Bolstered by 10 years under the North America Free Trade Agreement (NAFTA) and considerable investment in the country, the Mexican government is actively creating conditions under which foreign-based businesses can flourish. Financial institutions in Mexico can now better serve the needs of corporate customers who require global cash management solutions. Some of the most innovative banking solutions offered in Mexico today are designed to facilitate improved treasury operations – specifically, zero-balance account structures and unique payroll solutions targeted to hourly and salaried employees.
As banking solutions in Mexico continue to evolve to support the trend towards centralized treasury operations, the zero-balance account structure (ZBA) is increasingly being offered by most banks in Mexico as a cash-concentration strategy for multinational companies. The ZBA structure assists in managing local balances and funds disbursements through an automated process. Surplus balances can be invested in higher-yield investment instruments to maximize interest. In addition, the ZBA structure reduces local administrative resources required to monitor and transfer funds to cover disbursements.
Through the ZBAconcentration,scheme corporate treasury operations can effectively manage the cash position of their Mexican affiliates. Corporate treasury can also reduce the costs of multiple wire transfers to local affiliates in Mexico by having to fund only one core account.
Challenge of Payroll
Multinationals also have to deal with the challenges of payroll. Foremost among these challenges in Mexico, cash payment is a requirement for most payroll disbursements. Traditionally, companies have used armoured car services to deliver payroll to local operations, facing threats to security as a result.
Mexico has a highly mobile workforce. where pPeople stay employed by moving from plant to plant or working in seasonal and high-turnover industries such as entertainment, tourism and foodto follow work.By virtue of being transient, they cannot prove residency and lack the documentation required to open a bank account. This makes it difficult to open any kind of account and hinders direct deposit.
Mexico also operates in a highly unionized environment, which requires companies to comply with unique business rules and collective agreements. Wages are based on a daily rather than an anhourly rate and are subject to many other regulations for overtime and statutory benefits. This makes it necessary for companies to pay these mobile workers on the day they join the company.
To address this challenge, companies are increasingly using a payroll card that can be tailored to meet the needs of an hourly and a salaried employee’s needs, while streamlining the payroll process.
Payroll Card Payment
At the basic level, hourly employees receive stored-value cards that provide access to payroll in cash or at point of sale without the hassle of opening a bank account. An Internet transaction loads the employee’s net pay onto an inventoried card that provides cash-dispensing and account-inquiry capabilities. Once authorized, the payroll card is ready for activation and use by the employee.
Since employees do not need to open bank accounts, they do not need to be concerned with documentation requirements or transaction and account-handling fees. Given that the human resource departments controls set up, termination and change requests, administration time is significantly reduced and the payroll process is streamlined. The company controls payroll payments in a secure on-line environment. Card stock is maintained internally by the company, who which can activate or deactivate cards online and in real time.
“This is an excellent solution for companies that want to reduce the administrative headaches of providing payroll to hourly workers, since employees can be payroll-enabled on the same day as they join the operation,” says Mauricio Rico, director, Corporate Business Development, Scotiabank Inverlat. “Employees can access their pay in cash on non-business days through the ATM network, and there are no minimum monthly balances or account-handling fees required. Same-day replacement and/or substitution for lost or stolen cards is easily managed, since all transactions are managed online in real time.”
A different payroll mechanism, which requires a traditional bank account, can be used to serve middle- and upper-income salaried employees, Rico adds. “These individuals are looking for the same banking capabilities as their North American or European counterparts,” he says. “They want open access to their funds through the ATM network as well as telephone and internet banking. The bank account offers all the expected debit-card functionality, as well as the option for building in special credit programs and tiered benefits depending on the type of account maintained by the employee.”
Companies with multiple operations often have different payroll-management systems at different locations, which must be aligned before payroll implementation can begin. Employee turnover and sensitivity to a unionized environment must also be considered.
A payroll-card solution addresses a number of critical business requirements:
- It cuts administrative costs associated with the opening of bank accounts for hourly workers.
- The centralization of treasury operations is enabled by a zero-balance account structure, optimizing the use of company resources with just-in-time funding of a centralized payroll account.
- The solution delivers more control over payroll and empowers HR departments by offering a near-cash, real-time solution. This also helps to improve compliance with regulatory requirements.
Many multinational companies have implemented the a payroll-card solution to streamline processes in Mexico.”These companies have recognized operational efficiencies and reduced administrative times associated with employee account set–up,” says David Lee, senior manager, Enterprise Solutions, Scotiabank.
Companies can identify opportunities to reduce payroll costs through an operational assessment. Selecting a financial partnerwho understands the Mexican environment is critical to implementing a payroll-card solution is critical. In additionThe rollout , the role-out should also include a pilot group toto test proof of the concept and to ensure efficiencies will be realized.
If there’s a lesson to be learned about how to operate successfully in Mexico it is that cultural differences need to be considered at the outset. Do not assume that what works in the domestic market will work abroad, and choose the right financial partner with experience in Mexican banking.