Friday, November 24, 2006

Mexican Free-Market Banking May Soon Outshine the US Sector (If Corruption Doesn't Get There First)

Wal-Mart has been trying unsuccessfully to open up banking services in the US for quite a while now. I'm all for it. It's high time the US banking industry felt some competitive pain.

Below are some interesting excerpts from an article at the NY Times. (You may need to register in order to read the original.)

[Thanks to for the photo, which I have tweaked.]

"In the United States, Wal-Mart’s application for an industrial bank — to process credit card transactions, the company said — is frozen. Community banks as well as larger ones have joined Wal-Mart’s more usual detractors among unions, small merchants and community activists to oppose the bank."

Yes, monopoly does have a way of spoiling market participants.

Okay, so if the US banks don't have the courage to face some competition, we all suspect the Mexican banking industry might need some, which is confirmed by the following:

"About nine years ago, [a Mexican citizen] put $80 into a Mexican bank. When she went to withdraw it, only $23 was left, the rest eaten up by commissions."

And today things are only modestly better:

"Banco Azteca’s figures suggest that given the chance, working-class Mexicans will use banking services, even when interest rates are high. It charges 45 to 50 percent for personal and consumer loans, but it grants them without fuss and makes payment easy."

Boy, those rates suck. But Mexican banks aren't alone in the gouging arena, because even US banks are raking it in:

"Citigroup’s Mexican subsidiary charges an effective annual rate around 62 percent on its Classic credit card, almost three times the rate for a comparable card in the United States."

Now we know that the private property situation in Mexico isn't stellar, and that is probably fundamental in creating this situation for reasons I won't go into here. But even so, let's say the banks could use a few more incentives to treat their customers better. Wal-Mart's presence would surely help, but:

"Some analysts question whether Wal-Mart will do much to lower prices. There is already competition among banks, yet their profits keep rising, said Clemente Ruiz Durán, an economist at the National Autonomous University of Mexico. 'Wal-Mart is going to come in under the same conditions,' he said. 'And it is not going to change those conditions.'"

I hope the Mexican government lets them in and gives them free rein to charge what they want. And if they do, Senor Ruiz Duran, I have a tiny piece of advice for you: Do not, repeat do not, underestimate Wal-Mart.

American bankers sure don't. In fact I'm curious: I wonder how many pretty pennies they've spent lobby-elbowing them out here in the US.


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