An extract from The Consumer Finance Law Review, Edition 5
Even though financial inclusion has increased 37 per cent since 2012, cash continues to be the most important payment method in Mexico. The number of people who do not have their own bank account in Mexico is significant. According to the statistics of the most recent financial inclusion survey published by the National Council for Financial Inclusion (Consejo Nacional de Inclusión Financiera), as of March 2020, only 37 per cent of the population have an account with a financial institution.10 The CNBV and the Mexican Central Bank are very much concerned with this and over the last decade have made considerable efforts to increase banking penetration in Mexico. Some of these measures have included launching simplified bank accounts with transactional and balance limits but that may be opened remotely, such as first and second level accounts that are addressed in Section IV. Others regard facilitating mobile payments and the inclusion of new payment methods such as CoDi, which will be addressed below. At the same time, cash payments are being limited and controlled under anti-money laundering and counterterrorism provisions.
Credit and debit cards are also recognised payment methods but their penetration level is still very far from that of cash. Credit cards may be issued by almost any lending financial institution (banks and multiple purpose financial entities), while debit cards may only be issued by banks and in a limited manner by other financial institutions authorised to take retail deposits. Stored-value cards, which are similar to debit cards, may now be issued by FTIs, specifically by e-money institutions.
To date, non-financial institutions may only issue closed-loop prepaid cards that are not cash-redeemable. Open-loop cards (i.e., those that may be used with different merchants) and cash-redeemable cards may be deemed to be retail-deposit-taking activities, which are limited to banks and a limited number of financial institutions, including FTIs.
Cheques are also used as payment methods although the new banking generation is relying more on electronic payments and card payments. In Mexico, the number of transactions involving cheques suffered a 7 per cent decrease between 2010 and 2017 according to the statistics of the most recent financial inclusion report published by the CNBV.11
Electronic transfers are also common payment methods. Banks are required to offer this service to their clients. Certain fees may be charged for interbank transfers. The Electronic Interbank Payment System (SPEI) is the most-used system for these means.12 SPEI is a system developed and managed by the Mexican Central Bank that allows the public to generate online transfers almost instantly. The Mexican Central Bank clears and settles these transactions and it works very efficiently. To use the SPEI platform, users must have a standardised bank key (known as a CLABE) and the account number of the receiver's debit card or their mobile phone number (if the account has been previously linked). FTIs may also provide electronic-transfer services outside the SPEI system.
Mobile banking is a payment method regulated under the General Provisions Applicable to Credit Institutions (the General Provisions) issued by the CNBV, which defines it as an electronic banking service accessed through a mobile phone number linked with the account.13 This payment method is subject to the limitations set forth on account levels referred to in Section IV. Mobile banking is highly regulated in terms of authentication, identification and security procedures, among others.
The General Provisions contain several provisions that ensure credit institutions establish sufficient safety measures and security controls for the information used through electronic devices, such as the express consent of the user for hiring this service, a provision in the agreement specifying the maximum amounts allowed per operation, mechanisms to identify the user and grant access, and procedures to cancel the service, among others.
Under the same regulations, mobile payments are defined as those performed through a mobile limited to an equivalent of 1,500 unidades de inversión (UDIs) per day (approximately 9,905 Mexican pesos). The regulation of mobile payments is lighter than the regulation of mobile banking to foster financial inclusion by simplifying low-value payments.
Moreover, digital collection (known as CoDi) is the latest electronic payment method developed by the Mexican Central Bank.14 It is designed to reduce the use of cash and promote competition, while incorporating larger sections of the population into the formal financial sector. CoDi is a system that applies QR codes and near-field communication (NFC) technologies to operate immediate cashless money transactions between buyers and sellers for the purchase of low-cost goods and services, using the existing SPEI platform.15
In order to partake in CoDi, buyers need an account with a financial entity (a SPEI participant) and a smartphone connected to the user's bank's application. Correlatively, sellers require either physical QR codes next to their products or digital ones and a smartphone to send those codes. CoDi's operation is designed to be initiated by sellers that will generate and send buyers a charge for goods or services through electronic messages. Buyers will then receive these messages on their mobile devices – through their own bank's applications – and will identify, verify and, if applicable, accept the charges. Once accepted, the buyer's bank will immediately validate the transfer and liquidate the amounts for the transaction.
Unlike most electronic money transactions, transfers made through CoDi are:
- free of banking commissions;
- can be done at any time of the day and on any day of the year; and
- will be processed almost immediately. The downside is that this payment method only processes transactions up to a maximum of 8,000 Mexican pesos. 16
On a final note, it is expected that both the application of LITF and the implementation of CoDi will increase bank penetration by introducing consumers to simple technology to save, raise money and pay for their everyday needs, which may eventually lead to the unbanked population having greater trust in banking institutions.ii Recent developments
As a result of the current regulations, security measures were imposed to both credit and debit cards to avoid their cloning by replacing the use of the magnetic stripe on cards with a chip. This led to the issuance of new cards and several modifications made by the institutions in order to adapt all their automated teller machines (ATMs) and points of sale (POS) nationwide. As a consequence of the above, any institution that agrees to perform operations with cards without a chip at their ATMs or POS assumes liability for all risks and must bear any costs arising from cloning such unrecognised charges reported by the cardholder.
Another key development was the issuance of the General Rules for Payment Networks. Before the issuance of these rules, card payment networks were mainly unregulated. These rules regulate the following:
- The terms and conditions of the payment networks, which among other things:
- permit the inclusion of new participants in networks on a non-discriminatory and competitive basis in respect to pricing, operational, technical and contractual conditions;
- permit the resolution of conflicts of interest between the participants in networks;
- allow transparency of the content available to potential participants in networks; and
- guarantee the integrity of the payment networks, the continuity of the operation and security of the information without creating barriers to entry.
- Participants in networks, by establishing the inclusion of certain provisions on the agreements executed among them, such as:
- an itemised description of the services, conditions and standards of the services provision;
- terms and conditions (including economic terms and consideration) of the services provided in the agreement;
- equal and non-discriminatory treatment; and
- production of account statements.
- Interchange fees, which shall be included in the conditions for the participants and duly registered with the Mexican Central Bank observing the procedure and requirements set forth for such means.17
Also related to payment networks, a few years ago several complaints from the participants of the credit and debit card payment market over the lack of transparency and competition regulation in clearing houses were filed. A clearing house (switch) is an entity authorised by the Mexican Central Bank to act as the central entity or operator of a centralised processing mechanism through which authorisation requests, payments authorisations, payment rejections, returns, adjustments or other financial obligations related to card payments are exchanged between acquirers and issuers, including clearing.
In response, the Mexican Central Bank, seeking to ensure competition within the sector, issued the Rules Applicable to Clearing Houses for Card Payments with the objective of combating barriers to entry, avoiding price distortions and improving security systems. Among the prohibitions set forth in the regulations, all exclusivities, discriminatory practices and charging of fees not authorised by the Mexican Central Bank were forbidden.18
Undoubtedly, CoDi is the most recent development that will impact financial inclusion and change consumer finance. Although CoDi was released at the end of September 2019, since 23 November 2020 more than 6.218 million accounts have been validated, and from 30 September 2019 to 23 November 23 2020 over 948,956 transactions were made through CoDi.19