STORY INLINE POST
Mexico has become one of the largest fintech hubs in Latin America, fueling a cash-driven population to banking at unprecedented rates. One area where the country falls behind its neighbors, however, is credit issuing and lending. Mexico is known for its astronomically high credit card rates, which can easily soar up into the triple digits, hobbling consumers and small businesses that either can’t afford or can’t access credit solutions from Mexico’s small pool of lenders. For perspective, SMEs account for 90 percent of businesses in Mexico, but only 11 percent use bank loans.
Though the lending infrastructure may currently seem skewed, or even monopolized, strategic partnerships and next-gen payments technology like Banking as a Service (BaaS) and Buy Now Pay Later (BNPL) can help.
Leveraging BaaS for White-Label Credit Solutions
A primary way to accelerate access to credit in Mexico is by partnering with third-party distributors to set up white-label credit and banking services. BaaS, already established as a solution in the fintech world, is transforming how financial institutions (FI) are shaping their relationships with SMEs and reaching new customers by embedding their banking products in customer-facing e-commerce businesses. This is especially relevant as more and more consumers continue to embrace online shopping as a result of the COVID-19 pandemic and look for credit solutions to complete their transactions.
With BaaS, it’s a win-win situation for both the FI and the SME. FIs benefit from additional revenue streams, while brands are able to deliver accessible banking and credit services to the 85 percent of Mexicans who don’t have access to credit cards. We’ve seen successful BaaS fintechs launch across Latin America, and we expect to see even more credit-centric BaaS services emerging in the region in the near future.
BNPL: An Accessible Credit Alternative for SMEs
Another option is to offer alternative payment models to ease large purchase decisions for those without access to credit, by utilizing BNPL, or installment payments. And while BNPL has its fair share of critics, consider what BNPL is able to offer to a market like Latin America, where credit is much harder to come by.
According to Americas Market Intelligence, the BNPL model in Latin America could capture 20 percent of the region’s electronic commerce, while providing financial access to Mexico’s unbanked population. Because BNPL offers credit linked to the buyer’s identity rather than a banking credential, or a hard credit check, BNPL can be a stepping stone for SMEs to access purchases needed for their business. And by adopting BNPL for their businesses at the point of sale, SMEs can also offer an opportunity for people without access to credit to make purchases up front, boosting financial inclusion throughout the region.
Though BNPL in Latin America isn’t commonly offered at 0 percent APR, the rates are far lower than what’s expected from traditional lenders in the region. For now, the outlook remains favorable. As more Mexicans look for digital means of payment in a post-pandemic world, including credit, BNPL is a promising tool that can have a significant impact on the country’s banking and financial system.
Enabling B2C Credit Through the Power of Partnership: Credijusto
i2c recently partnered with a leading technology-enabled small-business lender in Mexico, Credijusto, to provide frictionless credit solutions for SMEs through the Covalto American Express credit card. Issued by Credijusto and backed by i2c and the American Express network, this corporate solution launched an innovative way for companies to control expenses while enjoying hyper-personalized perks and benefits, such as unlimited cashback, installment plan options, and virtual card capabilities.
The credit card offering is focused on replacing the common practice of business owners resorting to personal payments to operate their businesses, opening the doors for more SMEs to access credit with added benefits. This collaboration was announced shortly after Credijusto became the first Mexican fintech to acquire a bank, enabling a digital cross-border experience for thousands of businesses engaged in commerce in both the US and Mexico.
Power in Partnership
With higher smartphone usage and internet penetration in the country than ever before, financial institutions can leverage experienced enablers to reach new and existing customers in the ways they want to be reached, while improving the overall end-to-end user experience. Instead of building these solutions from scratch or attempting to reinvent the wheel, strategic partnerships allow innovators to focus on their strengths and their clients, and ultimately close Mexico’s credit gap by leveraging an ecosystem of payment leaders and technology to do so.