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 Business News | January 2006 
Citigroup, Bilbao to Lower Mexican Credit Card Fees
 Bloomberg
| | An armed guard keeps watch over the only entrance to the Citigroup headquarters in New York. (Jeff Zelevansky/Reuters) |
Mexican banks, bowing to pressure from central bank Governor Guillermo Ortiz, agreed to lower fees on credit and debit cards at a cost of $100 million in annual revenue, bankers who helped draft the proposal said.
The banks, including units of Citigroup Inc. and Banco Bilbao Vizcaya Argentaria SA, may cut the commissions they charge one another to process card payments as early as next month, said the people who asked not to be identified because the plan hasn't been publicly announced. Those savings would be passed on to shops and other businesses to benefit consumers, the people said.
Lower fees may encourage more stores to accept cards for payment and force banks to bolster profit by lending more, both changes that would spur economic growth. Mexican bank loans to individuals and private companies totaled 848.2 billion pesos ($80 billion) as of Nov. 30, equivalent to about 10 percent of gross domestic product; in Brazil, the ratio is 30 percent.
"Mexican authorities are setting rules on fees so that the incentives are right to foster more competition," said David Olivares, a Moody's Investors Service analyst based in Mexico City who covers banks in Latin America.
Ortiz, 57, at an annual meeting of bankers in March, criticized the fees that banks levy on consumers and merchants, saying the commissions curb efficiency and discourage debit and credit card use. Foreign banks, which control almost 90 percent of Mexico's banking system, charge more fees than they do at home, he said in a previous speech.
A central bank spokesman in Mexico City said the official monitoring the fee-reduction plan had no comment. A spokesman for the banking association said the official responsible for the issue declined to comment.
Reducing Rates
Cutting banking fees can help bring down interest rates in Mexico by fostering competition among banks, said Jose Maria Aramburu, head of market research at Mexico's government-run consumer defense agency, Condusef, in Mexico City. "We expect interest rates on mortgage and auto loans to decline by about 1 percentage point this year because of competition."
Mexico's $750 billion economy, the second-largest in Latin America after Brazil, grew about 3 percent last year. Banco de Mexico has the overnight lending rate at 8.25 percent, following five reductions since August.
Citigroup's Banamex SA and Bilbao's BBVA Bancomer SA together have 72 percent of Mexico's 135.6 billion peso credit card market, based on debt outstanding as of Nov. 30. Santander Central Hispano SA's Mexican unit ranked third with 16 percent, followed by HSBC Holdings Plc's 5 percent and Grupo Financiero Banorte SA's 4.7 percent. Bank of Nova Scotia's Scotiabank Inverlat is sixth with 2 percent, according to the Mexican securities regulator.
Second Reduction
The banks are cutting fees on debit and credit cards for the second time since June 2004, when the association announced reductions after Ortiz threatened to impose them. The initial cut also cost banks $100 million in annual revenue.
Foreign banks levy service charges in Mexico that they don't apply in their home countries. Bilbao, based in Bilbao, Spain, charges Mexican customers a monthly fee of 34.5 pesos ($3.22) for online banking excluding balance inquiries, which are free. Banamex charges 11.5 pesos a month for most online services. Customers at HSBC's Mexican division must pay 21.15 pesos for online banking access. HSBC Mexico, a unit of HSBC Holding Inc., also has a fee of 2.88 pesos for every direct withdrawal payment of telephone bills.
A spokesman for Bancomer in Mexico City said half of all Mexican clients that use Internet banking pay nothing for the service because they only use it for balance inquiries. A Banamex spokesman had no comment. A spokesman for HSBC in Mexico City declined to comment.
The charges the banks plan to lower are so-called interchange fees, or the money the merchant's lender pays the bank that issued the card. The fee makes up part of the bigger commission that banks levy on shops to process card payments. That overall fee reaches as much as 4.5 percent in Mexico.
Lower Fees
The plan calls for the weighted-average interchange fee to drop to about 1.8 percent from 2.2 percent for credit cards and to 1.1 percent from about 1.5 percent on debit cards, the people said. Before the first reduction in June 2004, those commissions were 2.4 percent for both types of cards, the people said.
Mexico is joining the U.S., U.K., Spain and Australia in seeking to lower fees that banks levy on retailers, restaurants and other businesses to process card payments.
"This is an idea that's been popping up around the globe," said David Robertson, publisher of the Nilson Report, a credit-card industry newsletter, in a telephone interview from Carpinteria, California. "There's a lot of fee income going to the banks, and the merchants are upset."
Card transaction fees in Mexico of as high as 4.5 percent discourage smaller businesses from accepting credit and debit cards and deepen an all-cash culture that took hold after the collapse of many banks in 1995. Seven of eight consumer purchases in Mexico are paid in cash. U.S. consumers make one payment in cash for every two with a card, according to the association.
Bank Earnings
Ortiz has made consumer rights and competition in the banking system a priority since starting a second six-year term at Banco de Mexico in 2003. In 2004, he forced banks to disclose service fees they levy on clients and capped profits for converting currencies in credit-card transactions at 1 percent. Recently, he eliminated interbank charges on money transfers.
The measures are eating into banks' earnings. Luis Pena Kegel, chief executive officer of publicly traded Banorte, told analysts on an Oct. 28 conference call on third-quarter earnings that fee income rose just 2 percent in the first nine months because of increased regulation.
Credit-card fee revenue tumbled 17 percent and money- transfer commissions dropped 14 percent in the period. Banorte offset the declines by increasing revenue from Internet-banking and checking-account charges by 62 percent and 3 percent, respectively.
"This will be a challenge to grow in the future," Pena Kegel said on the call. "The main driver for this of course will be volume rather than price."
To contact the reporter on this story: Adriana Arai in Mexico City at at arai1@bloomberg.net |
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