Banks Aggressively Promote Use of Credit Cards in Mexico
The major financial institutions are promoting the use of credit cards in Mexico, giving buyers more options to finance their purchases but also raising the level of consumer debt.
In a report published in early March, the Comision Nacional Bancaria de Valores (CNBV) said consumer debt rose by 7.7% in the last quarter of 2004 and by a cumulative 26% for the entire year. The increase was attributed primarily to an increase in credit-card use last year.
Credit cards remain largely an untapped market, since Mexicans still use cash for 86% of their transactions. The trend is changing, however, because Mexico's largest banks are launching aggressive new promotions to compete for potential credit-card customers.
Some banks like BBVA-Bancomer are targeting the lower- or middle-income consumers who traditionally have not used credit cards for their purchases. "This is an interesting market that has not been tapped by the banks," said Rodrigo Manrique, director of BBVA-Bancomer's credit-card division.
The banks are competing for the lower-income customers with the large retail operations like Wal-Mart and Tiendas Coppel, which offer store cards to clients who traditionally have not had access to credit or even a bank account. The retailers have an advantage because they are not as stringent as the banks, which often require that applicants have at least a monthly minimum wage of 5,000 pesos (US$446) to obtain a card.
The pitfall for lower-income consumers is that retailer-issued cards frequently carry much higher interest rates than those offered by the
Higher-end retailers like Palacio de Hierro and Puerto de Liverpool are also competing with the banks in the credit-card market for the wealthier customers. A report in the Mexico City daily newspaper La Jornada said some of the wealthier consumers are willing to acquire cards with higher annual interest rates including the Citibank Classic (39.6%), the Banamex Clasica Mastercard (39%), the American Express Bank (38%), the Scotia Clasica Mastercard (37.96%), the Santander Clasica Visa (37.15%), and the Bital Clasica Mastercard (34.9%).
Credit-card numbers expand rapidly in past two years
The aggressive campaign to boost credit-card usage has paid dividends for the banking industry, with the number of new credit cards issued in Mexico rising by 23% in 2004 alone. A total of 11.6 million credit cards were in circulation by the end of the year, compared with 9.4 million at the close of 2003, according to industry reports.
Some industry sources estimate that the credit-card market in Mexico has increased by 20% over the past four years. "All the banks are interested in entering into the business of credit cards because of profitabity," said analyst Angelica Bala of Standard & Poor's financial rating company.
Some analysts note, however, that the number of credit cards in Mexico is still much lower than in Latin American countries like Brazil, Argentina, and Chile.
The new credit-card users, along with consumers with existing accounts, have not hesitated to resort to plastic to finance new purchases in the past few years. Some bank officials credit the trend in part to easier terms offered by many retailers. "There are all sorts of promotions," said Eduardo Diaz, deputy director of the credit-card division at Banamex-Citibank. "But the offer of no interest payments for several months has proven to be a major factor encouraging the use of credit cards."
Some industry watchers suggest the aggressive promotions have changed the function of credit cards in Mexican society. "Despite the general perception in Mexico that credit cards are only or mainly used in emergencies, lower interest rates have led to a change in credit-card usage patterns," said Euromonitor International.
Analysts are already projecting an expansion in the number of credit cards in Mexico, with an increase of perhaps 20% annually through 2010. …