Lack of Transparent Financial Infrastructure Holding Mexico Back

Infrastructure was one of the first priorities for President Joe Biden and for former President Donald Trump in the US when they came to power. Biden managed to pass a US$1 trillion infrastructure plan despite a lot of debate about what exactly constitutes the word “infrastructure,” with another US$3.5 million waiting to be passed by Congress.

In that sense, I dare to say that financial infrastructure is a crucial component of infrastructure that often goes overlooked. Just recently, the National Productivity Commission of Chile finished up a 178-page report on why creating a well-regulated API-driven open banking framework is important. Among some of its findings, it reported that almost 70 percent of traditional financial institutions would benefit from open APIs.  However, they insisted that it be a matter of public policy instead of a purely market-driven reform due to the jealous nature of sharing financial data. That is to say that institutions that have it are very reluctant to voluntarily share it unless they are obliged to do so. They also found those institutions very insistent on complicating the matter with extra data protections and outdated security norms when they are often just excuses to delay potentially competitive innovations. Perhaps among the most interesting findings were that Chile was unlikely to produce a fintech unicorn without an open banking regulatory environment. 

Having a fair, transparent, and seamless set of data sharing and payments infrastructure in Mexico is something that we’ve been waiting on since 2018 when the Fintech Law first passed.  However, it has been over three years with only very basic progress made and banks have been reluctant to make any progress toward financial APIs to release open banking data without a regulatory push. Mexico is starting to fall far behind Brazil and even Chile, where multiple banks are now negotiating direct access to their data with fintechs. 

The push toward transparent API documentation, pilots, clear dates, and guidelines as well as a spirit of working with the private sector is what’s missing. Private actors, such as Finerio, have been innovating in open banking for over five years now and pushing the market toward the infrastructure it deserves without any issues. Regulators should take advantage of the experiences of those who have been providing open banking access and listen more to how they can build on top of that for the good of the consumer. It’s time for the public policy arena to step up and help to support opening financial infrastructure and even to create new directives for open banking API-based payments, just as PSD2 laid out in Europe and PIX did in Brazil. There should be a budget laid out to do this just as traditional infrastructure projects are given and there should be clear goals that revolve around consumer benefits.

The results of an innovative and supportive regulator would be enormous and would give a huge boost to public awareness of the benefits of using their own data to acquire financial products. By utilizing open banking, many Mexicans could probably acquire their first loan with debit card data, be offered better credit limits, be offered their first mortgage, plan for their first investment account, and much more. However, many simply have no idea that this is even possible or have been told by banks for years not to share any information.

Mexico is a country with low levels of trust and by not laying out clear directives for the sharing of financial data, fewer fintechs and financial institutions are implementing them than should be, and fewer end users are linking their accounts. We are just beginning to scratch the surface of the potential behind financial data.  In the US, over 200 million consumers have linked their bank accounts to obtain better financial services, while in Mexico, we estimate that number is closer to only 300,000. To compare that to Brazil, we estimate the number to be well over 6 million. There’s a long way to go toward creating a supportive environment for data and payments to be shared in a way that both institutions and users trust. But the fight for a clear directive is worth it. 

Mexico is just starting to see its first unicorns pop up but what we’re not seeing is all the unicorns that would be enabled with a more robust public priority of encouraging users to share their data and encouraging those who don’t create paper trails to do so because of the benefits it creates. If we could convince even 10 percent of the estimated 25.6 million Mexican workers in the informal sector of the benefits of data-sharing, then we’d be bringing over 2.5 million new people into the financial services light side. This would be a huge boon to financial inclusion. We as an ecosystem, along with regulators and traditional financing institutions, have to start showing consumers that their data can be safely shared and that it’s worth it to do so because it will save them money and give them access to products they didn’t have access to previously. 

If we don’t do this, we won’t have the base from which to continue advancing to the next trends in fintech, like Buy Now Pay Later or Embedded Finance, from which all companies will march toward becoming fintech companies, as Andreessen Horowitz is often cited for saying.  We can’t allow Mexico to become stuck and we can’t afford to leave behind all the potential unicorns that would be enabled by a well-laid-out official directive for open banking infrastructure.