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Mexican Retail Brands could enhance financial inclusion with cards and touchpoints

mexican retailer and financial inclusion

Some Mexican retailers are playing an important role in financial inclusion. In fact, they are rolling out alternative payment methods, especially digital payments cards, improving the penetration of financial services.

In the country, only 49% of adults over the age of 15 have a bank account as of 2022. The figure was much lower in 2017, 37%, but despite the great improvement more than half of the adult population has no access to basic financial services.

The popularity of non-banks banking

That is why any financial instrument may help. And payments cards seem to be liked by the population. In 2021, about 20% of Mexicans had a department store payment card, whereas only 10% had a bank credit card.

There is clearly plenty of space on the market for basic financial services provided by non-banks. And retail brands can create a strong relationship with these customers.

Mexico also has a quite high poverty rate, at 40%, and about 55.6% of its workforce is connected with somewhat “informal” activity. In other words, they do not fulfil tax obligations, or they don’t make social insurance contributions.

It is therefore essential to develop a financial offer that is suited to fit the pretty basic financial needs of this segment of population, allowing them to manage their money and their spending in the easiest possible way.

Only 49% of Mexicans over the age of 15 have a bank account as of 2022

mexicans current account holders

A proximity service model

Local stores, whether owned by a retail chain or affiliated to it, may also work as a physical network of touchpoints for basic operations, like withdraws or deposits.

As in many other countries, a huge part of the Mexican population does not live close to a bank branch, or any other financial store. In three-quarters of Mexico’s municipalities, the closest physical access point to banking services is farther than 2 kilometres away.

Also, the very basic range of financial needs of a vast part of the Mexican population leaves little margin to profitability: any traditional, brick and mortar branch would struggle to reach profitability.

The solution could lie in local convenience stores, that can benefit of an extra source of revenues, like fees and commissions on deposits and withdrawals. For any other services, the customer can use the app or a website.

Bigger stores could have a manned teller to provider advisory on simple products, like consumer loans, or insurance covers.

What is happening in Mexico

Many retailers in Mexico are now offering payments cards, and also remittances, small business loans, and other traditional services. It is quite likely that this offering will keep on growing.

Also, the fintech ecosystem is growing: the opportunities on the Mexican market are huge, with a high smartphone and internet penetration. The improvements in card usage may boost a wider adoption of digital wallets, paving the way for the growth of the existing neobanks, and the arrival of new competitors.

I would also expect local retail brand to forge an alliance with innovative, "banking as a service" fintechs. Mexican consumers seem to value retail brand and to trust them when it comes to digitize their money. It would make sense, for retailer, to leverage a BaaS partnership and to expand their foothold in financial services.

As in any other country, the rules of the game are decided the local Authorities. The Mexican Government is promoting an evolution of the national regulation of financial systems.

A new law was passed to promote and enhance fintech solutions. And public initiatives are being launched to teach financial literacy in schools.

The data used in this article is extracted from the post Financial inclusion efforts in Mexico give way to new market highs by Dina Ting.