Next time I hear someone complain about high interest rates on credit cards in the U.S., I'll be sure to pass this story along to them. Wal-Mart de Mexico, which is known as Walmex, plans to ramp up its credit-card business in Mexico by the end of the year, according to Bloomberg sources. All told, the bank plans to issue more than 100,000 cards. The cards will have annual percentage rates that range from 59% to 75%. Ouch. Amazing interest rates, no? Consider this: that's down from 90%!
Bentonville, Arkansas-based Wal-Mart owns about 67% of the Mexican bank. Given the high APRs on these cards, would anyone like to venture a guess on how high the default rate must be? There is a Bloomberg.com story that details Walmex's banking operations, but I don't see any default figures. My guess is that defaults are in excess of 30%, which is why Walmex is charging annual interest of 59% to 75%.
Here are a few choice quotes from Bloomberg.com's story: Walmex's Bank Plans 100,000 Credit Cards by Year-End (link here)
"Walmex, which is two-thirds owned by Bentonville, Arkansas- based Wal-Mart Stores Inc., said in February it would spend 12.5 billion pesos to open 205 stores and add 53 in-store bank branches. That would bring the total to 75 by year-end. The bank has opened about 400 smaller bank service counters as well."
"Mexico's government cut its 2009 economic growth forecast to 1.8 percent from 3 percent Oct. 8 because of the global credit crisis. Consumer confidence in September fell more than economists estimated, the national statistics agency said earlier this month."
Given the high APRs on the credit cards, coupled with a tepid economic growth forecast, anyone want to guess how many of these 100,000 credit card accounts go bust?
Viva la Mexico!
Mexico Rebels At Credit Card Rates, Mulls Limits