1. Overview of the Mexican Payments Systems: Challenges and Opportunities
Lorenza Martínez Trigueros Director General of Payment Systems and Corporate Services February 2015

2. Outline Mexican retail payments Limited adoption of payments
Bank of Mexico’s role
Opportunities
Final remarks

3. Mexican retail payments
By reducing transaction costs, more efficient and reliable payments help to allocate resources more efficiently, which brings about higher social welfare.
The challenge is to achieve efficiency in electronic payments such that they can be made anywhere, any time and of any size.
As payment regulators, we care about ensuring the sound development of these payments so that their benefits materialize.
Why do we care about having anywhere, any-time, any-size payments?

4. Mexican retail payments
Despite the reduction in the use of checks and growth in electronic payments in the last years, Mexico still has opportunities for improvement in the use of more efficient media payments.
Source: Red Book, BIS.

5. Mexican retail payments
Cards infrastructure, 2013
Country
Number of cards per capita
Number of POS per million of inhabitants,
Dec. 2013
Card payments per capita
Number of ATM per million of inhabitants, dec 2013
Cash withdrawals per capita
Korea
5.0
41,575
228.5
2,474
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Australia
2.7
34,704
1,304
Italy
1.2
26,112
29.9
825 13
United Kingdom
2.4
25,807
181.1
1,060 45
Canada
3.0
23,615
224.8
1,852
Sweden
2.3
22,261
248.6
337 23
France
1.3
20,512
136.7
895 25
Switzerland
1.9
20,474
88.7
843 15
United States
3.8
16,978
248.3
1,385
Netherlands
1.8
14,807
169.5
439
Belgium
12,275
119.5
1,333 38
Germany
1.6
9,057
44.7
1,009 26
Mexico
1.1
5,798
14.6
342
When comparing our card market with other economies, it is inferred that there is room for further development.
Source: Red Book, BIS.
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6. Mexican retail payments
In spite of progress observed, Mexico still lags behind other economies in the usage of electronic payments.
Mexico fares better when credit transfers are considered only.
Per-capita electronic payments in emerging and developed economies1/
Number of yearly per-capita payments
Per-capita credit transfers in emerging and developed economies1/
Number of yearly per-capita transfers
Electronic payments
In 2013, the number of electronic payments per capita in Mexico was 24 and the average number of electronic payments per capita of several emerging and developed economies was 190; this indicates that the average number of electronic transactions per capita for the whole sample was 690% higher than in Mexico.
Nevertheless, it should be noted that the gap between Mexico and other countries has been closing; in 2009, the number of electronic payments per capita in Mexico was 15 and the average number of electronic payments per capita of several emerging and developed economies was 155; this indicates that the average number of electronic transactions per capita for the whole sample was 900% higher than in Mexico.
Credit transfers
In 2013, the number of credit transfers per capita in Mexico was 9 and the average number of credit transfers per capita of several emerging and developed economies was 42; this indicates that the average number of credit transfers per capita for the whole sample was 368% higher than in Mexico.
In 2009, the number of credit transfers per capita in Mexico was 7 and the average number of electronic payments per capita of several emerging and developed economies was around 38; this indicates that the average number of credit transfers per capita for the whole sample was 427% higher than in Mexico.
Source: BIS. Electronic payments defined as the sum of the number of credit transfers, direct debits, E-money payment transactions and card payments.
1/ Countries in the sample: Australia, Belgium, Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Sweden, Switzerland, Turkey, (not considered in credit transfers due to the lack of data), United Kingdom, United States (except 2013).

7. Outline Mexican retail payments Limited adoption of payments
Bank of Mexico’s role
Opportunities
Final remarks

8. Limited adoption payments: Issues to be tackled
Adoption of electronic payments is still limited despite observed improvements. Issues to be tackled:
Low financial inclusion
Mistrust of payment schemes or banks
Payment infrastructure is missing or insufficient in some areas
Access to payment services could be expensive
Electronic payments are rarely used by the informal sector
Adoption of fraud prevention schemes and security standards
Interoperability should be supported among payment-service providers offering the same type of service, without discourage innovation. Issues to be tackled:
Entry barriers to potential new participants
Increasing competition
The legal framework should keep up pace with innovation to enable the sound development of more efficient payment alternatives (e.g., e-money). Issues to be tackled:
Policies oriented to improve infrastructure
Policies oriented to get faster payment systems
Payment authorities must be concerned not only with adequate access to payment systems, but also their adequate usage.
Supply and demand factors must be tackled jointly, since the actual usage of payment systems is an equilibrium result.
To this end, payment policies should be accompanied by demand-targeted actions (e.g., financial education), so as to improve the amount of information and trust of potential consumers.
Additionally, it is important to consider policies oriented to improve infrastructure that is not specific for payment purposes but is a necessary condition for them (such as the electric grid and the mobile network).

9. Outline Mexican retail payments Limited adoption of payments
Bank of Mexico’s role
Opportunities
Final remarks

10. Bank of Mexico’s role in retail payments: overview
One of Bank of Mexico´s objectives is to promote the sound development of payments systems, on that regard it plays different roles:
Operates the RTGS (SPEI), the backbone of the Mexican payments systems, not only for large but also for retail payments transactions.
Regulates the retail payments systems: Electronic funds transfers, card payments, direct debits and checks. Bank of Mexico has issued regulation in order to promote transparency in fees and competition among clearing houses processors.
Mobile payments clearing houses rules, requirements for authorization and technical specifications for the interoperability among such entities (SPEI).
Card payments clearing houses rules, requirements for authorization and technical specifications for the interoperability among such entities.
Regulatory changes have facilitated the entry of new participants, aggregators (i- Zettle, Pago Fácil, Mercado Pago, etc.), clearing houses, (two in process of authorization), new non-bank issuers and specialized companies in card processing (issuing and acquiring).

11. Bank of Mexico’s role in retail payments: operator
Since 2005, Bank of Mexico operates the SPEI, a real time settlement system (RTGS).
The use of SPEI, in conjunction with other policies of the Central Bank to promote more efficient means of payment, has allowed a sustained growth of electronic payments in the last years.
Retail payments have progressively gained importance in Mexico.
Electronic payments
Billions of USD
Average Annual Growth Rate 5%
44%
19%
26%
Source: Bank of Mexico.
1/ Third-party payments: those which are both sent and received by SPEI participants on behalf of their clients.
2/ Calculated with the average exchange rate of October 2014.

12. Bank of Mexico’s role in retail payments: regulator
Mobile payments
On December 2013, Bank of Mexico issued regulations to promote and facilitate electronic transfers initiated with a mobile device. The changes include:
Rules for the clearing houses which process electronic transfers initiated with a mobile device.
Association of mobile phone numbers to bank accounts. (since November 2014)
The banks should allow to their costumers:
The association of mobile phone numbers to bank accounts and,
The processing of electronic transfers in which the beneficiary account is identified with the 10 mobile phone number digits.
Some facts:
Subscriptions to mobile phones in Mexico in 2013: 103 millions
Around 39% of mobiles in Mexico are smartphones
According to The Competitive Intelligence Unit, the average life of an smartphone in Mexico is around months

13. Bank of Mexico’s role in retail payments: regulator
Mobile payments
Extended hours of operation and reducing processing times of mobile payments through SPEI.
Service hours 11.5x7. (January 2015)
Service hours 20x7. (March 2015)
Service hours 24x7. (November 2015)
The processing timeframe could take up to 15 seconds. (May 2015)
5 sec. Issuer bank
5 sec. SPEI
5 sec. Receiving bank

14. Bank of Mexico’s role in retail payments: regulator
Tiered-system accounts
Introduced in 2011 to enable banks to offer more flexible payment and financial products.
Four tiers, from lower to higher functionality and from looser to stricter KYC & AML/CFT requirements.
Tier
Max. monthly deposits
Max. account balance
Debit cards
Electronic fund transfers**
Checks 1*
272 USD
363 USD  2
1,088 USD NA 3
3,625 USD 4
The market uptake of tiered system accounts (3rth quarter 2014):
Level 1 accounts: 11,974,503
Level 2 accounts: 10,316,366
Level 3 accounts: 583,057
Level 4 accounts: 101,676,804
Only level 4 accounts will not have an upper limit, unless negotiated by institutions with their clients
Even though all of the four levels of accounts include debit cards, only accounts level 2, 3, and 4 allow their clients to access their funds through electronic funds transfers
Only level 4 accounts allow withdrawals by cashing checks
* Only for domestic transactions.
** Includes direct debits, Internet and mobile payments origination .

15. Bank of Mexico’s role in retail payments: regulator
Basic accounts
Must be offered by all banks since 2007
Most services are free:
Opening or closing the account
Debit card
Cash withdrawals & balance enquiries at bank’s branches or ATMs
Direct debits
Balance check
There’s evidence that mandating basic accounts in Mexico has contributed to financial inclusion by enabling users to access more sophisticated financial services.1/
Still, authorities could play a more active role in publicizing basic accounts, since branch employees sometimes don’t offer them.2/
There are two types of basic accounts: payroll basic accounts and general basic accounts. Major differences are:
General basic accounts have a monthly average balance requirement (determined by each institution); if not met by three consecutive months, the account could be canceled
Payroll basic accounts may only be opened by employers for their workers
The market uptake of basic accounts in Mexico: 22,213,505 accounts (third quarter 2014)
Market uptake of general basic accounts: 2,852,682 accounts
Market uptake of payroll basic accounts: 19,360,823 accounts
Some important lessons deriving from the Mexican case with basic accounts are:
Basic account products should be standardized in order to allow for easier comparisons between institutions offering them
Due to the fact that this market is characterized by incomplete information, there should be stronger campaigns aimed at informing citizens about the possibility of getting these types of financial products
1/ Kaiser K., Lever C., Salcedo A. (2011), “On the Impact of Mandatory Basic Accounts on Financial Development: Evidence from Mexico”, mimeo, Banco de México
2/ Giné X., Martínez C., Keenan R. (2014), “Financial (Dis-)Information: Evidence from an Audit Study in Mexico”, The World Bank

16. Bank of Mexico’s role in retail payments: regulator
Card payments clearing houses
In order to accomplish the financial reform published in January 2014, in March 2014, Bank of Mexico issued:
The rules for the organization and operation of card clearing houses, requirements for authorization and technical specifications for the Interoperability among such entities.
Avoid establishment of entry barriers
Avoid market distortions and lack of transparency
Promote innovation
Improve security and risk management
Allow clearing houses to contract with third parties the provision of routing services, clearing and settlement.
Allow clearing houses to charge in proportion to the payment amount.
Clearing houses regulations objectives:
Avoid establishment of entry barriers
Avoid market distortions and lack of transparency
Promote innovation
Improve security and risk management

17. Bank of Mexico’s role in retail payments: regulator
Card payment networks
In conjunction with the National Banking and Securities Commission (CNBV), in March 2014, issued regulation related to card payment networks.
The general provisions applicable to card payment networks, which seeks:
To set terms and conditions that participants must accomplish in such networks.
To promote transparency in fees.
To promote competition.
To avoid discriminatory conditions.
To set responsibilities for brand card owners to grant liquidity.
Clearing houses regulations objectives:
Avoid establishment of entry barriers
Avoid market distortions and lack of transparency
Promote innovation
Improve security and risk management

18. Outline Mexican retail payments Limited adoption of payments
Bank of Mexico’s role
Opportunities
Final remarks

19. Opportunities: mobile payments
Besides P2P payments, mobile payments have potential to broaden P2B electronic payments, in addition to card payments.
There has been a growth in value and volume of the transactions made through a mobile device; regulation is expected to incentivize higher growth.
In Mexico, the mobile phone has, by far, a greater presence and is more affordable than a computer for most population (over 80% of the population have a mobile phone), which allows new schemes for sending and receiving payments.
Year
Population (millions)
Mobile phone contracts subscribed (millions)
Contracts per capita
2005
103 47
0.5
2006
104 55
2007
105 67
0.6
2008
106 75
0.7
2009
107 83
0.8
2010
108 91
2011
109 95
0.9
2012
116
101
2013
118
Source: Bank of Mexico.
1/ Transactions made thorough phones or mobile devices include: transfers, payments in businesses and other operations such as payments of services

20. Opportunities: card payments Card payments per capita
As it can be observed, the reforms and policies implemented by Bank of Mexico in recent years, have opened the possibility for new entities to participate in the Mexican payments market.
There is also a potential for growth on card payments transactions.
The regulation, promotes the entrance of new participants: clearing houses, specialized service providers, aggregators, acquirers, issuers, etc.
Although there has been an important growth in the card payments, Mexico is still fallen behind respect other countries. It is expected that these recent improvements promote further growth of card payments.
Country
GNI per capita
Card payments per capita
Korea
33,440
228.5
Australia
42,450
Italy
35,540
29.9
United Kingdom
38,160
181.1
Canada
42,610
224.8
Sweden
46,680
248.6
France
38,530
136.7
Switzerland
59,210
88.7
United States
53,750
248.3
Netherlands
46,400
169.5
Belgium
41,240
119.5
Germany
45,620
44.7
Mexico
16,110
14.6
Source: World Bank and Red Book, BIS.

21. Opportunities: banking agent
The National Banking and Securities Commission issued regulations to allow outsourcing some banking services to banking agents, to broad access and to reduce costs.
Banking agents can take cash and check deposits, commercialize banking cards related with accounts type 1 and open accounts type 2 and 3, pay remittances, cash withdrawals .
Banks are responsible that the banking agents comply with all the regulation requirements in the banking services they provide.
Banks need authorization of the National Banking and Securities Commission to hire banking agents.
The regulation has been useful to widen access.
When the regulation was issued, there were around 11 thousand bank branches and some unregulated service points with very limited services.
Since then there have been 15 banks authorized to work with banking agents with more than 26 thousand service points.
Currently a banking agent (convenience store) has been opening an average of 5 thousand account type 2 per day.
Infrastructure
2010
2014
Average growth ( )
POS
482,299
872,865
16%
Branches
11,291
12,715 3%
Banking agents
9,137
26,857
31%
ATM
35,936
42,643 4%
Source: Bank of Mexico and National Banking and Securities Commission.

22. Outline Mexican retail payments Limited adoption of payments
Bank of Mexico’s role
Opportunities
Final remarks

23. Final remarks
The Bank of Mexico has followed two strategies to enhance the availability, reliability and convenience of electronic payments:
Exploit economies of scale and scope of SPEI
Improve the regulation for privately-run payment services and providers
Coordination with the industry is necessary to ensure that society enjoys the benefits from more efficient payment alternatives.
Payment authorities should continue to strengthen incentives to use electronic payments, particularly for those currently excluded from formal financial services.
Since payment system technology is in constant evolution, authorities must attend closely new developments in order to evaluate their possible opportunities or challenges, and to act promptly.
Some payment markets are two-sided. Therefore, authorities must be coordinated with all participants to guarantee that they have a comprehensive view of the market.