STORY INLINE POST
As the co-founder of one of the largest personal finance API and app providers in Mexico, I was recently approached by a friend, a fellow foreigner, for advice. Like many foreigners here, he was looking for the best digital financial tools to meet his needs. Because Mexico’s portfolio of tools isn’t quite as mature as in the US and other countries, I wasn’t sure what to tell him. After a long, exhausting search of banks and neobanks, he was ultimately (as many are) disappointed.
This inspired me to publish a report on the state of personal finance management in Mexico. In it, we analyzed how many banks and neobanks in Mexico are making personal finance tools available. The results are not great, especially for the traditional banks. On average we found that out of a possible 10 tools for financial management commonly used, banks only had 1.9 available on their digital platforms. Neobanks had about 2.6.
In more digitally developed markets like the US and Europe, it’s very common to have cleaned and categorized transactions, graphs to help a user understand their spending, and even more advanced features like sub-accounts and robo-advisory.
We found that generally, in Mexico, Neobanks are increasing the level of competition and starting to offer more personal finance tools, but there’s still a long way to go.
These finance tools are especially important today because millennials and Gen Z are projected to inherit over $68 trillion dollars worldwide, making it one of the largest wealth transfers in human history. To give you an idea of the magnitude, these generations are projected to have over five times what they are worth today by 2030.
Given the importance of digital banking for this group, here are five reasons why I think personal finance tools are important to both institutions and users.
- Many Mexicans don’t track their expenses at all.
According to Expansion, 63 percent of Mexicans have no idea what they spend their money on while only 15 percent have some semblance of a budget.
This is crucial, because before thinking about savings or investment, one needs to have a firm grasp on how much is being spent in relation to how much is being earned in order to plan around those figures.
- COVID has made the situation more critical than before.
According to research by Forbes, 22 percent of Mexicans reported a drop in their income during COVID while 63 percent reported that they cut back spending. This is a huge swath of the population that needs immediate financial advice and sources of information, but with very few tools available to them.
On top of that, many bank branches were closed or limited in their hours during the pandemic. Digital services have exploded and 35 percent of people increased their online banking usage during the pandemic as a result, according to Deloitte. It’s becoming increasingly difficult each year to separate money management tools from online banking platforms themselves. Some form of money management is always going to be involved when it comes to online access.
- Personal finance health is starting to be taken into account for credit scoring.
Part of the movement of Open Banking that’s been going on throughout Mexico and Latin America revolves around considering transactional credit scoring.
This is useful to both the institution and the user because almost 74 percent of Mexicans have no credit score or have a poor credit score. Taking into account a user’s fixed versus variable expenditures, their income stability and their discretional versus necessary spending gives both parties an excellent idea of what credit limits and rates are appropriate for the user.
- Personal finance tools improve outcomes for the users by quite a bit.
In Mexico, people who used Finerio as a personal finance application were able to save on average 21 percent of what they were spending previously after only three months. This is an easy way to get people to understand which expenditures really bring them value and which don’t.
- Personal finance tools are also good business for the institution.
There are several studies out there on the benefits of implementing personal finance tools within online or mobile banking platforms. Some of the highlights for institutions include personalizing offers for users, increasing cross-selling (up to 4x more financial products), increasing engagement and decreasing churn for their clients (98 percent retention).
Not only that but users want to manage their personal finances through these institutions and generally prefer them over third-party apps due to app download fatigue. Many banks are missing a huge opportunity to position themselves as the user’s primary bank via personal finance management.
Ultimately in a market that is more competitive with each passing year in Mexico, the time is coming where both banks and neobanks should look to differentiate themselves via financial tools that they choose to make available to their users. Users have put their trust in these institutions and they should be rewarded with a fantastic experience and real value added to their personal finances.