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Analysis

Competition, Technology to Reduce Banking Commissions

Mon, 04/01/2019 - 17:37

In November 2018, one month before President López Obrador took office, legislators from the Morena party presented a proposal to regulate and ultimately eliminate banking commissions. The proposal garnered much attention and landed a significant blow to the stocks of most major banks in the country. Banorte, Inbursa, Santander, BanBajío and BBVA Bancomer accumulated a MX$103 billion (US$5.4 billion) loss in just one day after the initiative was made public.
Although many argued that the initiative had no place in a market economy, it opened the door to constructive dialogue between banking institutions and financial authorities to accommodate a reduction of commissions. CNBV presented a study detailing the percentage of banks’ revenue that comes from commissions and CONDUSEF reported that in 2017, the Mexican banking sector earned MX$108 billion (US$5.7 billion) from commissions, which represents 30 percent of the total income of the banking sector.
As part of the dialogue spurred by the Morena initiative, at the 82th Banking Convention in March 2019, President López Obrador assured the banking sector that the country’s executive power would not promote any regulatory change to reduce or eliminate banking commissions. Moreover, the president offered his support to reduce commissions through competition and innovation, rather than through legislation. However, López Obrador did ask banks to work on improving financial inclusion and encouraged them to reduce commissions applied on remittances. “Next year, I want to recognize the banking institutions that take the initiative and implement a plan to charge less in remittances,” he said.
The Mexican Banking Association (ABM) has stated that technology is part of the answer to reduce commissions. “Technology will lead to a reduction of costs but banks cannot agree on how much they should reduce commissions. That goes against the economic competition law,” said Marcos Martínez, former President of ABM.

“If there are many banks, there is competition and banks will have to offer better conditions to clients. This will allow banking commissions to be reduced”
March 22, 2019