Opportunity is defined as a set of circumstances that makes it possible to do something. And both Mexico and 2021 are full of that kind of circumstances. With an estimated population of 129 million people, COVID-19 pandemic, and a new set of regulations on the horizon, THE opportunity of the fintech industry in Latin America has arrived.
But why the fintech industry in particular and no another kind of tech industry? It is not exactly like that, as Mexico has one of the most important startup ecosystems and markets in the world, but the opportunity specifically lies in fintech startups at this time because of COVID. Quarantine and other social restrictions have inevitably led to the digitalization of almost every industry, but there is one problem: digital processes require of digital payments. And that’s where the opportunity in Mexico kicks in. It counts with one of the highest digital transformation indexes of the world, but still, only 36.9% of the population is part of a financial institution, and of that percentage, only 22% has a mobile banking app (according to the last National Survey of Financial Inclusion).
Where is the opportunity then? Both the government and the industry are working to change that. Between 2018 and 2019, the Central Bank launched the Cobro Digital System (CoDi), an interoperable payment switch that facilitates digital payments; the National Policy for Financial Inclusion 2020-2024 was launched, a program that aims to increase the number of Mexicans with a bank account of 47% in 2020 to 65% in the next four years, and the Fintech Law passed, becoming in one of the first countries in the world to succeed in doing so. The Fintech Law presents a before and after in the national industry, as it contemplates not only electronic payments, collective financing, administration of virtual assets, offer of financial advice through digital channels, and cryptocurrency, but also sets the basis to the regulation of open banking.
Open banking refers to a model that strengthens the notion of the financial data belonging to consumers and not to the financial institutions, and the law compromises all financial entities to enable an application programming interface (API) that allows other financial entities to access the consumer’s information, always with their consent and keeping their privacy and confidentiality… changing the game for all the fintech industry completely! Imagine if you could have access to all the financial information of a person… how much money owns, owes and spends, in which products, how much credit could need, how much would pay for it…. It will create a scenario where all the expenses are at hand, and with them a more complete and updated view of people's financial health; offering a great opportunity to innovate in financial products and services! And that innovation will translate into benefits for users, financial institutions, and even to new entrants to the market, which is now extended to the offering of personalized services of investment, insurance, credits, mortgage loans, and every other financial product you could think of.
But that is not only a great opportunity for innovation, but an amazing opportunity to bring the other 91% of the population to the digital banking system and so take full advantage of the huge market Mexico has to offer (with no need to mention its internationalization potential, as the country is well known as a startup internationalization platform). New digital users have already increased from 31% in 2018 to 52% in 2020, so it is just a matter of time until that translates to the financial system. And entrepreneurs are surfing that wave. For instance, let’s take a look at Comunidad 4Uno. It was created back in 2017, and consists in a digital platform that works as a marketplace that provides different insurance, health and other financial and no financial services to informal and low income workers. What it first started as a loan from the founder to its doorman, became a fintech startup that has already raised more than USD 2.5 million in funding, and is planning to scale to a solution to low-income workers in SMEs and workers in the gig economy in Mexico, and raise a 3rd equity round of USD 5 million to start their internationalization.
And if these set of circumstances don’t make it possible to do something, what could?