Juan Carlos Castro
Briq Fund
Startup Contributor

Digital Finance in Post-COVID Mexico

By Juan Carlos Castro | Wed, 09/29/2021 - 09:02

The shock that the world received with the appearance of COVID-19 has had profound implications in all areas of life. The economic and financial sphere has not been the exception. Taking a first look at how the financial services landscape has changed in emerging economies, the trend toward digital services is clear. According to data from a report prepared by the Cambridge Center for Alternative Finance and The World Bank, which surveys most financial service providers in the world:

  • 65 percent of respondents report a significant increase in the use of digital payment and remittance services
  • 24 percent report significant increases in the use of digital banks
  • On average 15 percent of those surveyed report significant increases in the use of digital loan and capital raising platforms

With the restrictions that were experienced in 2020, most users migrated to digital channels. However, digital channels are an area that most traditional players in the financial sector are in the process of exploring. On the other hand, there is a vibrant ecosystem of new companies that were born in the digital channel and that have already been offering services via this medium: the fintech world. For these companies, an unprecedented scenario was proposed in which they went from being initiatives that were in the process of validating their business model, to real alternatives for millions of users eager for financial services. The adoption of the digital channel accelerated at a dizzying speed and it seems that there is no going back.

In Mexico, the government chose not to implement supportive anti-cyclical policies. This created an additional need for financial services. And finally, the paralysis of some traditional institutions in the face of the risk posed by a crisis created a demand for financial alternatives. This demand has been met to the extent possible by traditional financial institutions that already had digital channels operating, by companies with traditional financial models but with innovative value proposals, and by the fintech world (such as crowdfunding, digital payment processors and others).

According to AFICO (Association of Crowdfunding Platforms), new users increased 120 percent and volume of money funded increased 50 percent YoY during 2020. These figures are just a first glance, but from my trench at briq.mx, this trend continues in 2021 and at an increasing rate. The void in financial services in Mexico created the perfect runway for alternative players to become relevant for the economy. Like any crisis, for some it poses risk and for others an opportunity.

A positive outcome of this crisis is a more competitive financial system. The leap that some business models were able to make, validated them. The need for online seamless financial services pushed many traditional institutions to force the advance in digital channels.  And all this translates into improvements for users. Less friction and waiting times, more and better service options, fairer rates, more flexible and tailor-made schemes. In short, as a result of this crisis, it seems that the promise of a more democratic and inclusive financial system is increasingly close.

Photo by:   Juan Carlos Castro