Nick Grassi
COO and Co-Founder
Finerio Connect
/
Startup Contributor

Digital Revolution Finally Arrives to Mexico's Financial Sector

By Nick Grassi | Mon, 08/17/2020 - 13:41

Mexico is one of the largest unbanked / underbanked countries in the world and with COVID putting pressure on its financial system, major and minor actors alike are waking up to the reality of enabling online financial accounts to do more. 

Much like Africa skipped over card usage and went right to mobile payments, Mexico has a chance to leap ahead into the era of personalized financial services.

A lot has been written about the now very buzz-wordy, “Open Banking” movement in Mexico, but much of it misses the point and gets bogged down in mundane details.  But this is about more than how data is presented and what format is preferable.  This is a chance for Mexico to completely skip years, if not decades, of financial penetration and sub-penetration issues that have plagued it despite all types of initiatives. According to the World Bank, Mexico is the sixth most unbanked country in the world, and by some measures half of the population is unbanked or underbanked.  

In reality a lot of this has been the result of an oligarchy controlling the financial system, but with the Fintech movement well underway, eCommerce skyrocketing, and bank branches largely closed, something has to give.  That something is the digital revolution finally arriving in the financial sector. 

Last year Finerio, one of the most downloaded personal finance apps in Mexico, decided to launch Finerio Connect. Finerio Connect provides APIs aimed at helping Financial Institutions and Fintechs alike to harness the power of Open Banking to connect to bank accounts, Data Processing to reach intelligent insights, and Personal Finance white labels to update mobile banking and finance experiences.  The response from both Fintechs and institutions since COVID began has been tremendous.  Backlogs that were years away from prioritizing these solutions moved up into number one priorities due to shrinking sales, shrinking loan applicants, and an overall lack of a cohesive digital strategy. Loss aversion more than potential gain is a classic impulse of human action.  

When it comes to banks providing adequate digital services, there isn’t even one that offers connections to rival banks or a Personal Finance Management suite of services. This is despite the fact that this has been a major tendency since 2008 in the US and Europe by both banks and third parties alike.  Things like budgeting, goals, and clear spending and income breakdowns simply don’t exist within any financial institution’s digital experience in Mexico.  Couple that with a largely absent financial education and it’s no wonder that 80% of Mexicans have little or no idea about what they spend their money on, according to surveys done by Finerio.  This more or less coincides with the fact that only 15% of Mexicans formally save according to the CNBV.

On the other side of the issue, bank users haven’t been empowered to share their data with Fintechs and competing institutions because banks have kept their data guarded away and shielded from the light of day.  That is changing quickly.  With Finerio Connect’s all in one API, users can use their legal right to share their data with anyone in a quick and easy way to get access to credit, better rates, or better financial advice, just to name a few.  This power at your fingertips has the potential to improve the lives of millions in Mexico and Latin America.  With some of the historically highest interest rates in the world, and some conservative lending practices excluding 50% of the economic segment, the ability to share data whether it be from banks or any other alternative source is enabling more people than ever to reach for their aspirations.  

Among a myriad of wonderful examples include Experian, the giant credit bureau in the U.S. which launched Experian Boost, where over 1.3M Americans linked their bank accounts to get credit for utility payments and real time income and spending analysis in order to gain 15.5M credit score points in the U.S.  Imagine if the Buro and Circulo de Credito could tap into these unknown data points.  

On the other end, Finerio saved its users over 21% of their spending after four months according to internal metrics.  Projected out to the majority of online banking users, this represents billions of dollars of savings that would significantly impact the national savings rate. 

Open Banking and Personal Finance technology are proven to benefit both financial institutions and the average Joe.  The problem has been the industry’s hesitance to innovate, but the time has come to adapt or die. 

Let’s use this time of fear and loss not to despair, but instead to look beyond what we know and out to the future of financial services that we want; services that are 100% digital, enable open sharing, and provide financial education and clarity.  As famous Venture Capitalist Marc Andreeson said about this crisis, “It’s time to build.”

Photo by:   Nick Grassi