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196 • Microfinance for Bankers and Investors Serving (or Not Serving) the Mexican BOP Market Mexico’s highly unequal income distribution has long troubled its economic policy makers. The World Bank asserts that the richest 20 percent of the population account for over half of the country’s total earned income, while the poorest 20 percent earn only 4 percent.4 Banking services tend to follow the money. For years, four elite- and corporate-oriented international banks accounted for more than three-quarters of all banking: HSBC, Banco Bilbao Vizcaya Argentaria (BBVA), Citibank’s Banamex, and Santander Serfín. Some 16 million low-to-middle-income households—more than two-thirds of all Mexicans—had little or no access to financial services.5 But Grupo Elektra already did business with the BOP population. Its Salinas y Rochas stores had been selling furniture on credit since 1906. Elektra began manufacturing, selling, and financing radios and TVs in the 1950s. Today, Grupo Elektra sells computer equipment, electronics, cell phones, furniture, household appliances, motorcycles, and automobiles to low- and middle-income families. It brings in over $3 billion in annual revenue, even though the monthly incomes of its typical customers are only between $250 and $3,200.6 By the late 1990s, Grupo Elektra was selling more than half of its goods on credit. Besides installment plans for store purchases, the company also offered savings accounts, remittances, and other services through the stores. The Model:Leveraging Existing Knowledge and Infrastructure Grupo Elektra made excellent use of its positioning to reach a vast, virtually untapped market for banking services. • Half a century’s experience serving the BOP market as a retailer • Brand recognition and customer loyalty within its demographic and geographic targets • An existing infrastructure of physical locations and retail operations • Sophisticated data systems through which banking operations could be deployed Elektra knew its existing customers are often unable to access the formal financial sector because they lack credit histories, proof of income, or collateral. Many Elektra customers are the working poor, often in informal-sector jobs. Banco Azteca: A Retailer Surprises Mexico’s Financial Giants • 197 Banco Azteca addresses specific financial needs among this customer base. It offers quick and easy access to consumer credit based on a simple application and minimal requirements. For example, it asks only for proof of address and either proof of income or a home visit. Banco Azteca branches are located in high-traffic areas near commercial centers or public transportation terminals. They remain open until 9 .M., seven days a week, 365 days a year. Azteca built its success on several innovations: distinctive delivery mecha-nisms, a first-rate technological platform, a seamless client-acquisition process, and a diverse product portfolio. Abundant Touch Points and a Sophisticated Technological Platform From its inception, Banco Azteca recognized that scaling profitably with low-income customers and managing their huge number of small transactions would require “powerful machinery and many points of contact.”7 Its growth formula combined an advanced technological platform and information system with the extensive network of Grupo Elektra stores. Situating branches inside existing Elektra, Salinas y Rochas, and Bodega de Remates stores dramatically reduced start-up infrastructure costs and allowed Banco Azteca to jump-start customer acquisition. Few financial institutions can open from day one with 815 branches.8 Likewise, the bank capitalized on the retail chain’s extensive management information system (MIS) and existing customer data. The technology infrastructure and information management capabilities gave it a big head start. Working with Accenture and its Spanish subsidiary Alnova, Banco Azteca connected existing data and systems, in-store terminals, and point-of-sale systems to banking software identical to systems already in use at top banks in the country. All Banco Azteca branches, kiosks, and point-of-sale devices are linked to provide real-time information on accounts. Banco Azteca is particularly proud of its ability to mine client data through sophisticated customer relationship management (CRM). The CRM systems drive marketing to millions of cus-tomers, while the bank’s front-end systems handle the tens of millions of trans-actions generated by its target marketing. In 2005, Grupo Elektra supplemented its client information by creating a credit bureau, registering 12.5 million clients in the database by 2006.9 The Elektra Group is also creating a system to collect client credit-history information from other nonbanking lenders. 198 • Microfinance for Bankers and Investors The bank sends out mobile loan officers and collection agents by motor-cycle. These people are equipped with handheld computers loaded with customer information, financial models, and tables of collateral values. From the field, the agents can access and send updated information for efficient loan processing and collection. Half a year after the launch, the management information system was han-dling more than 150 million sales, loan, and savings transactions per month. At times, Banco Azteca was adding 10,000 new savings accounts per day.10 Overall, the system handles over 7million retail, financing, and savings trans-actions per day at an average cost of only $0.03 each.11 Customer Acquisition and Diverse Financial Products To launch its customer base, Banco Azteca converted Elektra’s existing finance-related business: the Credimax consumer loan product, customer savings plans, and a thriving business in money transfers. It opened its doors in 2002 with nearly 3 million active accounts.12 From merchandise finance, Azteca’s product line expanded to general consumer and personal loans, savings accounts, term deposits, debit and credit cards, money transfers, insurance, and pension fund management. Small busi-nesses can also access Empresario Azteca loans for fixed assets. Banco Azteca offers clients a full complement of payment services, including Internet banking, telephone banking, ATM banking, utility payments, and interbank payments. In fact, Azteca can claim that its low- and middle-income clients have access to more financial products and services than most customers receive at either traditional banks or local microfinance institutions. Savings. Prior to the start of Banco Azteca, in addition to 2.1 million install-ment savings plans for purchases, another 830,000 customers had savings plans at Grupo Elektra because many of them were ineligible for bank accounts at conventional banks. Minimum deposits to open savings accounts are 50 pesos, about $5. Within two months of opening, Banco Azteca added 400,000 new accounts.13 By 2007, it managed over 8.1 million active savings accounts.14 Consumer Credit. According to Banco Azteca, only 10 percent of its loans are used for Elektra purchases, with 90 percent used for personal and house-hold necessities. Banco Azteca charges an average interest rate of 50 percent annually. Eighty percent of all approved loans are disbursed in 24 hours. Banco Azteca: A Retailer Surprises Mexico’s Financial Giants • 199 With its digitized system, Azteca approves approximately 13,000 loans per day but can process up to 30,000 during peak holiday periods. In early 2008, the average term of the main credit portfolio was 60 weeks.15 Credit Cards. One of Banco Azteca’s signature products is Tarjeta Azteca, an innovative Visa credit card for clients with monthly incomes between $250 and $2,700. The card can be used for purchases at any store affiliated with Banco Azteca or Visa. It uses biometric technology by DigitalPersona to authenticate customers and protect against identity theft, with the client’s fingerprint and photo stored in the card’s microchip. Biometric cards were easily accepted by Azteca customers because Mexicans already use fingerprints for voter registration. The cards were launched in 2006, and Banco Azteca has over 8 million clients registered in the biometric system. Insurance. In early 2004, Grupo Elektra acquired and rebranded a private Mexican insurance company and began offering policies to its clients. Now, Elektra clients can buy a Seguros Azteca life insurance policy when they take out a consumer or personal loan with Banco Azteca. The policies cost between $0.46 and $4 per week and have benefits ranging from $692 to $8,300. Seguros Azteca issued 10.3 million policies during the first three years of operations, with an average of 55,000 new policies per week.16 Remittances. In Mexico, Elektra was historically the largest distributor of Western Union remittances, promising a rapid three-minute transaction waiting period. From 1994 to 2006, Elektra had completed more than 36 million transfer payments worth $9 billion. In 2006, Grupo Elektra handled 7.6 million remittance transactions, worth $2.4 billion and accounting for 10 percent of all money remitted to Mexico for 2005.17 Growth,Profitability,and Expansion Banco Azteca has overturned previous assumptions about providing financial services to low- and middle-income clients in Mexico. Its return on equity has been consistently higher than that of the formal-banking sector (27 percent versus 21 percent in 2005), and it has earned a return on assets between 2.9 and 4.5 percent since the fourth quarter of 2003.18 Growth has been strong and consistent, at approximately 42 percent annually. Azteca reported a 196 percent annual net income increase in 2007, and first quarter revenues of approximately $340 million in 2008, up 17 percent from first quarter revenues in 2007.19 200 • Microfinance for Bankers and Investors In 2007, Banco Azteca became Mexico’s second largest bank in total num-ber of accounts, surpassing BBVA, according to data tracked by Mexican bank-ing regulators. In just five years, the loan portfolio grew from $106 million to $2 billion. Banco Azteca administered 375,000 active loans in December 2002, and as of June 2007, managed 7.4 million active loans. Growth in deposit accounts was comparable, from 1 million accounts, totaling $123 mil-lion, in 2002, to 12 million accounts ($4 billion) in June 2007. Profits for the insurance company increased to $12.6 million in 2005.20 Expansion and New Channels of Delivery The bank has recently focused on diversifying distribution channels, allow-ing clients to conduct transactions not only inside Elektra stores, but also in stand-alone and third-party branches (see Table 1). Banco Azteca continues to open new branches in Elektra and affiliate stores as well as stand-alone branches around Mexico. More recently, in a pilot proj-ect, Banco Azteca provided commission-based, point-of-sale devices to 49 small-enterprise clients, making local mom-and-pop stores an additional transaction channel.21 The diversification of distribution channels allows the bank to enter neighborhoods without Elektra stores and acquire new customers. A Regional Strategy Meanwhile, Banco Azteca and Seguros Azteca have exported their business models to Argentina, El Salvador, Guatemala, Honduras, and Panama via wholly owned subsidiaries. Further expansion is planned for Colombia, Costa Rica, Paraguay, and Uruguay. Elektra announced in early 2008 that banking operations would begin in Peru via 120 branches in 33 cities. It also began Banco Azteca Channel Growth 2004 Banco Azteca branches in Elektra stores 973 Independent Banco Azteca branches 33 Branches at affiliate stores 351 Total Banco Azteca branches 1,357 2005 2006 995 1,083 87 192 395 405 1,477 1,680 Table 1 Banco Azteca Channel Growth Source: “Banco Azteca Case Study and Commercial Ad,” October 20, 2008, www.digitalpersona.com. ... - tailieumienphi.vn