Is Democratization the Solution for Financial Inclusion?By Isaac Kohab | Fri, 01/21/2022 - 09:04
The increase in fintech companies seeking financial democratization has been exponential in Mexico in recent years, with more than 500 fintech companies in the country, leading the Latin American region along with Brazil. For many years, Mexico has been among the list of countries with a high percentage of unbanked population, according to ABM data. About 53 percent of adults do not have a bank account and about 70 percent do not have access to credit. These data are some of the reasons why it has become a cradle of financial innovation, resulting in hundreds of startups seeking digital financial solutions that are much more accessible to people.
The new generation of entrepreneurs is accompanied by an inclusive and disruptive culture in all areas of life. This has become a wave of creating new business models, resulting in a new financial revolution.
In the first instance, it seems that these fintech companies (almost digital banks) arise to solve, in a great way, the problem of banking, thanks to their technology and the facilities they have to open an account. However, as time goes by, we realize that the challenge is too great, despite the fact that the vast majority of the population has a smartphone. The costs to attract people are very high and the returns are almost nil, making their economic and business models more complex.
If we look at INEGI data from recent years, we can see that the percentage of the unbanked population has hardly decreased at all, so it has not yet been positively affected by the fintech model.
Financial democratization is not the same as financial inclusion; however, it is the big step that is missing. Without a doubt, fintech will lead the way in the coming years, starting from democratization, passing through education and reaching financial inclusion. We can observe in our day-to-day how these business models are increasingly valued higher and that they provide added value, which was accelerated by the pandemic, offering tailored financial solutions and comfort to their users, which has resulted in attracting millions of people to this disruptive guild. This revolutionary position will mark an unprecedented historical event in the coming years, where financial globalization will finally reach every corner of the country.
*Isaac Kohab is also a Co-founder at Bitrus. To learn more visit bitrus.com