Banking in Times of COVID-19: Online the Only Road for Mexico?
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Banking in Times of COVID-19: Online the Only Road for Mexico?

Photo by:   Pixabay, FirmBee
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Peter Appleby By Peter Appleby | Journalist and Industry Analyst - Tue, 06/09/2020 - 13:38

COVID-19 has spurred on digitalization across business sectors. In finance, the limitations of brick-and-mortar bank branches have become apparent as social-distancing measures were enacted. With the government of Mexico City implementing restrictions on banks before they reopen tomorrow, the “new reality” that Mexico is entering is an unmissable opportunity for digital banking platforms.

Yesterday, the government and the Mexico Association of Banks (ABM) jointly announced measures to be implemented at bank branches intended to avoid queues and large gatherings. According to reports by El Economista, Mexico City Mayor Claudia Sheinbaum said the measures, including opening branches at 10 a.m. to avoid rush hour, were short-term fixes while the government looks into more “far-reaching” actions for the long term.

The quincena – the 1st and 15th of every month, when most Mexicans are paid – is of particular concern as it generates large crowds at banks as people arrive to take out money or pay bills. Restrictions are likely to increase already long queues and wait-times in bank branches present prior to COVID-19. According to Milenio, bank users in Puebla had to wait to up to three hours to make withdrawals, cash checks and make transfers at branches last month.

Adaptions like CoDi could help reduce health risks at bank branches but still concerns remain. The COVID-19 outbreak has pushed digital banking into the mainstream in Mexico.

Some of the country’s major banks, including BBVA and Santander, have been more active in digital banking, recently. Both companies already offer a digital platform to users and BBVA saw an increase of 400,000 digital clients in Mexico in 1Q20. In February, the bank saw 58 percent of its sales through its digital arm, a figure that rose to 67 percent in April. Meanwhile, Santander has invested into the fintech market by betting on a55, a company that has delivered MX$150 million (US$6.7 millilon) worth of loans in Mexico since 2018 and expects to double this figure over the next year.

Factors outside of health also influence this momentum. One of these is the intention of the Mexican administration to foster financial inclusion among young people. The US$1 billion World Bank development loan the country has just agreed on will be used to “boost financial inclusion efforts, particularly for young people between 15 and 17,” said Deputy Finance Minister Gabriel Yori.

The challenge for the government is clear. In 2013, a report on the potential of digital banking in Mexico carried out by BBVA noted “the low levels of banking penetration in the Mexican population, as compared to other Latin American populations.” World Bank data shows that in 2017, just 36.9 percent of Mexicans aged 15+ reported “having an account (by themselves or together with someone else) at a bank or another type of financial institution” over the previous 12 months.

Though access to banks is still found to be wanting, there is a far higher percentage of access to the internet among the country’s population. According to Our World in Data, 63.85 percent of Mexicans reported accessing the internet in the last three months in 2017, a growth of over 4 percent from 2016’s figure. Our World in Data also shows that 88.51 percent of Mexicans have cell phone subscriptions and that 53.4 percent of Mexicans aged between 16-24 reported engaging in social media activity in 2014, a figure which is likely to have risen dramatically.

The need to increase access to banking in Mexico, the federal government’s financial backing to do so and the level of access to the internet, make digital banking well-positioned to meet these needs.

Photo by:   Pixabay, FirmBee

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