Fintech: The Industry that Changed the Rules of the GameBy Marcela Picos | Fri, 10/23/2020 - 05:00
There have been many advances in the world of financial technology since the introduction of the first magnetic strip credit card in 1966, and at that time it was unthinkable to apply for a loan without having to wait days for approval and without having physical contact.
Although there are several theories about fintech's beginning and many others about the term's adoption, the reality is that the goal of democratizing the world's financial solutions has led to the development of projects that have changed the way we interact with all kinds of products and services.
In recent years, the word fintech, which essentially means financial technology, has become very popular, particularly as it is an innovation-driven industry that seeks to improve people's lives through the use of technologies, mostly based on machine learning and artificial intelligence, to provide more and better financial solutions.
These institutions, which tend to work at a faster pace, have a rather vertical organizational structure, generate agile processes and make operating costs efficient by operating digitally, are the main reason for the accelerated evolution of the financial market in the world. This also translates into customized solutions with better service for customers.
In many countries around the world, the positive adoption of this type of service by users also responds to the low level of banking penetration. Specifically, in Mexico, where 32 percent of the population does not have a financial product and only 31 percent of adults have a credit card, it is not surprising that the majority of people still work in the informal economy, which means that cash still accounts for 90 percent of the country's transactions.
Within the population neglected by traditional banking, this type of practice generated a domino effect in which it was almost impossible to start obtaining a credit history or generate a healthy credit history until the arrival of fintech.
There are about 441 fintech startups in Mexico, with an increase of 14 percent in the last year to become the leading payment and loan segments in the industry. On the positive side, in fintech companies, the country has seen advances in regulations, infrastructure and an increasing number of investment rounds that will help these types of companies to become a more attractive ecosystem of alternative financial solutions. However, there is still a long way to go.
It is not uncommon for a financial technology company with a B2C business model to switch to or cover both B2B approaches in order to offer its technology to larger companies while allowing them access to a greater number of customers. Payment methods are a clear example of this, which also represent a chance to increase sales and, in many cases, without any risk.
Fintechs are the lenders with the most capital raised (US$941.94 million), followed by payments (US$206 million) and digital banks (US$98.4 million). Mexico accounts for only 16 percent of the total investment in Latin America fintechs, however. This is far below Brazil, which accounts for 76 percent.
Seventy percent of fintech startups in the country are concentrated in Mexico City, followed by Monterrey with 11 percent and Guadalajara with 7 percent. Fintechs in Mexico employ 35 people on average, discarding the largest that have more than 1,000 employees. In total, according to Finnovista, it is estimated that within the industry, around 60,000 jobs are generated in Mexico.
Institutions can no longer ignore the advantages of using technology. Traditional banks need to work to offer financial experiences or risk loss, which is why they are beginning to see fintech as a possible strategic ally to gain market share and capture users who were not seen as attractive in the past.
Tech companies will benefit from these alliances as well. For the future of the financial services industry and the technology sector, ongoing collaboration and partnerships between fintech companies and banks are essential.
The banking user experience has been redefined by the ability to perform any financial task with a smartphone and a mobile application. It is important that these two worlds meet, so that it is possible to conduct much more efficient, secure and modern business.
The internationalization of the fintech industries in Latin America is another phenomenon that we will surely begin to see over time. Only 32 percent of operations have expanded to other countries at present and this is mainly due to the need to understand the needs of the native market first, generate positive resources and innovate with different solutions, as is the case with companies such as Kueski.
The financial industry's future is bright. One thing is certain: We will see an increase in smartphone adoption statistics every year, and consequently an increasing use of mobile and card payments, as well as a sharp decrease in cash transactions.
Countries will continue to accumulate digital infrastructure, which in a short period of time has allowed businesses to promote innovative products and services, and we will surely continue to see more progress in the future.