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Key takeaways
- Mexico's card industry is highly underpenetrated: only 1 card issued per 2 adults, and accounting for <10% of consumption.
- Incumbent banks are dominant, with 85% market share of card balance, which generate c.30% of their revenues.
- But new entrants, including some of Latam's largest nonbank lenders, are looking to tap into this underserved market.
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ATMs: Automated Teller Machines
INEGI: National Institute of Statistics and Geography
CNBV: National Banking and Securities Commission
Banxico: Mexican Central Bank
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A primer on the Mexican credit card industry
We provide essential data to understand the Mexican credit card landscape and main trends. In a nutshell, i) credit cards remain largely underpenetrated - their balance represent less than 2% of GDP, and there are only 48mn cards outstanding (34mn from banks, 7mn from departments stores and 7mn from fintechs); ii) credit cards are responsible for about c.30% of banks' core revenues; iii) the market is dominated by the incumbent banks, with the top 5 accounting for 85% of the balance and 70% of cards issued; and iv) the sector is facing increased competition from new fintech entrants as well as from smaller banks.
Card penetration stalled over the last decade
Mexico has the lowest credit card penetration among LatAm at only 1.7% of GDP, a ratio that has remained stagnant for more than 10 years. From another angle, there are only 48mn credit cards outstanding in Mexico, which compares to an adult population of 94mn, which represents one card for every 2 adults. In comparison to Brazil, credit cards represent 5.3% of GDP and there are 430mn cards outstanding, or 2.7 cards per adult.
Incumbent banks have a leading role, but for how long?
The five largest retail banks in the country account for about 85% of the industry's credit card loan book. This is explained by the fact that the largest banks have the largest infrastructure (ATMs and branches) and have a long history building a client relationship. BBVA and Citi concentrate 54% of the credit card market share. Having said that, smaller players started to become more relevant, such as Invex by offering business credit cards, and banks with a retail franchise, such as BanCoppel and Azteca.
New entrants are looking for a piece of the pie
Nonbank lenders are tapping Mexico's underserved credit card market, including Brazil's Nubank, Argentina's Uala (which acquired Mexico's ABC Capital bank in June 2023), Mexico's Stori (which acquired MasCaja), Mercado Pago (supported by Mercado Libre), Colombia's Rappi (joint venture with Banorte) and Mexico's Klar. As a way to attract clients, such new entrants have increased the remuneration on their deposits to c.15% per year, which is well above market rates of 11.25% and those offered by incumbent banks (c. half of market rates).
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 Credit cards are highly underpenetrated
Credit card balances have grown at an 7% CAGR since 2010 and reached Ps538bn (US$29.8bn) in October '23. Nonetheless, credit card balances have remained relatively unchanged as percentage of GDP over the past 13 years, at around 1.7%. This level is the lowest in LatAm and compares to 5.3% in Brazil.
Furthermore, there are roughly 48mn credit cards outstanding in Mexico (+34mn from banks, 7mn from department stores and roughly 7mn from fintechs), representing one card for every two adults. This figure is very low, especially when compared to Brazil, which has 431mn credit cards outstanding, representing 2.7 cards per adult.
Excluding department stores and fintechs, the number of cards outstanding in Mexico has grown at 3.5% CAGR since 2010. However, the sector has experienced some periods of boom and bust. The number of cards more than doubled from '04 to '07, to 30mn, but was followed by a sharp decline to 22mn in 2009 as part of the Global Financial Crisis. This was then followed by steady growth of 5% per year through 2017, to a new peak of 33mn cards, which was followed by a sharp drop to 27mn in 2018 impacted by the earthquake in Mexico. The number of cards remained steady throughout the Covid pandemic. However, over the past 2 years, there has been an acceleration in growth again, to a new high of 34mn.
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 Finally, Mexico remains a cash intensive economy, with c.80% of consumption paid with cash, 12% with debit and only 7% paid with a credit card. In comparison, credit cards account for 35% of consumption in Brazil and 45% in more developed countries. In Mexico, cards are mainly used for paying hospital bills and purchases at retailers.
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 Industry Economics
Credit cards are responsible for about c.30% of Mexican banks' core revenues (c.20% of NII and c.70% of net fees). Â On average, 18% of card balances revolve and the annual rate charged on this balance averages 29%. The NPL ratio has averaged 5.2%, reaching a peak of 9.4% during the Global Financial Crisis and a low of 2.6% in 2022. The expected loss ratio has averaged 11.4% and ranged from 9.6% to 12.2%.
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Mexican banks' credit card NPL ratio remains at historical lows of 3.5%, well below 9.4% experienced in the '08 credit card crisis and in the '20 pandemic. Meanwhile, credit card expected loss is at 10.7%, above a low of 9.6% in 2021, but below the historical average of 11.5%.
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 Main players
The card industry is dominated by the incumbent banks, with the 5 top players accounting for 86% of total card balance. BBVA and Citi, the two largest players, account for 55% of all card balances. However, Citi has seen a large drop-off in share since 2010, of 7 percentage points, which was captured by Santander, Banorte and HSBC.
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Also, we noticed smaller players started to become more relevant, such as Invex by offering business credit cards, and banks with a retail franchise, such as BanCoppel and Azteca. Inbursa expanded its credit card business since Walmart's acquisition in 2015 (currently at 3%).
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The following charts include consolidated credit card figures from banks, department stores and fintechs. In the last five years, we detect the entrance of fintechs, such as Nu Mexico (already with 8% market share of total cards outstanding), Stori (4% market share), Rappi (2% market share), and Uala and Rappi (1% market share).
Mexican banks added 5mn cards through August 2023 (to 34mn cards) with a credit card balance of Ps538bn (or USD$29.8bn) as of October.
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The average credit limit is roughly USD$2,204, while average revolving balance is 16% of the card debt (vs. 18% historically).
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 Tougher competition from fintechs
Mexico-based non-bank lenders are tapping Mexico's underserved credit card market niche, in addition to Brazilian lender Nunbank, Argentine unicorn Uala (acquired Mexico's ABC Capital bank in June 2023), Mexican Stori (acquired MasCaja), Mercado Pago (supported by Mercado Libre), Colombian Rappi (joint-venture with Banorte) and Klar.
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As of September 2023, Nubank in Mexico has the largest number of users among Mexican non-bank lenders, totaling 3.6mn users, followed by the Mexican Stori with 2.0mn users. Meanwhile, Uala has a bit more than 0.5mn users in Mexico, while it is targeting to reach 5mn users in the next three years. On the other hand, Mercado Pago is exploring to request a digital banking license and can originate 10mn pre-approved credit lines between mercado Pago and Mercado Libre. Finally, there are other competitors, such as the joint-venture of Rappi with Banorte, and Klar offering consumer credit lines.
 Deposit war elevates higher yield offer
Mexican fintechs have recently elevated the remuneration of their deposits to 15% from 12%, which is well above the reference rate of 11.25%, in order to attract clients. Except Mercado Pago that is already lending to underserved market niches under segments D and E of the population, we detect the rest of the fintechs have focused more on the C segment.
Having said that, segments A and B of the population are willing to migrate a portion of their deposits to fintechs in search of a higher yield. We expect migration to high deposit yields to continue, although any negative news flow towards the fintech sector could significantly jeopardize this trend.
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