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 Business News | November 2006 
Wal-Mart Will Offer Retail Banking in Mexico, an Underserved Market
 Elisabeth Malkin - NYTimes
| | Wal-Marts like this one in Mexico City will include the new banks. (Jaime Puebla/Bloomberg |
Public opposition has all but killed Wal-Mart’s plans to open its own bank in the United States. But in Mexico, its push for a bank is sailing through.
The Finance Ministry has given final approval for the bank, Wal-Mart de México said Wednesday, and it will begin operating during the second half of 2007 and be called Banco Wal-Mart de México Adelante.
A possible reason for the different reception in this country from that in the United States is that most Mexicans do not have bank accounts and Wal-Mart plans to offer them the opportunity to have one, making it hard for local activists to stir public outrage.
And in this venture, it is possible at least for now to see Wal-Mart as the little guy. Among its competitors in the banking business are the Mexican units of global giants like Citigroup and HSBC, which have made little effort to attract the bulk of poor and working-class Mexicans.
By most estimates, as many as 80 percent of Mexicans do not have bank accounts.
The authorities, beginning with the governor of the nation’s central bank, Guillermo Ortiz, have blessed the entry of retailers into banking as a way to reach many of those Mexicans without accounts.
In its statement last week announcing that Wal-Mart, along with four other new banks, had received preliminary approval, the Finance Ministry said it expected the new financial institutions to create competition and serve markets that the country’s dominant banks ignore. Subsidiaries of four foreign banks, BBVA and the Santander group, both of Spain, in addition to Citigroup and HSBC, control more than 70 percent of Mexico’s banking.
In the United States, Wal-Mart’s application for an industrial bank — to process credit card transactions, the company said — is frozen. Community banks as well as larger ones have joined Wal-Mart’s more usual detractors among unions, small merchants and community activists to oppose the bank.
Alan Greenspan, during his time as Federal Reserve chairman, expressed worry about regulators’ lack of oversight of the parent company. And members of Congress spoke up.
Wal-Mart tried to head off that opposition by promising not to put branches in its stores. But at the moment, its application is under a six-month moratorium imposed in July by the Federal Deposit Insurance Corporation on industrial banks.
The reaction in Mexico has been different. Wal-Mart is a giant here, too — the country’s largest retailer and private employer, with more than 135,000 workers. It has 877 outlets, including 504 food markets, along with a national restaurant chain and some 60 small department stores. It continues to grow — in October alone, it opened eight stores and four restaurants — and Wall Street analysts expect sales in Mexico as high as $18 billion this year.
Wal-Mart’s Mexican banks will operate in spaces carved out of many of these stores, as opposed to building or buying freestanding structures. The number of banks is not yet certain, and the rollout will be slow.
Protesters in this country sometimes home in on Wal-Mart as a symbol of multinational power, and community groups say new stores gobble up scarce water and electricity without adding to the infrastructure. As in the United States, there are fears that Wal-Mart will destroy local businesses that are the bedrock of commerce. Merchants in many small communities have organized — unsuccessfully — to try to keep out planned stores.
But Wal-Mart Stores is not the lightning rod for opposition here that it has become in the United States, where activists take aim at its low wages and meager benefits. In Mexico, its labor practices are no worse than those of its competitors. For most Mexicans, its low prices are all that count. Feel-good ads showing how Wal-Mart has helped its Mexican suppliers export all over the world help create a favorable image.
Many Mexicans are hazy about whether they are shopping in a Wal-Mart store. The company kept most names it inherited when it bought Mexico’s largest retailer in 1997.
There is even less antipathy toward Wal-Mart’s proposed bank.
Poorer Mexicans have been largely shut out of traditional banks by minimum balances, high fees and intimidating paperwork. Community banks barely exist.
“There is an opportunity there,” Raúl Argüelles, Wal-Mart de México’s corporate affairs director, said in a recent interview. “The size of the whole pie can grow for Wal-Mart and for the rest of the players.”
The Wal-Mart bank will start modestly with an initial investment of $25 million, offering bare-bones savings accounts and simple personal and consumer loans, Mr. Argüelles said. It may also lend money to small suppliers and to business owners who shop at Sam’s Clubs, Wal-Mart’s discount warehouse chain. He said it might take as a long as five years to start making mortgage loans.
“We are a low-cost company,” Mr. Argüelles added. “We will look for a very austere bank that is very focused on the customer.”
María de Jesús Martínez may require a little convincing. A domestic worker, Mrs. Martínez, 47, was shopping at a busy Wal-Mart-owned store one Sunday evening. About nine years ago, she put $80 into a Mexican bank. When she went to withdraw it, only $23 was left, the rest eaten up by commissions. “It just took away all my interest,” she said.
No one in her family of eight has a bank account. Her daughter, Mariana Hernández, 20, a student, showed only grudging interest. “It might be an alternative,” she said. “We would have to see how they manage it.”
Amy Wyatt, a spokeswoman for Wal-Mart in Bentonville, Ark., which owns 67 percent of the Mexican subsidiary, said the plans for a bank were made in Mexico and were not part of any global banking strategy. “It’s really driven by the local market,” she said.
In public, Mexico’s traditional banks have said they are not threatened by Wal-Mart’s entry. Emilio Botín, chairman of the Santander group, said on a visit here last month when asked about Wal-Mart, “I love competition; if there’s another bank, fantastic.”
Privately, the banks have been pressing the authorities to ensure that Wal-Mart follows all the regulations they are required to — whether security measures, how tellers are trained, or even the composition of the bank’s board.
Despite rivals’ worries, Wal-Mart’s success is hardly assured. It can hire experience: to set up the bank, Wal-Mart hired a longtime banker in Mexico, Julio Bosco Gómez, former chief executive of Bank One in Mexico. A well-known banker here, he has 25 years’ experience, including in the United States.
But other pieces of the banking business will be hard to come by. Many customers have no credit record, so Wal-Mart will have to train employees to analyze credit risk and create effective collection systems. It also faces direct competition right in its own stores, where it has leased space to traditional banks for their own small branches.
And competition can be expected from other retailers who moved earlier to set up their own banks.
The first and largest of those is four-year-old Banco Azteca, which developed from the credit operations of Grupo Elektra, a retail chain with decades of experience selling on credit to working-class customers. “We already had 2,800 credit managers,” said Luis Niño de Rivera, Banco Azteca’s vice chairman. “Wal-Mart does not have the remotest idea what this business is about.”
Banco Azteca’s figures suggest that given the chance, working-class Mexicans will use banking services, even when interest rates are high. It charges 45 to 50 percent for personal and consumer loans, but it grants them without fuss and makes payment easy. The bank started with Elektra’s 2.5 million credit clients and now has 6.5 million credit customers. Its seven million savings accounts hold the equivalent of $3 billion. “There was a lot more money under mattresses than we thought,” Mr. Niño de Rivera said.
Analysts say that in the first years at least, the Wal-Mart bank’s main benefits to the company will come from attracting new business to the stores and promoting more sales on credit.
“Wal-Mart knows how to sell,” said Eduardo Estrada, a Citigroup Global Markets analyst here. “They don’t know how to collect. They have to learn. This is one reason they can’t start too quickly.” He estimated that the bank could add $100 million to earnings after five years.
Compared with countries that have similar levels of development, World Bank figures show that Mexico is well behind Brazil and Chile in an important measure of banking activity — private credit as a percentage of total output. In Mexico that figure was 18 percent in 2003, compared with almost 40 percent in Brazil.
Banks in Mexico defend themselves by pointing to the rapid growth — 30 to 40 percent a year — in consumer loans since 2003.
These are not bargains. According to a calculation by the Mexican central bank, global banks charge much higher credit card fees in Mexico than in their own countries. Citigroup’s Mexican subsidiary charges an effective annual rate around 62 percent on its Classic credit card, almost three times the rate for a comparable card in the United States.
Some analysts question whether Wal-Mart will do much to lower prices. There is already competition among banks, yet their profits keep rising, said Clemente Ruiz Durán, an economist at the National Autonomous University of Mexico.
“Wal-Mart is going to come in under the same conditions,” he said. “And it is not going to change those conditions.” |
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