The landscape of the Mexican financial system has rapidly evolved over the last six years. Client demand and trends in the industry have led to a 183 per cent increase in banking transactions from 1998-2004. Technological advancement has followed suit as there have been many developments in banking and corporate treasury in Mexico.
Mexico’s Current Landscape
In 1998, nearly six million banking transactions were processed on a daily basis, of which 56 per cent were processed through bank branches. By 2004, banking transactions processed increased to 17 million, 22 per cent were processed via bank branches, 38 per cent via electronic banking, 28 per cent via ATM and 12 per cent via Point of Service (POS) networks. To the contrary, the volume of checks has remained without growth for the last five years, at approximately 600 million checks annually.
By the end of 2004, the Mexican financial system recognized 34 million debit cards and 12 million credit cards. Hence, more and more sector development focused on providing a greater number of banking services via the ATM network. For example: bill payments, collections, insurance sales, etc.
Currently, electronic banking is being used widely by large Mexican companies and multinational corporations in Mexico. Most banks in Mexico offer electronic banking systems with comprehensive account information and funds transfer capabilities. As this trend continues, more and more services will be offered electronically to meet the corporate treasurer’s needs. In addition, Mexico’s membership in the North American Free Trade Agreement (NAFTA) make it a desirable market to bank in.
Evolving Technological Developments in Mexico
Due to the increase in transaction complexity and value, improving efficiency, preventing fraud and improving security standards have become a main concern when developing technology in Mexico. Since 1994, Mexico has made great strides to alleviate these concerns by enhancing their electronic banking and treasury systems and transforming the way business is conducted.
In 2004 an improved real-time high-value system, Sistema de Pagos Electronicos Interbancarios (SPEI) – an automated interbank fund transfer system was enabled replacing the current system; Sistema de Pagos Electronicos de Uso Ampliado (SPEUA). SPEI, a more efficient and robust system, can handle a greater number of payment transactions, informative messages, and has a pending payment tool to optimize participants’ balances and to reduce risk within the system. With this new development, banks can design more automated systems and plan cost reduction. The aim of Banco de Mexico (Mexico’s central bank) is to reduce and eventually renounce responsibility for settlements of high-value transactions, by only providing liquidity facilities to financial institutions involved. An efficient, reliable and modern payment system will help to accomplish this objective.
To ensure a safe electronic environment, Banco de Mexico has designed, developed and is recently managing a new Extended Security Infrastructure system called IES. This new system administers digital certificates to strengthen the security of information transmission through payment systems, financial systems and the Centro de Compensacion Bancaria (CECOBAN), Mexico’s bank clearing center. IES uses electronic signatures to identify the remitter. This initiative will increase confidence in the Mexican payment system in all client segments, generate important advances on decreasing bureaucratic fiscal requirements and also help increase savings over payment operations for small, medium and large corporate companies.
Mexican Corporate Treasury Needs
Corporate treasurers are looking for secure ways to do business while preventing fraud, centralizing processes, including automation of treasury processes, and integration with their enterprise resource planning (ERP) system. They want to become more efficient when it comes to control, automation, centralization and cost effectiveness. The technology advancements that Mexico has made over recent years have addressed many of the concerns and needs of Mexican corporate treasurers.
In addition, Sarbanes-Oxley legislation has accelerated the natural trend Mexican corporates started a few years ago towards centralization. Given the current postal structure in Mexico, the trend to migrate from check into electronic transfer has been much more accelerated than in other countries. Also, having a government regulation which forces all small, medium and large enterprises to pay taxes via online bank delivery channels and competing in a global market are two main reasons why technology has become very important to most corporate treasurers – some investing money in ERP treasury systems and others developing in-house systems allowing integration of all their payments and collections into a single platform and the ability to have a direct and secure connection into different banking platforms.
EDI System technology, to send and receive files directly from treasury systems, has been around for the past decade. Host-to-host, as it’s commonly referred to, is not a new delivery channel but Mexican corporates are now demanding banks to provide a host-to-host solution which allows them an online, real-time interface from their treasury system to the bank’s main system. This will allow clients to affect accounts so that payments or collections can be executed real-time allowing for interfaces to generate real-time reporting.
Corporate treasurers are also looking to banks to provide an efficient concentration of all collections and an enhanced ERP connectivity with overdraft line facilities to execute payments during the day which will be automatically compensated at the end of the day from a concentration master account that aggregates all collections and where surpluses will receive overnight interest. In addition, electronic bill payment and presentment complements technology-driven corporate treasurers to complete the final stage of the treasury operation cycle.
Transformation
There was a time when banks started pushing corporate treasurers towards technology to optimize their cost of operations; now global corporate treasurers are turning the tables and pushing banks to deliver regional technology and automated, secure solutions to take complete advantage of the current global technology in the creation of shared service centers to optimize the corporate treasurers’ costs.
In less than a decade, Mexico has transformed its banking and treasury management processes and policies to ensure a more secure and efficient banking environment. These changes are the result of the combined efforts of the banking industry, the Mexican central bank and the government, working to add-value to all segments of the diverse Mexican marketplace and to revolutionize the way both banks and companies conduct business.
Information sources: Banco de México (Central Bank), ABM (Mexican Bankers Association), Cecoban (Clearing Institute).