Crowdfunding Takes a Giant Step

In the fintech world, we started 2021 with the pleasant surprise that the National Banking and Securities Commission (CNBV) had issued its first responses to the ITFs licensing procedures. In the crowdfunding community, we were particularly encouraged by the news that Doopla, the peer-to-peer platform, had received a positive reply from the authority. For those of us who have been in this for a long time, it is a milestone that took more than five years of work and something that we consider essential for the growth of the industry. But what can we expect from the industry now that regulation is finally in place?

Financial crowdfunding was born as a result of the financial crisis of 2008. It is an alternative business model, 100 percent digital, that seeks to disintermediate the financial world and with this allow many people to participate in activities that, before, were only reserved for large financial institutions, achieving greater financial inclusion and a more competitive and healthy financial system. The evolution of these platforms in the world has attracted attention — The Lending Club and SoFi are recognized pioneers in this business model.

In Mexico, the industry was born from the efforts of entrepreneurs who believed in this business model, even when the regulatory framework did not exist. Gradually, it flourished until platforms were formed for practically most of the business verticals of a traditional bank. Early on in the first years, AFICO (an association of crowdfunding platforms) was born. This association, which is growing today, was entrepreneurial itself and was maintained thanks to the efforts and vision of the platforms that were committed to having a serious industry. AFICO had a strategic role in the creation, and is playing a strategic role in the implementation, of the Fintech Law. The most incredible thing over all these years has been to witness how a financial ecosystem has flourished around investors, who for years had been ignored by the traditional sector. The birth of this industry has led to the creation of many satellite businesses, such as advisers, lawyers, groups of investors and experts. The ripple effect on the economy goes far beyond investors and applicants on the platforms. It is an example of value creation, the likes of which I have never experienced before.

Today, 21 platforms have officially filed to obtain licenses. Along the way, we have seen some platforms deciphering their own path, pivoting or even ceasing to exist. Now we will enter a new stage. Regulation raises the level of play and demand. We are at a turning point in the industry and I think that in this new stage we will see three new trends:

1) Adoption. Crowdfunding is still in its infancy. In 2019 alone, AFICO platforms registered 75,000 investor users only. The path to attracting users will be paved by legal recognition, the trust that this brings in investors and the natural reflectors that the pandemic turned to digital channels.

2) Consolidation. Not all platforms have finished validating their business model. Regulatory costs could stress such models and render them economically unprofitable. Driven by the dynamism of user adoption and the existence of a regulatory framework, many new players (new entrepreneurs) and established players in the financial sector will be attracted to participate.

3) Maturation. The implementation of the law and life as a regulated entity remain unknown terrain for most of the platforms and for the CNBV itself. I would expect to see adjustments to the law and interaction with some key government agencies to define issues that are still not entirely clear today.