Mobile Payments Promise to Improve Financial Accessibility in Mexico Michael Perez - Federal Reserve Bank of Dallas
go to original September 19, 2016

A majority of Mexican adults remain outside the country’s financial system. The proportion is greatest in rural areas, where 71 percent of those 15 and older lack access to formal financial services, far exceeding figures for Mexico’s Latin American peers. Mexico also trails in personal and business loan issuance, deposit rates and debit and credit card penetration.

An estimated 90 percent of transactions in Mexico are settled in cash, indicative of formal finance’s poor reach in the world’s 15th-largest economy. A deep distrust of banks persists, which has contributed to low bank-account ownership, along with unstable employment prospects and a large informal economic sector operating outside government oversight and tax law.

The high fees and minimum balance requirements at Mexico’s commercial banks contribute to the problem. The banks also have traditionally failed to address the payment needs of low-income, unbanked populations.

Consequently, many Mexicans form communal savings and lending arrangements, known as tandas, though these can be expensive and unreliable. Inadequate financial consumer protection laws, frequent instances of payment fraud and low levels of financial literacy also persist.

The economic and commercial consequences are considerable. The most affected - small businesses and poor households - often can’t take advantage of growth opportunities or absorb financial shocks.

Accessible systems, via technologies such as mobile phone networks, could more widely make available savings, payment, credit and risk-management products, aiding growth and efficiency by narrowing financial in frastructure gaps. Such improvements would boost credit supply and investor confidence, encouraging business formation while discouraging reliance on often costly and unreliable informal alternatives.

Mexico’s regulators are slowly progressing toward a more inclusive financial system. The country’s banking and financial market regulator has endorsed the Maya Declaration, an initiative supported by 58 regulatory agencies around the world to encourage financial inclusion.

Authorities had aimed to have a banking agent or branch in every Mexican municipality but failed to reach the goal by their original 2014 target date. Officials have since begun recalibrating objectives in light of technological advances.

Read the rest at Federal Reserve Bank of Dallas

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