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Report: Mexico needs to improve banking correspondent model, experts say

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Report: Mexico needs to improve banking correspondent model, experts say

Consideringthat Mexico's model of banking correspondents has largely failed to extend financialservices to rural areas, the government should relaunch the model with a greaterfocus on technological development and with incentives for local banks to investin these types of services, El Economistareported July 24, citing financial experts.

The government'snew National Financial Inclusion Policy launched in June shows efforts to increasethe presence of banking correspondents in Mexico's rural areas have been mostlyineffective, given that most non-bank financial service providers are in urban areas.

The modelof banking correspondents was launched in Mexico in 2010 with the aim of givingcustomers in rural areas an alternative to traditional branches and lowering costsfor financial institutions. Under this model, non-financial commercial establishments,such as convenience stores or pharmacies, offer basic financial services on behalfof a financial services provider.

However,despite efforts by the National Council for Financial Inclusion to encourage thedevelopment of financial services in isolated areas, "the majority of bankingcorrespondents are located in urban areas, which already have points of access,"the document said.

Partof the problem is the time-consuming regulatory process to obtain permission toopen a banking correspondent, which means banks prefer to open access points throughan existing network of stores, usually found in urban areas.

In addition,the fact that these correspondents only offer certain financial services "considerablylimits" their potential to become an alternative to traditional branches, thecouncil said.

Bankingregulator CNBV's 2015 National Financial Inclusion Survey, or ENIF, showed thatnearly one-third of Mexican adults surveyed had not been able to realize certainfinancial operations in banking correspondents, such as paying bills, withdrawingcash or making deposits.

The problemis that banks do not want to invest in providing rural communities with financialservices because there is no guarantee they will recoup their costs, El Economista reported, citing UniversidadLa Salle professor Ángel Méndez.

Méndezsuggested the correspondent banking model should be relaunched with a greater focuson technological development.

Accordingto the CNBV's latest National Financial Inclusion Report, Mexico had 27,422 bankingcorrespondents as of June 2015. The Oxxo chain of convenience stores was the companywith the most correspondent banking points, with 13,791, or around 50% of the total,the publication noted.

offered the highest number of financial operationsthrough banking correspondents as of June 2015, followed in second place by .