1 Modernization and growth in card payments: A holistic cooperative effort of financial and non-financial stakeholders FIMPE Exploring Frontiers in Payments Systems Development May 31st, 2007

2 Bank cards: 9.4 Million credit cards Million debit cards. POS network: 146,029 POS. Cash withdrawals at ATMs made up 87% of all bank card transactions (Vs. 13% at POS). High market concentration. Segmented, non-uniform network. Magnetic stripe-only capability. Mexico’s Retail Electronic Payment Systems in 2003

3 To increase electronic payments usage to raise tax revenues. To create a universal network to aid the execution of government programs. To create proper incentives for private agents to participate in such an effort. Concept

4 What is FIMPE? Presidential decree. Private organization aimed at promoting electronic methods of payment. 15 financial institutions.

5 To promote the usage of electronic methods of payment among the population. To increase the POS network. To standardize the technological platform. Objectives

6 Setting FIMPE’s goals. Setting standards for network development. Evaluation of FIMPE’s actions, progress and goal completion. Tax incentives subject to completion of FIMPE’s goals. Taking advantage of FIMPE’s network to execute government programs. The Mexican government’s role

7 Goals Demand Generation Supply generation: Merchants Banks New payment platforms Small businesses modernization program Strategy

8 Creation of incentives for bank card usage at POS. Lotteries awarding cards among bank card transactions at POS. Focus on debit cards. More than 3,100 cars given away. Demand generation

9 96% knows the brand Boletazo. 1 out of 5 says he’s/she’s increased his/her card usage. The communication has a unique and constant message: Demand generation Paga con tu tarjeta y gana de

10 Source: Banco de México, Domestic operations of domestic accounts % Results: Demand generation

11 Source: Banco de México, Domestic operations of domestic accounts % Results: Demand generation

12 Source: Banco de México, Domestic operations of domestic accounts. Results: Demand generation

13 Source: Banco de México, Domestic operations of domestic accounts. 2.1 pp Results: Demand generation

14 Source: Nilson Report, Banco de México (Domestic operations of domestic accounts). Recent growth exceeds regional average. Results: Demand generation

15 Results: supply generation Any merchant can acquire a POS terminal, regardless of its sales volume. Initial single fixed monthly payment of about US$ 8 for up to US$ 4,000 in bank card transactions. The program comprises: Advertisement of the benefits of card acceptance for merchants. Incentive program and special promotions for merchants. POP material.

16 Results: POS network Source: Banco de México. 96.3%

17 Universal network FIMPE has made the first step towards the creation of a universal electronic transactions network, making it possible for the arrival of new payment schemes and platforms. FIMPE’s infrastructure is designed to be open to third parties (both public and private). Such a network will greatly reduce transaction costs.

18 Technology POS Wireless technologies (GPRS, CDMA, Wi-Max, Ethernet, ADSL, Edge, EvDO) Smart card (chip) ready. EMV-compliant. Multi-application ready. Multi e-purse ready. Contact-less transactions. Biometric readers. IP-based terminals. Switch CRM. Multi-carrier network. IP-based. Multiple applications processing. Multi e-purse processor. Data Warehouse. Links to third parties’ networks.

19 POS network Multi-carrier communications network Government programs Other third parties Third party Microfinance (non banks) Third party payments Health programs Subsidies Bank Switch Bank Switch Debit/ Credit Bank FIMPE

20 Personalized card issuance to program beneficiaries; PIN authentication may further prevent fraud and assure proper delivery. Current subsidy dispersion outlets can be complemented with private ones: no need to maintain costly branches or inventory. Trustworthy, information-rich transaction registry: Immediate tracking of transactions and valuable statistics and data mining possibilities. Significant cost advantages: No need for government to invest heavily in network development. Transaction costs savings of up to 90%. Theft, loss and abuse greatly diminished due to direct delivery to users, private channel usage, transaction tracking and reduced need for inventory. Subsidies dispersion

21 Health care programs: Drug supply (e.g. Seguro Popular, currently running). Medical history registry. Social assistance programs. Discount foodstuffs and direct supply. Identification and registry of public program usage (e.g. daycare). Housing and construction assistance programs: Construction material discounts and direct supply (e.g. SHF). Agricultural subsidies: Input discounts and dircet supply (e.g. SAGARPA diesel, currently running). Monetary subsidies. Examples of suitable subsidies

22 Cardholders increasingly use their cards to purchase goods: 2006 POS transactions accounted for 32% of total bank card transactions, up from 13% in 2003, It’s become easier to find card-accepting businesses: Mexicos POS Network has doubled since 2003, reaching about 290,000 terminals in A universal network for transaction processing is available for third parties, incluiding government agencies. Next steps: Increasing the number of third parties using FIMPE’s network. Conclusions