Over the past 12 months pundits have hailed Mexico as a haven for investment. In an atmosphere of strong consumer and investor activity, confidence is at an all time high, and returns are soaring. It is therefore no surprise to see that the Mexican banking industry has grown into a solid and competitive environment. Since taking office seven months ago, President Enrique Peña Nieto has been on a crusade to undertake the structural reforms the Mexican economy needs in order to continue flourishing. Though the new leader is tackling everything from telecoms to education, none of his reforms are as wide-ranging or have more significant immediate effects than the banking and lending regulation overhaul.
According to Ricardo Delfin, an audit partner at KPMG and lead author of The Role of Mexican Banks in Economic Growth, Mexico remains a largely untapped resource for banks. “While they benefit from and contribute to Mexico’s strong economy, Mexican banks could reap impressive growth by targeting the still under-served consumer and business markets,” he says. For the auditor, Peña Nieto’s sweeping reforms have led to increased FDI which is benefiting the economy and the consumers. “The banking sector has thrived in Mexico’s favourable macro economy, characterised by six years of stable inflation and interest rates and rising GDP. Mexico has also outshone most western nations in terms of fiscal balance and low public debt. Under these conditions, Mexican banks have achieved solid capital levels and reserves, in excess of regulatory requirements,” says Delfin.
One of the biggest growth markets is internet and mobile banking, which is allowing institutions like Multiva to reach a wider client-base
In many ways, these reforms have been long overdue; ever since the wave of privatisations that swept through the country in the 1990s, banks have gradually been developing their models by shifting from smaller enterprises to larger financial services conglomerates that offer a wide variety of top of the range solutions and services to their clients. These new institutions needed appropriate regulatory support. Over the years, a slew of reforms have helped to strengthen the industry in a number of ways, with the goal of developing a resilient industry.
“On the one hand, the Mexican banking capitalisation index is 15.6 percent – healthy and strong, and on the other, the default rate is among the lowest international level, at 2.6 percent,” explains Banco Multiva’s CEO Carlos Ignacio Soto Manzo. “Additionally, the new financial reforms aim to offer more credit at a lower cost, to promote credit through the Mexican Development Banks, and maintain a solid and prudent financial sector.” Through the Basel III banking agreement the government has sought to strengthen regulation, supervision, and risk management for the entire financial industry. “These measures intended to improve the financial industry’s ability to handle occasional instability from a variety of economic factors,” he added. “As well as to improve risk management and the corporate governance of banks.”
The role of SMEs
The new regulatory environment has helped Banco Multiva flourish, according to the CEO. “We took advantage of some of the new opportunity business lines like government banking, private banking, and agricultural banking,” explains Soto Manzo. “The consequence of these actions is that in just seven years we have become the 12th-largest bank in Mexico out of more than 40 domestic banks. There is a proliferation of new banks in Mexico; this is a constant challenge to continued growth and to maintaining a top 10 ranking.”
Though the sector is expanding fast, and there is a lot of competition, it is a golden opportunity for Banco Multiva. “Today, 80 percent of the market is concentrated in global banks. We see an opportunity to compete by creating a different business model which includes personalised customer service,” explains the CEO. “We have traditional banking lines. We have also developed strong technological channels; secure access to ATMs, electronic banking via PCs, laptops, and mobile devices, including the first soft token in the market.”
One of the biggest growth markets is internet and mobile banking, which is allowing institutions like Multiva to reach a wider client-base. “Users and clients have broader, better and faster access to transactions thanks to mobile banking. Multiva Bank is among the leaders in allowing users to conduct transactions without going to a local branch,” says Soto Manzo. The CEO cites the many conveniences of online banking, like time-saving and lower cost, as one of the chief reasons why clients are looking to Multiva for their banking needs. “Our online platform, Multivaccess, is a comprehensive, innovative solution that allows customers to accept credit card payments via their mobile phone. The service includes a card reading device, for both magnetic band and chip-based cards. It is also the first certified solution in Mexico to accept cards – perfect for new market niches that currently don’t have access to point-of-sale terminals or commercial bank accounts.”
This increased flexibility that Banco Multiva offers has been vital to bringing in SME business clients – a vital segment for banks in Mexico. According to National Statistics and Geographic Institute (INEGI), there are approximately four million businesses in Mexico, 99.8 percent of which are SMEs, which collectively generate 52 percent of GDP and 73 percent of jobs; 46 percent of jobs come from micro enterprises alone. “Micro, small and medium-sized enterprises constitute the column of our national economy, due to commercial agreements that Mexico has made in the last few years,” says Multiva’s CEO. “They have an enormous impact on national production and employment creation. They are an important engine for economic development and are highly mobile; allowing them to easily adjust production levels, as well as adapt their technical processes.”
Expanding credit payments
Banco Multiva has invested a lot of time and energy in developing its services for smaller business clients, in order to effectively tap into this market. The bank fosters their growth by offering credit for working capital or infrastructure in the industrial, commercial and service sectors. “We have special programmes like IT SMEs that support software and communication innovators by providing them with credit for working capital and equipment acquisition,” says Soto Manzo.“Similarly, we have credit for government suppliers. Furthermore, Multivaccessis principally aimed at businesses and sole proprietors that need a solution that adapts to their working conditions. Our placement strategy includes marketing to profitable enterprises such as independent stores and shops.”
Another growth market for Mexican banks is in the advancement of credit and debit card payments. Currently, 80 percent of all payments are made in cash, which amounts to $530bn annually, and only 570,000 businesses accept credit card payments, which amounts to approximately $963bn in billing per year. Of the four million registered businesses, only 11 percent of them accept credit card payments. “As a result, we support SMEs by offering them new services, such as payment solutions that facilitate their growth, and accessible credit,” says the CEO. “These are important for us to keep supporting this market niche.”
Through technological innovation and the exploration of underdeveloped market segments, Banco Multiva will doubtlessly fulfil their aspirations. “In the near future, we will be in the top 10 banks in Mexico,” says Soto Manzo. “We will achieve this though strengthening growth in products and channels. Other aims include: being open to mergers and/or acquisitions in order to increase our market share; to strengthen Multiva’s technological innovation; to increase profit levels and market share and margins; and finally to maintain a capitalisation index ratio over 15 percent.”
The future certainly looks bright for Banco Multiva as it continues to reap the rewards of clever strategy. In the wake of Peña Nieto’s reforms, and as Mexico continues to establish itself as a shining beacon of growth in the region, Banco Multiva will continue to propel itself forward by taking advantage of the many opportunities for development that will present themselves. Banks like this and their rapid yet solid growth are a sign of the shifting global tide in favour of solid emerging economies like Mexico. As long as intelligent investment continues to be made, there is nowhere for Multiva to go but up.
