Can Open Finance Be a Turning Point for Financial Inclusion?
STORY INLINE POST
Financial inclusion is a key issue for Mexico's economic and social development. Despite advances in bankarization and digitalization of financial services, a large part of the population still prefers to use cash for payments and is outside the current financial system.
According to last year's National Financial Inclusion Survey (ENIF), 78.7% of the population aged 18 to 70 uses cash for payments over MX$501 (US$27)s, while only 12.3% pay with debit cards, 3.4% with credit cards and 3.3% with other means, such as transfers, checks or prepaid cards.
This is not only demonstrated in terms of payments and the creation of savings or debit accounts; access to formal credit continues to be a huge barrier for Mexicans: only 32.7% of adults had a formal credit offer.
In addition to this, 43.7% have a form of savings but do so without resorting to a financial institution — they prefer to keep money at home, for example, or in informal instruments, such as tandas or loans to family and friends. Regarding the administration of resources, 79.5% of adults do not keep a record of their expenses (they do not make a family budget).
These data demonstrate the need to promote financial inclusion in Mexico in order to improve the quality of life of the population and foster sustainable economic growth.
And you may ask, how will open finance serve to remove these barriers and boost financial inclusion in Mexico? The answer is not so obvious, but there are a number of arguments that demonstrate the potential of this type of model as a financial enabler. Access to financial data should not only be analyzed from a commercial perspective, but also from an economic development perspective and as a vital tool for generating substantive financial inclusion.
With the ability to extract, analyze and enrich financial data inside and outside the traditional financial system, open finance can enable and improve credit offers for people with negative or no credit history, can streamline and optimize all financial processes of companies, helps improve KYC capabilities, brings companies closer to new audiences and, finally, provides the necessary information to educate users about a healthy financial life.
Financial Data Opens Doors to New Financial Services
As I have mentioned on previous occasions in this space, access to people's financial information from a secure and reliable platform has the enormous potential to provide opportunities through useful financial services tailored to the needs of these users.
The ability of open finance to extract information from diverse sources offers the golden ticket to learn about the financial lives of Mexicans inside and outside the traditional financial system. This new perspective provided by these systems brings together banking and fiscal information, social security data, and payments of utility bills, such as water, electricity and telephone bills. In addition, by enriching financial data, they can also help identify patterns and trends in financial behavior.
With all this information at hand, the financial system now has all the tools to provide better services and products. Regarding credit, it is now possible to expand the global credit offer by having updated and nurtured risk models in real time and to streamline all processes by having ways to certify people's identity without the need for physical documents. This serves mainly to provide access to all those people who do not have a credit history or have a negative rating.
This digitalization also helps people who cannot travel to a bank branch, which is still the most used access channel (40%) in Mexico. According to CONDUSEF data, the average time to travel to a bank branch is 26 minutes and the average cost is MX$28 (US$1.50). This is still a big barrier, especially in regions of the country that do not have relevant financial infrastructure.
Another good example is the ability of open finance to allow credit companies to adapt interest rates and make services more affordable. In a macroeconomic scenario like the current one, where even mortgage credit has become more expensive, open finance, with all its data enrichment capabilities, provides the opportunity for credit offers to have interest rates that can be customized for each user by making use of more financial information, such as spending history, income, payments and savings. In this way, the use of these financing tools can be encouraged and the number of people who are approved for this type of credit is increased.
In addition to access to financial services, financial inclusion also faces the challenge of educating Mexicans on financial issues. Visibility and planning are undoubtedly the basis for people to have good financial health. Educating users about their ability to pay, their debt capacity, their fiscal status and the state of their financial services is now possible through personal finance management applications, which draw on data extracted from open finance.
The use of technology continues to be a challenge for financial inclusion, despite efforts to improve access to financial services. According to ENIF data, only 5% of adults have access to internet banking and only 2% have mobile banking. This shows that there is still a gap in the adoption of financial technologies, especially among those who are financially underserved.
This last point becomes one of the priorities of the financial system as a whole, since reducing the use of cash, building a credit history, digitizing processes and approaching new audiences will depend on closing the digital divide that exists in the country.
For open finance to exploit its true potential in Mexico, it will be vital that we work together to build trust in the financial system, promote the use of digital platforms as a way to reach more people, and work to ensure that financial services guarantee the full participation of Mexicans in the digital economy.