Mexico´s financial reform objectives and current regulations in payment services February 11 th, 2015

Agenda 1. Background 2 2. Reform objectives for payment systems 3. Regulation for card clearing houses4. Benefits of the card clearing houses regulation 1. Background 5. Other regulations 6. Conclusions

Market penetration for card payments is low in Mexico. Cards per inhabitant 1.1 POS per million inhabitants 5,798 Card payments per capita (annually) 15 These figures are significantly lower than those found in surveys by the Committee on Payments and Settlement Systems (CPSS). However, card payments have been growing and Mexico is ready to include new service providers. Also, mobile payments have a great potential for growth. 3 Background

4 Changes in payroll practices have generated growth in the number of debit cards. Average annual growth Average anual growth % 18.4%

Reform objectives for payment systems 5 To foster conditions that facilitate and promote the use of payment cards. To increase transparency in fees. To promote competition, expand infrastructure and reduce fees and commissions. To allow open and fair access. To protect end users.

Regulation for card clearing houses 6 To comply with the provisions of Articles 4 Bis 3, 19 and 19 Bis of the Transparency and Financial Services Arrangement Act (LTOSF), Bank of Mexico issued rules for the organization and operation of card clearing houses. The rules for card clearing houses were issued on 11 March,  The main purpose of these rules is to reduce processing costs and improve services to the end user through increased competition among card clearing houses.

In particular, the card clearing houses regulation seeks: i. To eliminate entry barriers. ii. To facilitate innovation. iii. To strengthen security and risk management. iv. To prevent price distortions and lack of transparency in processing fees. On October 7, 2014, an amendment was issued to allow clearing houses to hire third parties, abroad or within the country, for routing services, clearing and settlement. 7 Regulation for card clearing houses

Benefits gained by the card clearing houses regulation Responsibilities of the clearing houses, card brands, card issuers and acquirers have been made clear. Operational requirements and communication protocols to process card transactions are now available to potential new service providers. Two new card clearing houses have applied for authorization. 8

Other regulations There are accounts that are easy to open, with transaction limits to limit money laundering. These accounts can be used for mobile payments. Bank of Mexico issued rules for mobile payment clearing houses that are similar to the ones for cards. Two entities are in the process of getting authorization. Also, together with the National Banking and Securities Commission (CNBV), Bank of Mexico issued general rules for card payment networks. The main issues regulated are: i. Interchange fees. ii. Access requirements. iii. Price distortions. iv. Security and business continuity. v. Transparency on merchant acquiring fees. 9

Conclusions The card payment system and the mobile payments system are undergoing important changes. Bank of Mexico expects that there will be more electronic payments and that this will bring efficient services accessible to more people. Bank of Mexico intends to foster innovation on payment services and will seek to identify and defuse any arrangements that hinder innovation. 10

February 2015