Mexico’s most aggressive startup is run by the government

The Banco del Bienestar rips out a page from Uber’s playbook.

“Move fast and break things,” was the Facebook motto but was widely used to reference tech startups’ MO. The Mexican government has taken this refrain to heart. Its supporters argue that, to undo decades of corruption and waste in his short six-year term, president Andrés Manuel López Obrador has needed to implement speedy and aggressive action. For critics, this administration has used other people’s money to undo much of what worked in the past in a bid to impose its vision of what’s good while centralising control around itself.

Uber would be proud.

One particular project sticks out when analysed through this lens: Banco del Bienestar (the Bank of Wellbeing). 

In a country awash with financial institutions and fintechs keen to throw around the word “democratisation” and “digitisation,” Mexico is still stubbornly cash dependent and unbanked. In 2021, early in López Obrador’s tenure, according to the Mexican Bankers Association, Mexico was among the most unbanked countries on Earth. Over half of adults didn’t have an account and 70% had no way of obtaining credit. 

In the following years, the government entered this space acting like the most aggressive of startups. It identified a pain point that affected large numbers of potential users. It deployed its considerable resources to reach those users, worrying more about fast growth than about whether it was haemorrhaging money or building a suitable product.

Today, Banco del Bienestar is the biggest bank in Mexico by number of branches. It has 26 million customers among some of the poorest and most remote Mexicans. Just as delivery and ride hailing apps poured billions to subsidise their services and run out the competition, Banco del Bienestar has gone a step further. It exists solely to distribute this administration’s social programme funds; nothing more.

In a very short amount of time, Banco del Bienestar moved so fast that it broke with what it was meant to be: an actual bank fit to compete within the broader financial system. 

Pain points and disruption

“Por donde pasa el dinero, suda.” That is, “Whatever money goes, it sweats.” This is what Carlos Osorio told The Mexico Political Economist he heard López Obrador remark when describing the way public handouts worked before Banco del Bienestar. 

Until recently private banks were in charge of getting social programme money to recipients. But critics accuse them of dragging their feet after getting billions of pesos in social funds in order to squeeze out a quick interest.

“They were making millions,” said Osorio, who is a general coordinator at Mexico’s Institute for Social Economy (INAES). His office was tasked by the president, not only to help create a bank that could bypass intermediaries and get social programmes out to the people in a cheap and timely manner, but to create a banking system that addressed the financial necessities of the neediest Mexicans. 

A stopgap was needed while the State developed the capacity and bandwidth to reach millions of Mexico’s remotest people. So the private banking sector was tapped to step in. But only if they were Mexican. This Mexicanization of public expenditure is key to the López Obrador approach to public spending. It helps explain why billionaires like Carlos Slim have done so well from a purportedly left-wing administration, as they have stepped in to replace foreign contractors. 

Between 2018 and 2021, Banco Azteca and Banorte were chosen to deliver the handouts through their extensive network of branches. Their main job was to deliver funds to beneficiaries through their new Banco del Bienestar debit cards.

Almost as if they were keen to prove the president right, the banks quickly jumped through “legal loopholes” to turn a quick profit. They would charge Banco del Bienestar cardholders for basic transactions, like checking their balance. Social programme money thus “sweat” into private bank coffers for years.

An added problem was that “by December of 2020, there were only four completed and equipped branches,” Andrea Y. Tapia, who liaises between the president’s office and Banco del Bienestar, told The Mexico Political Economist. So, the president opted to call in the big guns—literally.

Minimum Viable Product

The way Banco del Bienestar was deployed ran very closely to how López Obrador envisions the State’s role in Mexican public life: unmediated and militarised. 

True to the idea that the government is most efficient at distributing and using public money, the president recruited his favourite jack-of-all-trades to build the thousands of Banco del Bienestar branches across the country: the Mexican Armed Forces. 

By the middle of Lopez Obrador’s tenure, speed was deemed to be the crucial element in the construction of this new financial institution. This is where the army came in handy; it doesn’t need publicly auctioned contracts, it is already present across the country, and it is known for its efficiency. 

“From 2022 to 2023, alongside the Ministry for Defense and with the help of State-level delegations, we focused on identifying where the bank branches would be built,” said Tapia. “Every plot of land was donated through different government agencies.”

The tradeoff for prioritising speed was that many of the key features of what would make Banco del Bienestar a functional bank were left by the wayside.

True to form, the government dismantled a successful system called La Red de la Gente (The People’s Network) that had worked well in the past administration. Through this network of community-based and cooperative financial organisations, not only could social programme recipients get their money, they were also provided with remittance, credit, and savings infrastructure that Banco del Bienestar does not offer.

Osorio believes that the government made a mistake by recruiting massive commercial banks instead of the hundreds of existing community coops. These were about 600 non-banking financial intermediaries that were close to 20 million of the very people the government wanted to reach. However, this network was made up of organised civil society, a sector which López Obrador has often overlooked in order to impose the primacy of the State.

Eventually, the rush to build bore fruits. By February, 3,149 branches were up and running in every state. Banco Azteca, the closest runner up, has 2,032 branches nationwide.

The government’s instance on highlighting the number of branches above all else underscores what it has actually built: Not so much of a functioning bank where one can make payments, get a loan, or make investments, but rather a network of well-branded buildings where people get money from the government. 

The Banco del Bienestar to date does not have core banking, which is the basic network needed to provide people with checking accounts, loans, mortgages and payments. It has also been accused of corruption and a lack of transparency. Mexico's National Auditing System has investigated issues with payments for a non-existent software bought by the bank, over budget branches, and fraud.

Venture Capital

In practise, Banco del Bienestar is breaking even. In the first quarter of 2024, the bank made a profit that was more or less equivalent to the subsidies it received from the State. 

It is still a wasted opportunity, Osorio argues, saying that, had the Banco del Bienestar worked with the coops it chose to overlook, it could have captured the additional revenue from the $90 billion pesos they hold and which they are legally required to have in the banking system. “That same money that is in BBVA or HSBC, could be managed by the Banco, invested in the meantime, and just that would have made the Banco del Bienestar profitable without government subsidies.”

Arguably, the banking of Mexico’s poorest has benefits even without considering the direct income they receive from programmes. Though most beneficiaries quickly take out cash using their Banco del Bienestar cards (often through the coops), many others now use it to buy goods and services directly—making their purchase a taxable expenditure.

More in line with the administration’s more left-leaning view of the world, Banco del Bienestar is also a tool to compete with the private sector and its rent-seeking practices. “Its regulation through the market,” said Osorio. 

Such competition will be impossible unless Banco del Bienestar becomes a proper bank, but president-elect Claudia Sheinbaum has mentioned strengthening it in her list of 100 priorities. The day may come when the banking establishment trembles at the sight of this unlikely government-run, market disruptor, whose growth has mimicked the best and worst of Silicon Valley’s finest.