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Major Opportunities for Prepaid in Mexico

MasterCard’s 2012 study of the global prepaid card market estimates that the potential gross dollar volume opportunity for open-loop prepaid cards in Mexico in 2017 will be $45.8 billion. This represents a 38% increase on the $37 billion addressable opportunity which MasterCard forecast for Mexico in 2017 in its previous study, published in 2010.

MasterCard’s figures are based on research by US-based consultancy Boston Consulting Group.

“In 2017, Mexico will be the second largest prepaid card market in Latin America after Brazil,” says Rebeca Vela, Business Leader for Expert Sales at MasterCard Mexico. “In Mexico, the biggest prepaid card markets will be payroll cards, followed respectively by government-issued welfare cards, employer-issued meal/food cards, and remittance cards.”

“The challenge for banks issuing prepaid payroll cards will be to offer cards that comply with the Mexican Central Bank’s bank account regulations, while not being too complex for employers to administer,” says Vela. In August 2011, Banco de México, the Central Bank, introduced regulations stipulating four different levels of bank account, with different limits on monthly deposits. “The lowest level of account can only be accessed through a prepaid card, which can only be used in Mexico,” says Xavier Fast, regional manager, Latin America and the Caribbean at World Bank subsidiary Consultative Group to Assist the Poor (CGAP). “This prepaid card account can receive remittances originating domestically or from abroad, but does not offer a mobile phone transfer capability.”

Economic growth

Mexico, the second-largest economy in Latin America after Brazil, has 112 million inhabitants. Its GDP is likely to grow by 3.8% year-on-year in 2012, mainly driven by healthy domestic demand, investment bank J.P. Morgan says.

Mexico’s informal sector is estimated at 29% of the economically active population, J.P. Morgan says. Anabel Perez, president and CEO of Latin American prepaid card program manager NovoPayment, says that around 65% of Mexicans are unbanked.

Consumer credit penetration in Mexico is low by regional standards, at around 15% of GDP versus 45% in Brazil and 72% in Chile, J.P, Morgan says. However, it predicts that consumer credit will grow at a healthy pace in 2012, following the 16.8% year-on-year average growth seen in the second half of 2011.

According to Banco de México, as at 31 December 2011 there were 12.3 million credit card accounts in Mexico, with a total of 24.65 million cards in issue, of which 16.73 million were used in the fourth quarter of 2011. There were 41.18 million accounts with debit cards as at 31 December 2011, with a total of 85.6 million debit cards in issue, of which 43.54 million were used in the fourth quarter of 2011.

Banco de México says that, as at 31 December 2012, there were 36,448 branch-based ATMs and 19,258 non-branch ATMs in Mexico. In the fourth quarter of 2011, there were 8.8 billion ATM transactions, worth a total of MXN 8.8 billion ($641 million).

There were 547,708 POS terminals in Mexico, with 131.62 billion credit card transactions worth MXN 118.53 billion ($8.7 billion) and 209.93 billion debit card transactions worth MXN 105.8 billion ($7.7 billion) in the fourth quarter of 2011.

Prepaid card market overview

According to market research firm Euromonitor International, the total number of open-loop prepaid cards in issue in Mexico rose from 7.82 million in 2006 to 12.74 million in 2011. Open-loop travel cards in issue rose from 15,600 in 2006 to 63,700 in 2011, while open-loop government benefit cards rose from 4.15 million to 6.7 million, open-loop prepaid remittance cards from 289,300 to 827,900, and open-loop employee benefit cards from 3.08 million to 3.85 million.

There were 585,900 open-loop general-purpose reloadable (GPR) prepaid cards in issue in 2011, accounting for 4.6% of total open-loop prepaid cards in issue.

The total number of closed-loop prepaid cards rose from 1.1 million in 2006 to 4.5 million in 2011, with transportation cards accounting for 79% in 2011, followed by gift cards with 17%, Euromonitor says.

According to Euromonitor, the top five open-loop prepaid card issuers in 2010 were the Government of Mexico State with 2.6 million cards; the Government of Nuevo León State with 1.33 million; employee benefits card issuer Sodexo with 1.77 million; fuel, meal and food card issuer Efectivale with 1.36 million; and social benefits card issuer SÍ Vale, Prestaciones Universal with 2.02 million.

Owned by Mexican financial services group Monex, SÍ Vale, Prestaciones Universal, whose name translates as “Yes, OK, Universal Welfare,” issues reloadable prepaid MasterCards under the SÍ Vale brand.

Reaping social benefits

“Over the last three years, the Mexican government has moved aggressively towards the distribution of social benefits via prepaid cards by legislating mandates for government benefit programs,” says David Lott, US consultancy Speer & Associates’ senior vice president.

“The Ministry of Finance has set December 2012 as the deadline for all government welfare payments to be made electronically to the payee’s bank account,” says MasterCard’s Vela.

According to MasterCard, around 6.5 million Mexican families receive a total of $99 billion in social benefits payments.

The largest Mexican government cash transfer scheme is Oportunidades, reaching around 6 million families, mostly in rural areas. In November 2011, Mexican President Felipe Calderon announced plans to provide debit cards or prepaid cards to all Oportunidades recipients.

According to CGAP, Mexican government-owned bank Bansefi offers two methods of receiving Oportunidades payments. The most popular is a prepaid card, linked to a basic non-interest-bearing bank account, while the other method is a basic Bansefi savings account—Debicuenta—with a debit card.

Another example of Mexican legislation encouraging electronic payments is a law providing tax incentives for employers to offer prepaid food and meal cards instead of paper vouchers to their staff. According to Marcelo Tangioni, head of products and solutions for MasterCard Latin America and Caribbean’s GeoSouth Division, many Mexican employers offer food benefits to their workers.

“Because of the tax break provided for electronic payments, there is a lot of interest among Mexican employers in migrating their paper food and meal voucher programs to prepaid cards,” says Vela.

General purpose reloadable cards

In January 2012, US-based prepaid card program manager Rêv Worldwide and Banorte, Mexico’s third largest bank, launched MiFon, a MasterCard-branded GPR prepaid card with a mobile payments capability. MiFon, which is being piloted in the state of Oaxaca, will be rolled out nationwide in summer 2012, targeting unbanked consumers.

“MiFon cardholders can use SMS to transfer funds from one account to another via their cellphone,” says Bertrand Sosa, Rêv’s president. “We plan to offer mobile top-up and payment of utility bills on the MiFon platform. The people signing up for MiFon previously didn’t have bank accounts. So they’ve gone from being unbanked to having prepaid cards with payments and banking capabilities on their cellphones.”

MiFon works with any mobile operator, says Sosa. Currently, MiFon cards are only available from Telecomm Telégrafos, a Mexican government-owned network of stores providing communications, basic banking and bill payment services nationwide. “When we roll out MiFon across Mexico, we will add new point-of-sale partners for buying and reloading MiFon cards,” says Sosa.

Other GPR prepaid card issuers include WalMart, Banamex and Banco Azteca. In July 2010, Citigroup subsidiary Banamex launched Perfiles Ya (“profiles, for sure”), a MasterCard-branded GPR card, which is available at the Citigroup subsidiary’s branches and also at Mexican retailer Soriana’s outlets. Soriana acts as a banking agent for Banamex, providing banking services for Banamex customers.

Banco Azteca, the banking arm of retailer Grupo Elektra, launched the MasterCard-branded Monedero (change purse) Azteca prepaid card in Mexico in September 2010.

“WalMart Mexico, through its Banco WalMart subsidiary, has been very aggressive in promoting its MasterCard-branded prepaid cards in Mexico,” says Patricia Hewitt, director of Mercator Advisory Group’s Debit Advisory Service. “The foundational Banco WalMart account is its prepaid account.”

For unbanked consumers, Banco WalMart offers the Super Debito savings account, which can be opened with a deposit of MXN 100 ($5.70). The account offers a MasterCard-branded card paying a 1% bonus on purchases at WalMart’s Mexican outlets. Cardholders can add funds to the card, or make withdrawals, at WalMart stores and Banco WalMart branches.

Mobile

Like a number of other Latin American countries, Mexico has very high cellphone penetration. According to RCR Wireless Americas, the majority of Mexican mobile users are on prepaid payment plans. “Mexican regulator Comisión Federal de Telecomunicaciones (Cofetel) reported that there were 83.3 million prepaid customers and 13.7 million postpaid customers in the country at the end of the third quarter of 2011,” RCR Wireless Americas says.

In May 2012, MasterCard published its global MasterCard Mobile Payments Readiness Index. “With a score of 27.7, Mexico ranks as 30th on the Index,” MasterCard says. “Consumers in Mexico are not yet convinced of the value of mobile payments, and there remains some work to be done in developing the mobile payments ecosystem in Mexico, with areas such as financial services and infrastructure needing particular attention.”

Additionally, the market needs to communicate the value of mobile payments to consumers through consumer education and marketing efforts, MasterCard says.

Two current mobile payments initiatives under development in Mexico that target unbanked consumers are MasterCard and Telefónica’s Wanda, and Banamex, Banco Inbursa and América Móvil’s Transfer joint ventures.

MasterCard says Wanda’s mobile payment services will be linked to a mobile wallet or prepaid account that will allow for person-to-person transfers, mobile airtime reload, bill payment and retail purchases.

“Wanda will act as a bridge between the financial institutions and the telcos for unbanked and underbanked consumers,” says MasterCard’s Vela. “It will offer plastic prepaid cards in Mexico because Mexican consumers expect physical cards. Also, you can load money onto your mobile wallet through a physical prepaid card.”

CGAP’s Fast is very enthusiastic about Wanda and Transfer. “As consumers become financially connected to one another through Wanda and Transfer, it will be easier for banks and other financial institutions to develop products tapping into mobile accounts,” he says. “Also, mobile transactional data will reveal more information about the financial profiles of lower-income consumers, which may lead to better product design and innovation in financial services.”

Cross-border remittances

In 2010, the US-to-Mexico remittance corridor was worth $22 billion. According to J.P. Morgan, cross-border remittances are the second-largest source of foreign exchange for Mexico, after exports. For MasterCard, there is a major opportunity to move what is still predominantly a cash-based market onto its payments network.

In April 2011, MasterCard launched a service on its MoneySend PC and cellphone-based remittance platform enabling US MasterCard debit, credit and prepaid cardholders to transfer funds to Mexican MasterCard-branded debit and prepaid cardholders. As at May 2012, the Mexican financial institutions participating in the service are Monex, Unisap, a federation of Mexican credit unions, and Banco Azteca.

“Currently, the only US financial institution participating from the sending side is Bancorp Bank,” says Vela. “We will be adding other US bank partners.”

In August 2011, US-based prepaid card program manager Global Payout and Mexican consumer lender Mi Adelanto launched a MasterCard-branded prepaid card in Mexico with an unnamed bank partner. Global Payout says that, in addition to being used for domestic payments, the card has the facility to receive remittances from US-issued debit cards through Global Payout’s eWallet platform.