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A Thing

Surcharging Hits Mexico

By John McGill LogoThis story was originally published on, May 16, 2005; reprinted with permission. © 2005 NetWorld Alliance LLC. All rights reserved.

For more than seven years, Jorge Fernandez has been laying the groundwork for off-premise ATMs with convenience fees in Mexico. Now, finally, after months and months of one false start after another, the country will begin ATM surcharging June 15.

And a lot of American ISOs and manufacturers are poised to begin a stampede south of the U.S. border.

"We see people lining up on the border," said Fernandez, President, Chief Executive and Founder of Coral Gables, Fla.-based Capture Systems LLC. "A lot of people are calling us to see how it's done here. But we also know there'll be a lot of companies that don't heed our warnings and will do whatever they want. And they're going to have a tough time."

Leave the Boots at Home

Fernandez said those ISOs headed for trouble are the ones with a "cowboy" attitude. And he isn't smiling when he says that, partner.

Fernandez said that "cowboyism" is an affliction plaguing a large number of companies, particularly from the United States. It results, he added, when they come to Mexico and try to impose their own methods without developing strong local ties, without paying attention to cultural differences, or by displaying a reluctance to be flexible in their business models.

"Over the last seven years, we've encountered a lot of U.S. ISOs who think of Mexico as New Mexico," Fernandez said. "They don't take the time to learn the culture or how things are done here.

"We see it time and time again. Even today, some of the very large ISOs are ready to come in and are saying the right things. But it's one thing to talk it, another to do it.

"It's a different country, but a lot of Americans still don't get it," he added.

Long Beach, Miss.-based Triton Systems of Delaware Inc. gets it, evidenced by the fact that Fernandez was the company's Director of Business Development for Latin America prior to starting Capture Systems.

And of the some 1,500 off-premise ATMs that Fernandez has managed to install since 2000 with Capture Systems, the hardware used is largely Triton's.

It Ain't Kansas

"We go into countries in two steps," said Shaun King, Triton's Director of International Sales.

"One, we look to have the right product mix for that particular country, matching the functional requirements ... and secondly, when we go into those countries, we have to partner with what we call value-added partners: people who understand the market, are recognized in the market and share a flexible approach to that market."

Fernandez said that Mexico, with a population of about 106 million, currently has approximately 20,000 ATMs, roughly a ratio of 5,000 people per ATM.

"We anticipate the potential for at least another 20,000 locations, of which there are only about 1,000 that already have machines, so the market is pretty virgin," Fernandez said. That would still leave a rather high ATM ratio of 2,500 to 1.

"But that's probably about right for Mexico," Fernandez added. "You have to remember that the percentage of people who have relationships with banks is not the same as the U.S. Only 20% of people here had a bank account as of three or four years ago."

Fernandez, who also founded ATM Industry Association (ATMIA) Latin America in 2002 and was its first President, said the convenience fee "is going to really vary. The interchange is down to about $0.70 right now, so the right place is going to be between $0.50 and $0.75."

Is Mexico Ready?

Fernandez explained that it's important to start with a "very low" fee, and suggests that, similar to the United States, which only charged a quarter when it started surcharging in 1996 only to see $2 fees common today, Mexico should experience similar hikes. He also thinks there will be minimal resistance to the fee.

"But there's a big 'but' there," Fernandez cautioned. "We're optimistic. We don't want to throw a cold bucket of water on expectations.

"But we really don't know how people will react. We're treading in totally new waters. We may find that the market says, 'What the heck? No big deal.' Or they may say it's too much money."

Fernandez, nevertheless, said he expects there to be minimal resistance to the surcharge. For one thing, ATM screens have been alerting users to the date that convenience fees will be charged for several months now, along with information in banks and ad campaigns.

For another, Mexican bank customers are already used to paying a disloyalty fee.

"The only difference is that it just wasn't on the screen if you used an ATM that wasn't your bank's. You saw it later on your statement," Fernandez said.

"The difference now is that you're going to know when you're paying. But people are used to disloyalty charges, so we don't think there's going to be any kind of big shock (over surcharging)." Disloyalty fees will remain, but Fernandez expects they will be lowered to make room for the ATM convenience fee.

Bank Sponsorship: A Must-have

Off-premise ATMs will have to have bank sponsorship. Every ATM will have the sponsoring bank's branding, and a bank will get a percentage of the fees.

"Medium-sized banks love our business because it allows them to grow an ATM base really fast," Fernandez explained. "They get more presence without much cost, since it's the retailers who absorb the cost of the machine."

Such an arrangement speaks to the need for foreign companies hoping to get a slice of the Mexico market to develop local ties and heed the cultural differences. Even a McDonald's in Mexico is different, because the typical American golden arches fare is just too ... well, "McBland." So you find spicier stuff on the menu.

"Cultural sensitivity is always important to any business, because, in order to be successful, you have to a) understand and please customers there, and b) get on well with stakeholders throughout the business lifecycle," noted Mike Lee, Chief Executive of ATMIA.

"Cultural respect is important to generate human goodwill, and also to adapt and develop business strategies for the local conditions," Lee said.

So what's the most important piece, according to Fernandez? How can American companies show that they are making an effort to understand and work within the Mexican culture?

"Assuming they don't have the cowboy mentality, you've really got to be local," Fernandez said. "You can't run a branch office here and have somebody sitting back at a desk in the U.S. and assume just sending e-mails and getting reports on a monthly basis will make you successful."

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