Credit on digital platforms is more expensive than traditional banking

The digital financial companies that operate in Mexico landed and captivated the consumer with a speech based on innovation, accessibility and digital experience for their users; However, in products such as credit cards, some operate with total costs significantly higher than those of traditional banking, even compared to those considered the most expensive on the market, official data indicate.

According to information published on their Internet sites, the total annual cost (CAT) of credit cards from institutions such as Plata, Nu or MercadoPago is on average 148.5 percent.

The average CAT of these three institutions is 31.2 percentage points higher than that of Banco Azteca, 117 percent or 51.6 points above that of BanCoppel, which stands at 96.9 percent.

According to the information available on their official sites, the CAT of the Silver credit card is, on average, 163.83 percent; Nu’s is 145.8 percent; and MercadoPago’s is 136 percent. It should be remembered that the CAT announced on the sites of all these institutions, even traditional banks, is average and does not consider the value added tax (VAT).

How does it work?

The CAT is an indicator designed to express in a single number the total cost of a loan in annual terms. Unlike the interest rate, which only reflects the price of the money lent, the CAT incorporates all the components involved in financing: commissions, annuities, mandatory insurance and any other charge that is part of the use of the card.

Under this metric, all products are calculated with the same methodology, which allows them to be compared under similar conditions, without depending on promotions, temporary schemes or collection structures that may vary between each financial company.

For its calculation, the CAT is based on a scenario of constant use of credit. It considers that the user has their line, makes partial payments and maintains an outstanding balance over time. In this context, the indicator reflects the effective cost of financing when the debt is not settled on the cut-off date.

It does not necessarily represent what a person pays in full on their card each month. In those cases, the financial cost may be zero or limited to specific commissions. However, the indicator becomes relevant when payments are deferred or a balance is carried forward.

According to the National Commission for the Protection and Defense of Users of Financial Services (Condusef), the CAT is one of the main indicators that must be considered when contracting credit products, since it allows the total cost of financing to be identified under homogeneous criteria.

The information must also be public and available on the institutions’ sites, so that users can compare different options before contracting.

Other financial

Information from the Bank of Mexico indicates that, even within traditional banking, the cost of credit presents important differences between institutions. In a comparison of classic and basic cards, products such as those from Invex (Sam’s Club and Walmart) report a CAT of 31.2 percent, while HSBC Air is at 55.6 percent and some BBVA options are between 76 and 77 percent.

The central bank itself points out that the CAT is a reference indicator calculated under homogeneous assumptions and that it can vary depending on the profile of each user, as well as the use made of the credit. However, its publication allows us to observe, in the same parameter, the differences in the cost of financing between the different participants in the financial system.