Plastic handcuffs: limited options, high bank fees have stunted credit card growth in Mexico.

Are banks overcharging credit card holders in Mexico? At a time when credit card use in Mexico is at a record high, banks, economists and politicians are debating this question.

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A new study by the Bank of Mexico has found that international banks are charging more for credit cards and other bank services in Mexico than they do in other countries. Central Bank Gov. Guillermo Ortiz has called on the banks to reduce fees and stimulate competition.

The Central Bank's study found that banks owned by HSBC, BBVA, Bank of America, Santander and Citigroup have higher annual fees and interest rates for credit cards in Mexico than elsewhere. The average annual credit card fee in Mexico is 540 pesos, more than twice the average in the United States and Canada.

LACK OF COMPETITION

Economist Raul Feliz of Mexico City's Center for Economic Research and Education (CIDE) said that in an industry that is dominated by a few large players, a small number of companies are keeping prices high.

"Even considering factors that drive prices up, such as fraud, credit card interest rates in Mexico are excessive," Feliz said. "It doesn't seem like the banks are competing. In the past few years, the credit card industry has not contributed to the economic development of the country."

But the Bankers Association of Mexico (ABM) has denied that banks overcharge credit card holders.

And Eugenio Zubiria, executive director of credit cards at Banamex, said that it's not fair to compare fees in different countries.

"I don't think there is a good reason why this has become the topic of the moment," Zubiria told BUSINESS MEXICO. "I wouldn't dare compare fees among different countries because the conditions of the countries are different. A company like Citibank that has operations in many countries takes into consideration the situations in each market to determine the pricing of our products."

With Banamex, the annual fees for credit cards range from 0 to 1,200 pesos. Interest rates oscillate between 18% and 35%, and fees for using ATMs range from 0 to 7% of the withdrawal.

Zubiria said that those who balk at Mexico's credit card fees and interest rates tend to take the numbers out of context. At Banamex, there are often offers such as "No interest for six months" that mean that the average interest rate is actually lower, he said.

"Thirty-five percent can sound like a high rate," Zubiria said. "But we have to consider that when you combine this with purchases with months of no interest, it could be more like 25%."

Zubiria and Ortiz agree that competition is key for Mexico's credit card sector.

"The best regulator of prices is competition, and that's what we're starting to see in Mexico," Zubiria said. "The client has a lot more options and can analyze prices."

Between 1998 and 2003, the number of credit cards in use in Mexico grew from 6 million to 10 million, and the number of debit cards grew from 23 million to 33 million, according to figures from the ABM. In 2003 alone, 2.5 million new credit cards were issued in Mexico. To put this in perspective, there were more than 700 million credit cards in the United States by the end of 2002.

NO PAPER TRAIL

In Mexico, where it's common cultural practice to pay bills in person with cash and the vast informal economy operates almost entirely in cash, there is still a large segment of the credit card market that's untapped, according to industry experts.

Banamex has embarked on marketing campaigns to encourage people to use their credit cards more.

"It's not that we're asking people to consume more--we're just asking them to think about using their credit cards," said Zubiria.

Armando Huitron, marketing manager for MasterCard in Mexico, said that 80% to 90% of transactions in Mexico take place with cash or checks.

"What we're doing is encouraging the use of credit and debit cards as preferred forms of payment," he said. "We've been winning the battle against cash, and I think we'll continue to win it."

MasterCard's sales in Mexico are 11 times what they were five years ago, Huitron said. There are 16.8 million MasterCard credit and debit cards in Mexico, he said. The increase in credit cards in Mexico, according to experts, is due to the fact that the market has matured since the 1994 peso crisis.

"After 1994, when there were a lot of losses, credit consciousness was created in Mexico and people began to have the idea that it's bad not to pay," Zubiria said.

EMERGING OPTIONS

Not only are there more credit cards in Mexico now, but consumers have more choices. Banamex, for example, now offers individual clients about two dozen different kinds of credit cards--from a Visa card that gives money to the Iberoamerican University to a MasterCard that allows users to earn miles on Mexicana Airlines.

"Just 10 years ago, there were a series of monoproducts. There was no difference between credit cards," Manuel Medina Mora, ABM president and CEO of Banamex, told the Senate Finance Committee in a presentation in late April. "Now, clients have a diversity of options, and therefore, at times, it's difficult to compare. The client must be given ... all of the information to decide."

Zubiria said Banamex is already doing this.

"We are trying to be more punctual and more precise with the information we give our clients," he said. "We invest in the clients, explain the differences in the services. We're letting them know the costs and the benefits, information so they can make decisions."

But the flurry of new options does not mean that there is more competition in the sector, Feliz said.

"Just because the name is duplicated doesn't mean there are new players in the industry," Feliz said. "In the end, it's the same card. It's not the number of brands that's the problem. The problem is the banks' policy for the cards. It seems they're taking advantage of their profit margin."

Feliz added that it's not just credit card services that are expensive in Mexico.

"Bank services in Mexico in general are very expensive--all services," he said. "It continues to be a problem."

PAY FOR PLASTIC

Average credit card annual fees (in pesos)

Mexico          540

United States   204

Canada          220

United Kingdom   55

Source: Bank of Mexico

Corrie MacLaggan is a Mexico City-based freelance writer.