More on Azteca/Elektra

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This post is a follow-on from an earlier one about Banco Azteca. I met a former Banco Azteca employee. He was the manager of an Azteca branch within an Elektra store front. He told me some interesting things.

First, unsurprisingly, he told me that Azteca branches have aggressive quotas and loan targets, and that variable pay (a significant portion of remuneration) depends on meeting those goals. In other words you get paid high bonuses if you loan more money. Why is that not surprising?

  1. Because it’s a trend in banking to pay bonus based on sales performance (selling more savings and credit products)
  2. Because selling impulse credit to lower-middle class Mexicans with little financial savvy is much more effective with salesmanship/pressure

It would be hard to justify almost any Elektra purchase financed with an Azteca loan as being a rational, informed consumer decision. With Azteca interest rates of 80% – 110% and most purchases being non-income generating, customers would be better off saving their money and buying goods later with cash upfront. Sales, then, depend on aggressive salesmanship to attract the impulse buy, and salesmanship is motivated by performance-based pay.

Perhaps more interesting, the former Banco Azteca manager also told me that he left Azteca because they treated employees poorly. He told me that employees in Elektra stores are actually personally responsible for store robberies: if someone robs the place, the manager replaces inventory out of his own pocket.

My source also had one jarring story about an employee who tried to stop a robbery and took a bullet to the stomach and another to the leg. Instead of shelling out for the private hospital, Azteca put him in the public hospital (which is much lower quality), where he had multiple operations. When he came out of the hospital, instead of giving the guy pension and sending him home, Azteca put him back in a branch so he could work for his pay check. The other employees in the branch called him the mechanical man because of the awkward way he walked after all the operations. This is a little bit funny. It is also sad. The man must have felt betrayed by Azteca after doing his best to stop a robbery.

The purpose of this post is not to blast Azteca for inhumane employment practices. In fact, I’m sure Banco Azteca works out quite well for many successful employees. It’s more to think about what is going on. Azteca has created an atmosphere where employees are held to strict personal financial accountability for both positive and negative performance:

  • Positive performance because employees get paid high bonuses for lending more money
  • Negative performance because employees are on the hook for misfortunes (such as robberies and even getting shot)

I’m sure this is good business. It attracts the most hungry people to manage the branches and push credit on customers. I’m sure the most successful employees have made substantial money in this business. It may not, however, lead to great outcomes for the consumers, convinced by talented and hungry employees to borrow under extremely expensive terms. All for a new TV or washer-dryer combo.

Azteca’s good business practices, directed at the base of the pyramid, are not the solution to poverty in Mexico and ought to face tougher consumer protection regulation from the Mexican government.

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