Mexico has one of the most diverse financial services landscapes in all of Latin America, including about 250 fintech firms. In fact, 35 percent of the fintech companies in Latin America that serve people left behind by traditional banks are in Mexico, according to fintech start-up accelerator Finnovista. They also project that Mexico’s fintech space could dominate nearly a third of the banking sector within a decade.
What has enabled Mexico’s evolving culture of innovation? Increased adoption of mobile phones plays a significant role. Factor in the vast, unmet need for customer-centric products and a competitive industry space — and you have a market ripe for new ideas and products.
Mexico is increasingly embracing technology. Nearly 7 in 10 people have mobile phone service, and according to a survey by the Mexican Association of Internet, smartphones account for almost 90 percent of internet connections.
That embrace of technology complements a focus on inclusion in the financial services sector. The country’s commitment to inclusive digital finance is particularly evident in President Enrique Peña Nieto’s launch of the 2013 Digital Strategy and the 2016 National Financial Inclusion Strategy. Recently, Mexico also partnered with the UN’s Better Than Cash Alliance to encourage digital payments as a means to promote financial inclusion.
Businesses are taking notice of the opportunities offered by Mexico’s fintech boom and interest in financial inclusion. Retail chains, such as Coppel, Elektra, and Walmart, add to the diversity of Mexico’s financial services institutions. These companies bolstered the idea of neighborhood-friendly financial services with “consumption credit” for their products, and, eventually, they developed full-fledged retail banking. Retail banks, including BanCoppel, Banca Azteca, and Banco Walmart, have skyrocketed in popularity. Customers can pay bills and receive remittances at these institutions without significant credit history or identification documents.
How Fintech Is Revolutionizing Financial Services
In the fintech arena, many entrepreneurs have experience in Silicon Valley or have spent time working with underbanked communities, so they’re well-versed in both the problems and the solutions around access and usage of financial services. Mexico’s banking and securities regulator recently passed a Law to Regulate Financial Technology Institutions. Under these regulations, fintechs will have the protection and structure to become even more innovative. The law allows startups to use information from clients of large banks through public application programming interfaces (APIs), provided that they have the authorization of the user — which will lead to better services and greater financial inclusion. More so, the Law’s section on regulatory sandboxes provides temporary authorization to test innovative business models that are currently not regulated — to give financial service providers the freedom to push the envelope and safely navigate risks.
However, even before the passage of the new law, fintech companies in Mexico excelled in targeting two frequently ignored market demands:
- Financing for small- and medium-sized businesses— which account for 99 percent of all Mexican enterprises but garner only 11 percent of total bank credit for businesses.
- Individual loans, which microfinance institutions rarely offer over smaller, less risky, and group-based financing.
Additionally, fintechs have capitalized on the technology wave and digitized the credit process. A customer no longer has to wait two hours at a branch to pay the gas bill thanks to new mobile payments solutions. Creative digital solutions include:
- Individual lending through mobile and online-only platforms (e.g., ePesos, MiMoni).
- Online loan providers that can calculate creditworthiness from a customer’s Facebook login frequency, habits in charging their mobile device, or bill payment history, (e.g., Credilikeme, Konfio, Kueski, MR Presta).
- Online marketplaces in which small businesses can find investors or setup crowdfunding campaigns (e.g., Doopla, financiero, MiCochinito, Prestadero, Visor).
- Payment platforms based on prepaid or discounted mobile subscriptions, as well as gift cards for online or in-store purchases (e.g., Micel, RÊV Mexico, Sí Vale México).
- Payment acceptance applications that build or enhance electronic payment solutions, mobile points of sale, and cash displacement (e.g., iZettle, Yabit, Pago).
Finally, the digital backbone of fintechs easily allows for data monitoring and collection. Fintechs have the flexibility to adapt to the market quickly and to develop more customer-centric offerings. In Mexico, fintechs are serving a customer base in need of individualized products and more convenient processes, as well as low-income customers, who haven’t had easy access to credit in the past. Fearing a cut in market share, traditional institutions have begun to release tech-based services, too, and the upsurge has only furthered competition and innovation.
Mexico’s innovative financial services landscape has created more efficiency and smarter products. These improvements help people in Mexico build better lives for themselves and generate more economic activity. Despite this progress, opportunities still abound in Mexico: small and medium businesses still face difficulty in obtaining financing, and 32 percent of the adult population continues to forego financial services. But as long as financial services providers continue to innovate, and the government continues to enable that innovation, Mexico’s diverse players should be able to deliver products and services to meet these ongoing needs. Both industry and government are optimistic that encouraging innovation and prioritizing financial inclusion will lead to a brighter future for Mexico.
Christina Holman also contributed to this article.