Earlier this month, Citibanamex — Mexico’s second-largest bank — announced that it is building new APIs to allow fintech companies real-time access to information like its services and ATM locations. The move comes as Mexico’s fintech ecosystem flourishes so fiercely that traditional banks have to embrace them or risk lagging behind.
Mexico has been — and still is — leading the fintech charge in Latin America. The country was the first in the region to implement a law specific to the sector, and Mexican fintechs account for nearly 20% of total venture investment in the industry throughout Latin America. Not to mention, the Mexican population harbors both the talent and demand for fintech services. Mexico repeatedly tops most innovative fintech hub lists, and neobank and digital wallet transactions are consistently increasing — during COVID lockdowns they rose by an estimated 80%.
Considering that nearly 40 million people in Mexico (almost a third of the population) are unbanked, fintech has been a necessary vehicle for fresh routes for credit, insurance and remittances. And because many Mexicans have little trust in banks, the transparency of fintech options has played a big part in people adopting the new technology.
There are no signs that fintech in Mexico is slowing down. More than a year into the global remote revolution, now is a good time to reflect on the country’s fintech journey, the local players that are having the biggest impact and what lies ahead for the industry.
Mexico has long nurtured its fintech ecosystem
Mexico’s fintech success is no coincidence – it’s due to a combination of factors that have made the country a fertile space to create and grow fintech solutions. This natural evolution has enabled people to gradually become familiar with fintech as a safe and streamlined solution.
For one, smartphone usage and internet penetration have both significantly improved in Mexico over recent years, shaping a tech savvy population that has become accustomed to managing money through devices. Paired with people’s aversion to traditional banks, this tech literacy makes fintech an attractive alternative.
The country’s fintech law (Ley Fintech) came into effect in 2018 and set the parameters for crowdfunding, cryptocurrencies, and APIs, alongside detailing regulatory sandboxes for fintech products. The law has done wonders to promote a healthy fintech sphere where users are protected and investors are more active thanks to the safety net of regulatory framework. Currently, 52 fintechs have been authorized to operate under the law, while 38 more are pending approval. The law is expected to be developed further this year.
Mexico has repeatedly caught the attention of both local and foreign investors who recognize the potential returns that can come from such a huge market. And where capital flows, entrepreneurs follow — in Mexico City alone, there are 192 fintech startups.
In light of the boom, Mexico has launched support and accelerator programs such as Fintech Mexico, Startupbootcamp’s Fintech Mexico City and Finnovista. These resources also provide networking opportunities for businesses, government bodies and other organizations to collaborate and offer users the most value when it comes to fintech. They not only foster innovation in today’s companies, but lay the foundation for the next generation of fintechs to build on.
Diversifying and democratizing finance
There’s no shortage of disruptive fintechs in Mexico, and the pandemic served as the ultimate stress test for them. As physical banks closed and businesses moved online, more people had to discover ways to pay, save and transfer money remotely, meaning fintechs had to rapidly scale without compromising quality.
Previously, payments and remittances, lending and enterprise financial management were the top fintech segments in the country, but there are also emerging fintech trends in fundraising, insurance and wealth building.
For example, Konfio is Mexico’s biggest online lending platform for small and medium-sized enterprises. The company uses data and sophisticated tech to assess companies’ credit history and offer working capital loans or a corporate credit card in just 24 hours. In June this year, Konfio raised $125 million from Lightrock and SoftBank, and has plans to acquire other companies to integrate new services into its platform.
Credijusto gives business loans of up to MXN 30 million (nearly $1.5 million) and has become the first Mexican fintech to purchase a bank. The deal is intended to accelerate fintech services for domestic companies that sell to the United States and across borders in Latin America.
Clip empowers offline retailers to take payments using their smartphone or tablet. Clip’s proprietary technology and distribution partners and channels helped the company to close a $250 million investment round and earn unicorn status back in June.
albo offers a prepaid card and app to users in order to make bill payments, money transfers, and online and offline purchases. The fintech raised $45 million in 2020, has close to half a million customers in Mexico and 30,000 locations that accept albo deposits.
But it’s not just homegrown fintechs that are making a splash in Mexico. Brazil’s Creditas has taken its secured loans offerings there, with founder and CEO Sergio Furio saying that the country was a “clear focus” in its internationalization strategy. U.K. digital bank Revolut and Latin America’s biggest neobank, Nubank, have also branched out to Mexico.
Closing the gap
According to a member of Mexico’s Fintech Association, to a member of Mexico’s Fintech Association, the ongoing invasion of international fintech firms not only increases competition, but forces traditional banks to catch up to the unfolding digitization.
Looking to the future then, Mexico needs to step up connectivity between local banks and third-party fintechs before it can fully drive the majority of the population to banking. Citibanamex’s new APIs will surely demonstrate the benefits of banks and fintechs working more closely together, but it will ultimately fall on fintechs to educate and encourage the process.
These integrations can democratize access to financial services in Mexico, meaning that more people and businesses can easily manage their money, pay bills, apply for credit, and trade and invest in different assets. For fintechs and banks, the increased connectivity can alleviate the mistrust that Mexicans have toward traditional banks, which in the long term can result in smarter financial decisions that boost individual wealth and the overall Mexican economy. And, with an optimized customer experience, banks and fintechs are likely to garner more users and have a better chance of successfully growing.
If Mexico can continue to develop regulation, incubate fintech entrepreneurs and companies, and make space for fintechs from abroad, it’ll be on track to bridge financial gaps in society for good.