Austria García always buys her clothes at Suburbia department stores, so it seemed natural to accept a card from the chain when one of the saleswomen offered it to her. “I don’t spend a lot and since I always shop here, I prefer to take advantage of the discounts,” she says. About 18 million Mexican adults have a consumer credit product issued by a department store, in contrast to the 9.9 million who have a credit card issued by a bank, according to the National Survey of Financial Inclusion (ENIF) 2021.
The truth is that Mexicans are willing to take on a debt when it comes to consuming things. Above housing loans or payroll loans, which can be used to acquire long-term goods, only financing offered by department stores or automobile companies had an increase between 2018 and 2021, when the data was collected by the National Institute of Statistics and Geography (Inegi) and the National Banking and Securities Commission (CNBV).
Although they may be attractive at first glance due to discounts and loyalty programs, departmental credit cards are usually much more expensive than plastic issued by banks or other types of financing. According to technical files of the Bank of Mexico and the National Commission for the Protection and Defense of Users of Financial Services (Condusef), the average interest rates for classic cards range from 28 to 65%, while departmental cards can have a rate of minimum interest of 70% per annum.
Expensive, perhaps, but they are a success. A dozen stores successfully offer credit cards: Elektra, Coppel, Palacio de Hierro, Sears, Sanborns, Suburbia and Liverpool, to name a few, offer this type of card. Only Liverpool has a portfolio of 4.9 million customers with financing, according to the latest report presented to the Mexican Stock Exchange, in addition to the 1.1 million granted by its subsidiary Suburbia. “The chains are significantly promoting the granting of credit. Their clientele is very well identified by habits, consumption patterns, income level and how much they spend monthly,” says Marcela Muñoz, fundamental consumer analyst at Vector Casa de Bolsa, in an interview.
Department, self-service and specialty stores have a wide advantage over bank branches. According to the National Association of Supermarket and Department Stores (Antad), In the country there are 3,284 self-service stores (such as Soriana, which offers cards in its branches), 2,507 department stores such as El Palacio de Hierro or Liverpool and 40,599 specialized stores such as C&A that also have their own plastics, some of them linked to banking institutions and others granted through their own financial means. In contrast, according to the CNBV, at the end of 2021 there were 11,527 bank branches in the country.
Credit vs. inflation and high interest rates
The oven of the Mexican economy is not up to making buns. And less when the reference interest rate (which serves as a reference to determine the rates at which banks and other institutions lend money) has been located at 7%. However, the consumer analyst indicates that although the interest rate is high, what most harms the decision to acquire this type of departmental loans is the decrease in real income. “In general terms, it is inflation and lower incomes that impact this performance the most,” she says.
It was the unemployment caused by the health crisis due to the coronavirus that hit the way Mexicans consume the most, especially in non-essential expenses. The ENIF itself indicates that 30% of people requested a loan to cover expenses and 28% of people who already had debt fell behind on their payments.
Enrique Ramos O’Reilly, director for Latin America at Temenos, a financial services firm in the region, points out that a good part of the population in countries such as Mexico, Peru or Chile have a good adoption and use of this type of product. “We consume financial products almost without realizing it through these products,” says Ramos, comments Ramos. “In general, we see a good behavior or maturity of the users, but it must be monitored so that it does not generate indebtedness,” says the financial expert.
According to experts, falling into over-indebtedness is possible, but users can make responsible use of their purchasing power. “If I know I can’t pay, I don’t give big card”, says García, who is part of the 30% of Mexicans who make use of formal credits.
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