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Bank Competition and Financial Inclusion: Evidence from Mexico


We document a positive relation between bank competition and the penetration of bank accounts at the local level in Mexico. To account for potential biases in our regressions due to the endogeneity of market structure, we employ a two-stage estimation approach that is based on an equilibrium structural model. Our preferred estimate implies that moving from a monopoly to a duopoly will lead to an increase of 972 accounts per 10,000 adults: a 40% increase over the cross-market mean. This is comparable to the effect of large increases in per capita income and years of schooling, or an increase of one branch per 10,000 adults by banks that are already present in the local market. We conclude that policies that facilitate bank competition should be given a prominent role in the financial inclusion agenda.

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  1. See World Bank (2014).

  2. All of our measures of market structure—including our indicators for monopoly and duopoly—are based on the number of accounts that are registered in a market by each bank. Most local markets in Mexico (70%) do not have a bank branch, and most of these branchless markets are monopolies. See Sects. 2.1 and 3.2 for further discussion.

  3. This refers to Table 6, column 6.

  4. See Beck et al. (2007) for more on the distinction between access to and use of financial services and the importance of these dimensions for financial inclusion.

  5. Examples include Beck et al. (2004), Chong et al. (2012), and Love and Martínez Pería (2012).

  6. Cross-country comparisons are often problematic. See Kneiding et al. (2009).

  7. See Calomiris and Haber (2013) for a historical account of Mexico’s banking sector.

  8. Banco de Mexico (2013) is the source of the information on number of banks, percentage foreign ownership and profitability.

  9. Balance sheet statistics are available from the National Banking and Securities Commission at:

  10. The largest and oldest—Banco Azteca—has received considerable attention from scholars: see Bruhn and Love (2014) and Ruiz (2013). The other in-store banks in Mexico are BanCoppel, Banco Facil, Banco Famsa, and Banco Walmart.

  11. Quote from:ón-del-sector/Paginas/default.aspx (authors’ translation). These institutions are not in our dataset; this should be kept in mind when interpreting our results. Insofar as these institutions serve a separate segment of the population and do not compete with banks, their exclusion from our analysis should not bias our results.

  12. Sofipo: Sociedad Financiera Popular; Socap: Sociedad Cooperativa de Ahorro y Préstamo. These data are from the National Banking and Securities Commission:

  13. For instance, bank fees that are registered with the central bank are rarely location-specific; the one notable exception is for border areas and airports. Experts at the National Banking and Securities Commission (CNBV) confirm that product pricing is usually determined at the national level.

  14. Consultation with industry experts confirms that these channels are likely to be important.

  15. Peri-urban areas are those that surround a metropolitan area and are considered transition areas between urban and rural settings or partly urbanized rural areas.

  16. Cuentas básicas. See Negrín et al. (2009) for a description of the product and associated regulation.

  17. National Survey for Financial Inclusion (2012) available at

  18. Studies that use data from the U.S. Federal Reserve’s Survey of Consumer Finances and Survey of Small Business Finances have found that consumers and businesses tend to obtain their bank services from nearby providers. Additionally, numerous studies have found a relation between local market concentration and deposit interest rates. See Cohen and Mazzeo (2007) and White (2015, pp. 422–423) for more detailed discussions.

  19. Alternative definitions such as labor market areas (LMA) are used by some authors (Cohen and Mazzeo 2007).

  20. Including the 16 boroughs or delegaciones that comprise Mexico City’s federal district. These are units of local government akin to municipalities.

  21. We exclude markets in which more than two accounts per adult are registered (11 markets) and in which there are no accounts (5 markets).

  22. The authors have confirmed that excluding markets with population less than 1000 does not appreciably change the results.

  23. Automatic teller machines (mainly used for withdrawing cash but also used to pay bills, etc.) and points of sale (locations where payment with a debit or credit card is accepted).

  24. This is starting to change, however, as the use of non-bank agents or correspondents becomes more widespread. While information on these is available, the coefficients on the associated variables were never significant in our regressions.

  25. Outreach to small communities has been an important component of Bancomer’s business strategy since the 1990s (Rodríguez Sánchez 2000). We conjecture that Bancomer’s special role in providing banking services in rural Mexico may be linked to its participation in the Oportunidades conditional cash transfer program (formerly Progresa and Solidaridad, now Prospera), where it was the only private bank to manage disbursements, along with a government bank (Bansefi) and the government telegraph operator. While Bancomer was actively involved in this program (until 2008), rural beneficiaries were directed to Bancomer’s services: “The Oportunidades vocal, who is also a program beneficiary, sets a day for all members of the community to travel together to a BANCOMER banking machine to withdraw their cash transfers” (Luccisano 2006, p. 65). In contrast, Mexico’s second largest bank, Banamex, has positioned itself as an up-market alternative to Bancomer. Bancomer accounts for all but one of the monopolies in our data.

  26. Regressions of accounts on HHI run separately for duopoly and oligopoly markets show no relation between these variables within these groups of markets, which indicates that most of the relevant variation is captured by the number of banks. These are available from the authors upon request.

  27. Most notably, Djankov et al. (2008) find a strong relationship between education and the use of financial services using survey data from Mexico.

  28. This procedure has been applied to a variety of markets including motels (Mazzeo 2002), office supply stores (Manuzsak and Moul 2008), and retail banking (Cohen and Mazzeo 2010).

  29. We limit our attention to the cases in which there are 1, 2, or 3 or more banks in a market to guarantee that sample sizes in each category are large enough to ensure adequate power.

  30. For instance, if there are two identical banks (A and B) that are considering operating in a market that would only be profitable for one, there are two Nash equilibria in pure strategies: A enters and B does not, and B enters and A does not. The number of entering banks, though, is uniquely determined.

  31. The scale of payoffs in the bank-presence model is not identified, so we normalize the variance of its error term to 1.

  32. Regression results are available from the authors upon request.

  33. Note that issues involving collateral and publicity are relevant even if the bank is opening accounts or issuing loans in the area but not operating a branch.

  34. We exclude markets in which more than two accounts per adult are registered (11 markets) and in which there are no accounts (5 markets) from all of the specifications that we presented. Including all observations, more aggressive trimming of outliers, or excluding very small (low population) markets does not appreciably change our results.

  35. Additional specifications that incorporate controls for distance to the state capital or the nearest metropolitan area, and for a polynomial of the endogeneity correction term in the regressions yield similar coefficient estimates. These results are available from the authors upon request.

  36. On the importance of increasing the number of bank branches, see Brown et al. (2016) and Allen et al. (2013).

  37. These are the same categories that are used by the National Banking and Securities Commission (CNBV) in their reports on financial inclusion (ón/Paginas/Reportes.aspx); we aggregate their urban, semi-metropolitan and metropolitan categories into one urban category.

  38. In order to determine whether this was appropriate, we estimated the regressions that are shown in Table 6 including a full set of interactions with market-size dummy variables. Wald tests for the joint significance for these interaction terms were supportive of estimating separate models for each market-size category. This analysis is available from the authors upon request.

  39. We urge caution in interpreting these results because, as we have noted above, our estimates of the effect of bank-branch penetration on account penetration may be biased due to the potential endogeneity of bank-branch penetration. Our attempts to correct for the endogeneity of this variable through instrumental variable techniques or through techniques such as those described in Sect. 4 of this paper have not been successful due to collinearity between bank-branch presence and our measures of market structure.


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Correspondence to Rainer Schwabe.

Additional information

We are thankful for valuable feedback from Lawrence White (the editor), two anonymous referees, Brasil Acosta, Raymundo Campos, Carlos Cañón, Edgar Cortes, Luis Huerta, Karen Kaiser, Carlos Lever, José Luis Negrín, Pablo Peña, Alejandrina Salcedo, Harold Toro and seminar participants at Banco de México, Colegio de México, National Banking and Securities Commission (CNBV), the 1st Conference of the International Development Network, and the International Congress of the Latin American Studies Association. The findings, interpretations, and conclusions expressed in this work are entirely those of the authors and should not be attributed in any manner to Cornerstone Research, the World Bank, its Board of Executive Directors, or the governments they represent.

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Marín, A.G., Schwabe, R. Bank Competition and Financial Inclusion: Evidence from Mexico. Rev Ind Organ 55, 257–285 (2019).

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  • Financial inclusion
  • Banking
  • Competition
  • Mexico

JEL Classification

  • O16
  • G21
  • L13
  • D43