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Modernizing Card Payments: A Holistic Approach by Financial and Non-Financial Stakeholders

This document explores the modernization and growth of card payments in Mexico, focusing on the collaboration of financial institutions and government entities through FIMPE. It analyzes the state of retail electronic payment systems in 2003, highlighting the increase in the usage of bank cards and the expansion of POS networks. The efforts to standardize technology, improve public participation, and create incentives for using electronic payments are discussed. The results include significant demand and supply generation in electronic transactions, indicating a successful strategy to enhance tax revenues and support government programs.

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Modernizing Card Payments: A Holistic Approach by Financial and Non-Financial Stakeholders

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  1. Modernization and growth in card payments:A holistic cooperative effort of financial and non-financial stakeholdersFIMPEExploring Frontiers in Payments Systems DevelopmentMay 31st, 2007

  2. Mexico’s Retail Electronic Payment Systems in 2003 • Bank cards: • 9.4 Million credit cards. • 32.2 Million debit cards. • POS network: • 146,029 POS. • Cash withdrawals at ATMs made up 87% of all bank card transactions (Vs. 13% at POS). • High market concentration. • Segmented, non-uniform network. • Magnetic stripe-only capability.

  3. Concept • To increase electronic payments usage to raise tax revenues. • To create a universal network to aid the execution of government programs. • To create proper incentives for private agents to participate in such an effort.

  4. What is FIMPE? • Presidential decree. • Private organization aimed at promoting electronic methods of payment. • 15 financial institutions.

  5. To promote the usage of electronic methods of payment among the population. • To increase the POS network. • To standardize the technological platform. Objectives

  6. The Mexican government’s role • Setting FIMPE’s goals. • Setting standards for network development. • Evaluation of FIMPE’s actions, progress and goal completion. • Tax incentives subject to completion of FIMPE’s goals. • Taking advantage of FIMPE’s network to execute government programs.

  7. Strategy 2004 - 2005 2006 2007 Demand Generation Goals Supply generation: Merchants Banks Small businesses modernization program New payment platforms

  8. Demand generation • Creation of incentives for bank card usage at POS. • Lotteries awarding cards among bank card transactions at POS. • Focus on debit cards. • More than 3,100 cars given away.

  9. Demand generation • 96% knows the brand Boletazo. • 1 out of 5 says he’s/she’s increased his/her card usage. • The communication has a unique and constant message: • Paga con tu tarjeta y gana de

  10. Results: Demand generation 166.9% Source: Banco de México, Domestic operations of domestic accounts.

  11. Results: Demand generation 190.8% Source: Banco de México, Domestic operations of domestic accounts.

  12. Results: Demand generation Source: Banco de México, Domestic operations of domestic accounts.

  13. Results: Demand generation 2.1 pp Source: Banco de México, Domestic operations of domestic accounts.

  14. Results: Demand generation • Recent growth exceeds regional average. Source: Nilson Report, Banco de México (Domestic operations of domestic accounts).

  15. Results: supply generation • Any merchant can acquire a POS terminal, regardless of its sales volume. • Initial single fixed monthly payment of about US$ 8 for up to US$ 4,000 in bank card transactions. • The program comprises: • Advertisement of the benefits of card acceptance for merchants. • Incentive program and special promotions for merchants. • POP material.

  16. Results: POS network 96.3% Source: Banco de México.

  17. Universal network • FIMPE has made the first step towards the creation of a universal electronic transactions network, making it possible for the arrival of new payment schemes and platforms. • FIMPE’s infrastructure is designed to be open to third parties (both public and private). • Such a network will greatly reduce transaction costs.

  18. Technology POS • Wireless technologies (GPRS, CDMA, Wi-Max, Ethernet, ADSL, Edge, EvDO) • Smart card (chip) ready. • EMV-compliant. • Multi-application ready. • Multi e-purse ready. • Contact-less transactions. • Biometric readers. • IP-based terminals. • Switch • CRM. • Multi-carrier network. • IP-based. • Multiple applications processing. • Multi e-purse processor. • Data Warehouse. • Links to third parties’ networks.

  19. Third party payments Government programs FIMPE Bank Bank Bank Bank Health programs Third party Microfinance (non banks) Switch Switch Subsidies Debit/ Credit Other third parties Multi-carrier communications network POS network

  20. Personalized card issuance to program beneficiaries; PIN authentication may further prevent fraud and assure proper delivery. • Current subsidy dispersion outlets can be complemented with private ones: no need to maintain costly branches or inventory. • Trustworthy, information-rich transaction registry: Immediate tracking of transactions and valuable statistics and data mining possibilities. • Significant cost advantages: • No need for government to invest heavily in network development. • Transaction costs savings of up to 90%. • Theft, loss and abuse greatly diminished due to direct delivery to users, private channel usage, transaction tracking and reduced need for inventory. Subsidies dispersion

  21. Health care programs: • Drug supply (e.g. Seguro Popular, currently running). • Medical history registry. Social assistance programs. • Discount foodstuffs and direct supply. • Identification and registry of public program usage (e.g. daycare). Housing and construction assistance programs: • Construction material discounts and direct supply (e.g. SHF). Agricultural subsidies: • Input discounts and dircet supply (e.g. SAGARPA diesel, currently running). Monetary subsidies. Examples of suitable subsidies

  22. Conclusions • Cardholders increasingly use their cards to purchase goods: • 2006 POS transactions accounted for 32% of total bank card transactions, up from 13% in 2003, • It’s become easier to find card-accepting businesses: • Mexicos POS Network has doubled since 2003, reaching about 290,000 terminals in 2006. • A universal network for transaction processing is available for third parties, incluiding government agencies. • Next steps: • Increasing the number of third parties using FIMPE’s network.

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