Open banking, Fintechs, Digital Banks - the whole world is talking about it and using these terms frequently, but what does Fintech stand for? In essence, Fintech companies are businesses that offer financial services through the use and implementation of new technologies. To achieve this, many of them use the web, mobile applications and social media networks to streamline and simplify their services.
Recently, Mexico has, based on its recent legislation and market potential, become one of the fastest growing and innovative Fintech ecosystems in Latin America and worldwide.
How did Mexico suddenly appear on the Fintech map?
With almost 400 active Fintech startups providing financial management, payment solutions and consumer lending, Mexico has become a fast-growing fintech hotspot.
How did this evolution come about? According to a report by Deloitte, there are 4 factors on which the success of a Fintech Hub depends on: Access to talent, availability of capital, conducive regulatory environment and the demand for digital financial products. Mexico nowadays covers all these four needs.
Access to talent in Mexico
Latin America has become increasingly popular for entrepreneurs. Young people in Mexico are very well educated and also benefit from the proximity to the USA as one of the Fintech leaders. Many individuals that trained or worked in the USA find their way to Mexico City, bringing valuable experience to the Mexican Fintech space. Mexico graduated over 113,000 software engineers in 2017, representing the highest number per capita anywhere in the world and second only to the U.S. (120,000) in absolute numbers.
Therefore, in Mexico, talent is readily available. It may and must also be mentioned at this point that the average mexican salary is lower than the ones found in Europe or USA, making it easier for a bootstrapped startup to build a competent team with less financial resources. These continuing lower personnel costs also increase the attractiveness of the Mexican market.
Availability of capital in whole Latin America
In recent years, investment capital has flowed increasingly into Latin America's Fintech sector. Investments tripled between 2015 and 2016 and amounted to over 570 million US Dollars in 2017.
Furthermore, in 2018 alone, Fintech ventures in Latin America grew by 66%. This impressive growth rate is due to several factors, including supportive regulation.
Conducive regulatory environment
Mexico’s Fintech regulations are attracting new ventures. Indeed, many VCs and entrepreneurs feel attracted through business-friendly reforms and a very supportive business environment. It’s recent Fintech law (2018) that will take full effect this year (2020), is one of the most comprehensive and robust legal frameworks in Latin America, putting Mexico ahead of the game. It has allowed the fintech industry to grow and innovate while creating new business models.
Demand for digital financial products
Critics would say that Mexico has a truly short history of industrial cooperation in the financial sector. In fact, however, this "lack" may foster a more open, creative and supportive environment for new ventures. In the financial market of the country south of the USA there is a need for more financial inclusion. In Mexico there are only a few legacy banks owned by large conglomerates, and there is a lack of innovation by large corporates in Mexico. This lack of local competition is strengthening Mexico’s Fintech Hub.
In addition, Mexico’s largely unbanked population, the 44% lacking access to formal financial products, created opportunities for a new wave of Fintech startups to step up and promote financial inclusion. As of 2017, just 40% of adults in Mexico had bank accounts.
Recently, the number of Fintech startups in Mexico grew by more than 14% in one year to 441. Source: Finnovista
Digital banking is a great alternative for people who do not have access to or trust traditional banking due to high lending rates and lack of physical access, or are looking for a seamless and fast account opening process. Nevertheless, Mexico is considered a country with a high Internet and smartphone penetration rate, which is 63% and is expected to rise to 70% by 2025. Based on research from various reliable sources, there has been a 200% increase in digital banks between 2018 and 2019, with a focus on the Millennials and Gen Z users, i.e. generations that are very interested in getting added value to their experience without additional efforts.
Fintechs and payment firms overtake year by year more share of market capitalisation from legacy banks. Source: Bloomberg
Mexican Finches outpace legacy banks through diversification
With the huge amount of active Fintech startups providing financial management, payment solutions and consumer lending, Mexico has become a fast-growing Fintech hotspot.
Many Mexican neobanks are much more customer-friendly in handling your accounts than established banks. With the digital bank "Klar" for example, you can open your account in 3 minutes. Klar is a young bank that gives its customers full control over their money via a mobile application and a debit card that offers the advantages of a credit card. However, Klar probably offers the greatest added value with its recently launched micro-credit service called "+Crédito". Here, users can obtain loans that would hardly have had this possibility a few months ago.
Furthermore, there is Flink that is a Mexican neobank. Flink attracts attention because of its very user-friendly trading platform. Investing with Flink is easy and accessible for many Mexicans, because all you need is to have an active account and to be older than 18. One of the great features of Flink is that you have the opportunity to buy shares in fractions, meaning that you don't have to invest in a full share if you don't want to. They start at $30 Mexican pesos, which is about $1.5, nothing comparable to the hurdles for investments at established banks.
We could now name lots of other innovative Mexican Fintechs who are causing a stir with their innovative solutions. In terms of credits for SMEs, Uniclick is a very fast partner. The application is processed in minutes unlike traditional institutions that usually take up to 20 days and you will not be penalised for early loan repayment. Another fast growing player in the market is KLU, a digital bank which convinces by its very user friendly handling and enables the customers a very easy access to a crypto exchange platform.
A further indication of the emerging Fintech Hub Mexico is the many considerable funds that Mexican startups are currently receiving. One example is CrediJusto, a Mexico City based microfinance company, which last year raised 42 million US dollars in a Series B funding round. The 5 year old startup provides asset-backed loans and equipment leases to small and medium-sized enterprises.
The next months and years to come will be extremely important and exciting for Mexico's Fintech Hub, demonstrating growth in innovative and readily accessible financial services.
Sources:
www2.deloitte.com
Latamfintech.co
Contoxto.com
Thefintechtimes.com
legalparadox.com
Findexable.com; The Global Fintech Index 2020
Tribal.credit
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