four broad areas of fintech services. They include crowdfunding and P2P lending, electronic money services, virtual assets, and application programming interfaces (APIs). The law was drafted to foster financial inclusion, consumer protection, financial stability, competition, and financial integrity.
The law allows companies and financial entities to obtain a special temporary authorization to offer financial services using technological tools through a regulatory sandbox. The Fintech Law also mentions the creation of a Financial Innovation Group formed by financial authorities and the private sector to share ideas, discuss innovations in the financial arena between the private and public sectors, and achieve better planning and development of the law. The law also establishes that SHCP, CNBV, and BANXICO are the main regulators for the fintech sector.
The Fintech Law includes an option to obtain a special temporary authorization to offer financial services using technological tools subject to certain terms and conditions. The CNBV reported in late September 85 fintechs applied for this authorization. The Fintech Law was approved in March 2018 but most of the substantive content was established by secondary regulations published in September 2018.
According to Fintech Radar Mexico, following the passage of the Fintech Law, the payments and crowdfunding sectors grew by 18% in 2019 over the previous year. As noted above, payments and remittances are the most active industries in the sector, and digital banking has experienced the most important growth (around 200%) compared to 2018.
Development Banks
The mission of development banks is to fill financing shortfalls in the commercial banking sector. Mexico has seven government-owned development banks that provide services to specific areas of the economy. The dominant institutions are Nacional Financiera (Nafinsa) and Bancomext (Banco Nacional de Comercio Exterior or National Bank for International Trade). These institutions have become primarily second-tier banks that lend through commercial banks and other financial intermediaries such as credit unions, savings and loans, and leasing and factoring companies. Nafinsa's primary program funds SMEs and micro businesses. Nafinsa also undertakes strategic equity investments and contributes equity to joint ventures. Bancomext provides financing to Mexican exports and to SMEs. It also offers working capital, project lending, and training to firms in several specific sectors that require support, such as textiles and footwear.The other Mexican development banks are Banobras (Banco Nacional de Obras y Servicios Públicos or National Development Bank for Public Works and Services), Financiera Rural (Financiera Nacional de Desarrollo Agropecuario, Rural, Forestal y Pesquero or Rural Agriculture Bank), Bansefi (Banco del Ahorro Nacional y Servicios Financieros or National Savings and Financial Services Bank), Banjercito (Banco Nacional del Ejército or Mexican Army, Air Force and Navy Bank), and Hipotecaria Federal (which finances Mexican homeownership through financial intermediaries).
Non-Banks (SOFOMs)
The non-traditional banking sector in Mexico is comprised of exchange houses, credit unions, leasing, factoring companies, and financial lending networks with authority to operate multiple business lines for extending credit (known collectively under the acronym SOFOMs, for their legal corporate structure called Sociedad Financiera de Objeto Múltiple). SOFOMs are divided in two categories: Entidades Reguladas, or Regulated Entities (SOFOM ER); and Entidades No Reguladas, or Non-Regulated Entities (SOFOM NR).Due to the financial reform, regulation and supervision of SOFOMs has increased. SOFOMs have the obligation to maintain up-to-date information with the National Commission for the Protection of Users of Financial Services (CONDUSEF), and they are required to give information about their borrowers to at least one credit bureau.
SOFOMs may offer financial factoring, leasing, and loans and/or other credit services but they are not allowed to receive deposits from the public.