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posted on 25 September 2016

Mobile Payments Promise To Improve Financial Accessibility In Mexico

from the Dallas Fed

-- this post authored by Michael Perez

A majority of Mexican adults remain outside the country's financial system. The proportion is greatest in rural areas, where 71 percent of those 15 and older lack access to formal financial services, far exceeding figures for Mexico's Latin American peers. Mexico also trails in personal and business loan issuance, deposit rates and debit and credit card penetration (Chart 1).

Mobile phonebased financial services and other new technologies may hold the key to converting more of Mexico's "unbanked" residents, most of whom have traditionally operated outside the formal economy. Regulatory oversight of the new services is slowly evolving.

An estimated 90 percent of transactions in Mexico are settled in cash, indicative of formal finance's poor reach in the world's 15th-largest economy. A deep distrust of banks persists, which has contributed to low bank-account ownership, along with unstable employment prospects and a large informal economic sector operating outside government oversight and tax law.

The high fees and minimum balance requirements at Mexico's commercial banks contribute to the problem. The banks also have traditionally failed to address the payment needs of low-income, unbanked populations.

Consequently, many Mexicans form communal savings and lending arrangements, known as tandas, though these can be expensive and unreliable.2 Inadequate financial consumer protection laws, frequent instances of payment fraud and low levels of financial literacy also persist.

[click on the image below to continue reading]

Source: http://dallasfed.org/assets/documents/research/swe/2016/swe1603g.pdf

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