Mexico’s Retail Electronic Payment Systems in 2003

1. Modernization and growth in card payments:A holistic cooperative effort of financial and non-financial stakeholdersFIMPEExploring Frontiers in Payments Systems DevelopmentMay 31st, 2007

2. Mexico’s Retail Electronic Payment Systems in 2003 • Bank cards: • 9.4 Million credit cards. • 32.2 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.

3. Concept • 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.

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. The Mexican government’s role • 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.

7. Strategy 2004 - 2005 2006 2007 Demand Generation Goals Supply generation: Merchants Banks Small businesses modernization program New payment platforms

8. Demand generation • 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.

9. Demand generation • 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: • Paga con tu tarjeta y gana de

10. Results: Demand generation 166.9% Source: Banco de México, Domestic operations of domestic accounts.

11. Results: Demand generation 190.8% Source: Banco de México, Domestic operations of domestic accounts.

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

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

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

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 96.3% Source: Banco de México.

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

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. Conclusions • 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 2006. • 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.