As the race is on for banks to make the leap to digital technologies, Mexico lags behind. The current system has tremendous room for growth, it’s not perfect, but it has some of the foundational requirements that could make it a valuable opportunity for investment.
Citizens currently see a disparity between the banking services they desire versus the ones they receive. The small number of large banks that run Mexico’s banking systems haven’t taken full advantage of the opportunities to innovate. The higher fees that customers are used to paying means that the gains in efficiency from using a digital-first approach will have an even greater impact. Rural areas are underserved and in need of flexible services that don’t require expensive infrastructure.
The country’s current system is ripe for disruption. All of the problems faced here are the same ones that digital banking solutions are already working to solve. The rise of technology is erasing the need for people to be in proximity to their branch to be serviced. The current state of the banking system leaves an opening for any financial institution ready to fill it.
Banking is already privatized
In 1990, the nation’s banks were made private institutions. These hopeful efforts were billed as a way to lower the country’s deficit and eliminate debt. To facilitate the transition, government assets were sold off at auction. The number of bidders later proved to be quite small, and the number of people involved in running the newly privatized banks remained small as well.
These assets have changed hands over the years and are now mostly controlled by large international banks. While the number of controlling parties remains small, it still holds true that the banks of Mexico today are predominantly private.
Any bank hoping to move in and start offering digital services within Mexico’s borders can do so without having the government as a competitor.
Basic services have room for improvement
The current banking services that are available to the average citizen have an opportunistic gap between what is delivered and what is desired. These services, compared to institutions in most parts of the world, could see massive improvements by adopting a digital-first approach.
Current inefficiencies have led to more fees for basic services. Some of the actions subject to charge include:
- Making more than three banking transactions per month
- Requesting a second account statement
- Asking for account statements from previous months
- Transferring money
- Writing a check
- Withdrawing money from the physical teller
- Checking your balance
- Investigating a charge if it is ‘unfounded,’ which is a loaded term
- Not maintaining their arbitrary minimum balance
Credit services are another avenue where customers would see the value in a change of process. Standard credit card interest rates start at 25% and go up to 75%. That’s without annual and late fees, which often take the total over 100%. Mortgage rates are three to four times higher than in the neighboring U.S.
Customer service isn’t living up to customer expectations in many circumstances. An entire day dealing with the bank can result in lost time but no meaningful answers. Banks hang up on customers, holds take forever, transfers go nowhere useful, and when customers finally get to a person at the end of the line, the information they get will vary depending on which department they got through to.
The enormous strides that digital banking services are working on improve systems that are already worlds ahead of these conditions. Automated cloud-based systems are already built to provide faster service and lower fees and central knowledge bases provide faster answers.
Rural areas are an opportunity for expansion
Banks have no requirements to service specific areas. This leaves many rural areas of the country with no current infrastructure. This lack of community branches is one reason that Mexico has one of the lowest rates of financial inclusion at 36.9%.
However, having access to reliable banking is of keen interest to citizens. Access to credit could explode the wealth of agricultural communities. These services would help local economies and build generational wealth.
The infrastructure for a digital transformation is already largely in place. Cloud-based systems only need access to an internet connection, and 70% of Mexico has access to the internet. With no other infrastructure needed, deployment and adoption can happen quickly. For those underserved areas, the lack of competition means that huge swaths of market share are up for grabs.
Things are primed to start turning around
While the issues that Mexico currently faces won’t go away overnight, there is hope that they will eventually get solved. The government is working to take back control of the industry and take some of the power away from large international banks.
Officials see how their country is being held back by denying its citizens access to reliable lines of credit. Multiple bills are in the works that would focus on many of the same areas where a digital banking system would excel. They will focus on bringing affordable services to citizens and serving rural areas. They are working to give small and medium sized businesses the tools to grow.
The current administration is another agency that hopes to instill lasting change. In 2019, they converted Bansefi, the last public bank, into the “Bank of Well-Being.” The name change comes along with a 10 billion peso program that seeks to build 2,700 new branches of the bank. Rural and remote regions of the country will be given a top priority for these new institutions.
They plan to offer basic services like savings accounts that link to debit cards, ATMs without commissions, accounts for children, money transfers, mortgages, life insurance, and receiving money abroad without expensive middlemen.
A well-designed plan to bring Mexico into the digital age would be able to ride the wave of change and improve conditions for all parties involved. Digitalization is coming; it’s just a matter of when. In these troubling times, many banking institutions are seeing a large amount of growth by looking to bring services online. For countries like Mexico, who don’t already have access to these affordable services, the potential reward is even greater.
For Mexico to tap into the great innovation opportunities, we must ensure that operational risk and product availability are managed effectively in what is now a permanently changed world. There are 4 pillars to achieving this:
We have been talking about this for years but now it is essential that core platforms are available on the cloud. Cloud environments are far more easily available for remote or home based teams, deployments of changes are simpler to achieve, your staff do not need to be physically present, the costs can be lower and the platforms scalable/de-scalable with ease. Cloud technology is the key way financial institutions can begin to provide much needed services to remote areas, expanding their customer base.
DevOps is the philosophy that is most appropriate for banking technology development in Mexico. Using specialized techniques and tools, development can be done across remote and home based teams using DevOps, it is also highly adaptive to changing circumstances so the investment is protected, new products can be deployed and adapted continuously and it is far cheaper and easier to develop, test and deploy with DevOps. Bringing new and exciting features to users in Mexico will be done with greater ease and security if done with DevOps.
Your customers in Mexico are concerned and are looking for answers to questions that they have not yet fully understood. Although it is difficult to develop robust models, predictive technologies can provide early and valuable client engagement. Using such technology, we are also able to get a better understanding of risks, and reduce losses. As time moves on, this will be a key element to ensuring consumer and market stability in times of crisis and across remote regions.
Transactional multi-channels are of course essential when building out services across Mexico. Their ability to cope with high volume and higher volatility is vital in Mexico. However, so much more is needed. People feel lonely in isolation, afraid, disaffected from humanity. We all require community. Channels are a key way to achieve community interaction and when it comes to finances it is one of the most important for so many people. Properly developed channels enable you to become “The Community” in your industry ensuring engagement, unity of purpose and quality knowledge sharing.
Mexico has a lot of potential and opportunity for innovation in banking, and with the right partner by your side, your financial institution could be the one leading the charge. People in Mexico deserve great, accessible services and new banking features, and we’re here to help give it to them. Drop us an email at email@example.com or book a free consultation here, we’d love to speak with you further about our vision for digital transformation in Mexico.
Written by Homero Humberto Reyes Guarnero, Country Business Manager at CPQi Group Mexico.