TBY talks to Ignacio Deschamps, Chairman & CEO of BBVA-Bancomer, on growth areas, electronic banking, and credit card usage.

Ignacio Deschamps
Ignacio Deschamps is the Chairman and CEO of BBVA-Bancomer, Mexico’s largest commercial bank. From 2009 to 2011 he served as Chairman of the Mexican Banking Association. His previous positions include Executive Director of Investment Banking at Banco Nacional de Comercio Exterior, and Programming Officer at the Inter-American Development Bank.

Bancomer had 12 million customers in 2005, and at present the group has over 18 million. How has your product portfolio evolved, and what has been the main focus of your growth strategy over the last five years?

I think technology is very relevant to our commercial strategy. Banking today is very different from how it was 15 years ago. It has changed dramatically. In that sense, the way we grow our customer base has also changed. First we talk about “banking the unbanked." Mexico is a country that is growing very fast in terms of access to credit and banking services. We have adapted different solutions for our customers. The key to this is the mobile telephone, and we have been very successful in launching a new program where customers do not need to go to a branch. They can open an account anywhere—it is very easy. The number of the account is the same as their telephone number. This is just an example, but we are using technology a lot, and the opportunity that we have today—to link banking infrastructure with merchants that act as correspondent banks—allows basic transactions to be done outside of a branch. For example, our 15-year partnership with Wal-Mart allows us to issue private label credit cards. It is very challenging, because we issue many cards per year. We need to do it in a way that is profitable for very low-income customers. On the business side, we have been testing different solutions, but now we are able to issue a program called the “MicroNegocios card." It is a credit card for the working capital of very small companies. The difference is that the average loan amount is $3,000. We are really talking about very small companies, or self-employed individuals, with one or two employees only. These are the kinds of things we've been doing in the past few years that have allowed us to double our customer base in a very short period.

What is the current position of Bancomer in the different segments of the Mexican market, and in which sector of the economy is Bancomer most active in terms of credit supply?

We are very active in every sector, because we are a universal bank. We have a very significant market share, maybe 25%-30% of many markets, so what is important for us is to break up Bancomer into many different representations, according to the types of customers in different distribution channels, using different marketing and sales forces. Credit to small businesses grew 21% in 2011 compared to 2010, and consumer lending grew more than 23% for lending for car loans, personal loans, and payroll loans. Also, mortgage loans are growing at around 6% because the population has become better educated. We are providing one out of three new mortgages in the private sector market, including banks and specialized companies. I would say, across the board, we see very healthy growth because the level of non-performing loans (NPLs) is relatively stable in all of our markets.

How would you rate the development of electronic banking in Mexico?

In general, I would say it is very important that Mexico improves electronic banking. The payment system is relatively underdeveloped—too much cash and too many checks. The problem is that we have a large customer base trained to use cash and checks. Now it's easier with small companies and new customers, as young people adopt new technologies well. However, there is a challenge to make the economy more electronic—not just in banking, but in all every sector's transactions. The government also uses too much cash and too many checks. We are working toward designing fully electronic solutions that are convenient for the customer. Internet banking has grown significantly, especially in the SME sector, because all of our credit programs are designed to be used on the internet. The government also introduced a positive measure that requires all companies to pay their taxes through the internet. That is also helping with internet adoption rates. I think internet banking is important, but mobile banking is also going to be very significant.

What are your main investment plans for 2012?

We are constructing two new buildings in Mexico City. In addition to that, we are investing in a new business model. We are making very significant changes to our business model, product distribution methods, and the way we advise and interact with customers. We are also investing in infrastructure. We are opening new branches, but more importantly we are investing in new technology, and new electronic channels. We are installing many point-of-sale (POS) systems for our correspondent merchants, and have around 14,000 at present.

Compared to other Latin American countries, the bank penetration rate in Mexico is quite low. Is the dominance of the informal sector the reason for this?

The problem is very simple; we are 20 years behind. When Chile and Brazil's credit penetration was growing, Mexico's banks were being nationalized. We lost 10 years in the 1980s, and we faced a crisis in the 1990s after the sector was privatized. Credit almost fell to zero over this period. Currently, Mexico is experiencing one of the most dynamic banking penetration processes in the world. Banking systems have grown significantly over the past seven years to include 42 million customers, up from 22 million. There are also now 500,000 companies with credit, up from 100,000 in the past five years. The base is low compared to other countries, but the dynamics are strong in this healthy banking system. It is very important that this growth be sustainable in the future. We have a system with over a 15% capital adequacy ratio (CAR). It is a very liquid market and a very liquid position for Bancomer. There are, however, some challenges that we need to overcome to grow more, and the informal economy is one of them. It is very difficult to assess the financial capacity of these companies or families. The legal framework has improved, but needs more improvement. The rights that we have as creditors in our loan operations when we need to recover guarantees are very slow processes. In general, the rule of law needs to be more efficient and effective in protecting these rights for the benefit of everybody, especially the investors. Despite that, the environment is very attractive.

The National Commission for the Protection of Users of Financial Services (CONDUSEF) published new records concerning credit card usage in Mexico and the interest rates applied. What changes do you envision in the near future in the sector?

In the past decade, average interest rates for credit cards have fallen 1,000 basis points (bps). Our strategy is to differentiate prices based on risk. They are risk-adjusted based on the behavior of the customer. We have greatly reduced our interest rate on credit cards in a rational way. The program that has made our idea public is called paga bien, paga menos, (pay well, pay less). Every six months we can reduce 100 bps if the customer regularly pays on time. If he does not pay on time, we can also increase the rate by 100 bps or more. It is a systematic program that is intended to educate the customer as to what is the best way to use a credit card.

We believe that programs like this are very important for customers to use credit in a healthy, productive way. We have tested our financial education programs and we find that those customers who are enrolled have a lower rate of delinquency than those who have not had that opportunity. Still, it is important not to penalize customers with a high interest rate in a market where many people do not have any credit experience. Maybe they will have to pay a 40% interest rate initially, but the great advantage is that they are not in a closed environment.