A December deadline to meet more stringent regulatory guidelines is prompting many credit unions in Mexico to consider upgrading their core banking systems.
Those new regulations could prove a significant opportunity for software vendors. At least three - Fiserv Inc. of Brookfield, Wis., Temenos Group AG of Switzerland, and i-flex solutions Ltd. of India - are vying for the business. Fiserv has already signed deals with two Mexican credit unions and is trying to win more business there.
However, analysts say that not all of the country's credit unions are in the market for core systems; some may even continue to keep their books by hand, rather than adopting complex, automated systems.
Fiserv's CBS Worldwide signed a contract last year to upgrade the core system of Latin America's largest credit union, Caja Popular Mexicana, which has 330 branches across Mexico and more than 1 million members. It began using the system June 27 in the first stage of a phased rollout scheduled to last the rest of the year, said Oscar Sol, CBS Worldwide's sales director for Latin America, the Caribbean, and Canada.
Last month Fiserv signed a licensing contract with Mexico's sixth largest credit union, CoopDesarrollo SCL de CV, which has 100,000 members and 24 branches.
"Our opportunity is to be the major provider to the credit union sector in Mexico," Mr. Sol said.
Brian Branch, the chief operating officer of the World Council of Credit Unions Inc., a Madison, Wis., trade group that provides training and technical assistance to the industry, said that before 2001, Mexico regulated only the 13 largest credit unions under its banking law.
The Ministry of Agriculture regulated another 300, the trade group said. Perhaps 300 more had no regulatory framework at all; those credit unions were often organized as small village cooperatives, in which members pooled their funds and made loans collectively.
"When they're fairly small, people know each other and can tell who is going to pay their loans," Mr. Branch said.
However, "as credit unions become larger, they need stronger information systems," he said. "That has been part of the reform effort in Mexico."
The 1995 devaluation of Mexico's currency triggered several problems in the banking industry there, especially a significant increase in bad debts, he said. The government, which committed itself to modernizing its banking system, initially focused on large banks, but in 2001 legislators turned their attention to credit unions.
The result was the Popular Savings and Credit Act, which established a single regulator for all credit unions, the Bank of National Savings and Financial Services. The law also imposed minimum capital requirements on all credit unions for the first time and established rules for collecting the nation's value-added tax, providing financial reports, and auditing credit union operations.
Mr. Sol said the deal with Caja Popular enabled Fiserv to develop a library of regulatory reports that the credit unions will soon be required to file. Fiserv, which offers its core system both for in-house installations and as a hosted version, is talking to at least four other Mexican credit unions.
Hernando Torres, a vice president at Temenos, said its software is being used by Banco del Ahorro Nacional y Servicios Financieros, which Mexico's central bank set up with the support of the International Monetary Fund and the World Bank to serve the nation's credit unions.
Caja Libertad, Mexico's second-largest credit union, and Financiera Compartamos SA de CV are also installing Temenos software, Mr. Torres said.
I-flex has not landed any contracts but is working with DMR Consulting, a spinoff of the Japanese electronics company Fujitsu. "We see big opportunities" in the Mexican credit union market, said Luis Zenon, a director of sales at DMR.
Mario Galarraga, a technical consultant at the World Council, expressed doubt that the industry would be able to meet the deadline.
"I don't think Caja Popular Mexicana will be able to comply," and it has been working on the project for two years, he said; other credit unions are even farther behind.
"I have a feeling they're going to ask for more extensions, but I don't know how flexible the regulator is going to be," he said. As a result of missed deadlines, there could be a wave of forced consolidations next year as weaker credit unions are folded into stronger ones.
Though he does expect more Mexican credit unions to get new core systems from vendors, he said that the credit unions are putting their resources into meeting their capital requirements and improving their profitability, which could limit their ability to invest in new technology.
"Credit unions have been in business for many years without having to worry about reserves or capital," Mr. Galarraga said.
Dan Schatt, a senior analyst in the retail banking group at the Boston research firm Celent Communications LLC, expressed more optimism about the industry's ability to meet the deadline, in part because it has been on notice for four years that the requirements were coming.
Many credit unions, especially small ones, may calculate the taxes and produce the reports by hand, but as Mexico's economy continues to develop, the opportunity for vendors will grow, he said.
