Open Finance In Mexico: What Awaits in 2023

The financial system's next great challenge is just around the corner. Indeed, open finance is not only a business model, but a new paradigm that, by leveraging the potential of financial data, enables new ways of offering products and services, as well as reaching new audiences.

This great challenge does not come out of nowhere or is not a passing trend. The financial system faces a very peculiar scenario in Mexico: only about 50 percent of people are banked; in addition, 87 percent of the population opts for cash to make payments under US$23. 

In addition to all this, there is a generational change confronting the practices used by the traditional financial system: digital natives, who naturally use their cell phones to carry out all their activities, share and give their opinions from electronic platforms and prefer immediacy in all senses.

According to a Statista report, there are more than 5 million applications available in the market. In less than five years, the number of app downloads will exceed 352 billion. After the pandemic, fintech apps reflected the highest growth with 51 percent in 2020.

This breeding ground generates the right and necessary environment for open finance to be implemented and massively adopted in Mexico. With this in mind, very specific trends and actions are emerging that will define the direction of this data exchange model by 2023. Here are some of the most important. 

Secondary Regulation Based on Collaboration

Although the 2018 Fintech Law established the general rules for the operation, creation and regulation of this type of company and positioned Mexico as an advanced country for having the first law of this type, some secondary regulations are still awaited, specifically for open finance, which would focus on transactional data of customers and the implementation of regulated APIs for all players.

In this sense, 2023 may see  a change of pace for this issue, which has been held back a bit by the National Banking and Securities Commission (CNBV), as the regulator has shown openness and a greater approach to the entities involved in this regard. This could mean that the secondary rules that would be issued would not only be conceived from the needs of the entity, but that there would be a willingness to include the proposals and expertise of the open finance companies in the country.

Implementation of Payments Through Open Finance

Another very relevant factor to consider during 2023 will be the implementation and launch of digital payments made through open finance platforms. 

According to World Bank estimates, approximately 50 million people started making digital payments at merchants during the first year of the pandemic. 

Fintechs, neobanks, digital wallets or other industry players are offering new services every day to close the gap with traditional services: New non-bank payment applications are growing very quickly on the continent because they offer cheaper and simpler payment solutions with a better end-user experience. 

However, 58 percent of in-store purchases are still made in cash. Undoubtedly, the region is undergoing an unprecedented digital transformation and there is a clear growth path for digital payments and financial inclusion.

One of the great allies of these changes is open finance, which has as one of its objectives to facilitate more accessible, secure and faster forms of payment.

Open finance is a model that allows users to share their financial information with the platforms of their choice, always with their consent, through the use of APIs (application programming interfaces) that serve as a secure communication channel between two applications or software programs. 

These same data-exchange channels can be used to move money directly between users' bank accounts.

Thanks to this, it is possible to integrate functionalities, such as "pay with my bank," into e-commerce or other digital platforms. On these, users could find the option to initiate a payment directly from their bank account, to which they would connect by securely authenticating with their credentials. 

Thus, open finance payments are real-time, account-to-account transactions, without intermediaries. 

A new study by Juniper Research showed that the value of global payment transactions facilitated by open finance will exceed US$116 billion in 2026, which shows that it is an effective, useful model and that other regions are already taking advantage of this ability to move money without all the frictions that are shown in the current models in Mexico. 

New Sources of Information

In addition to the payments revolution and collaborative regulation, the need for new data sources will be a defining issue in 2023. Banking and fiscal data are undoubtedly reshaping the way the industry perceives the financial health of users, but the reality is that there are other sources that show us other parts of people's financial lives. 

A simple example would be information on utility bills, such as water, electricity or telephone bills; this information provides a view of recurring consumption and helps to show a little bit of the people’s capacity to pay.  

Another type of financial information that will become vital has to do with insurance and investments, as well as all the data that could be extracted from the social security systems in Mexico: the information that would be extracted from IMSS or ISSSTE could confirm that the person has a formal and stable job, access to information on retirement, pension or savings for buying and selling a home, among many others. 

People's financial lives exist outside the traditional financial system and the real challenge will be to find ways to extract this data, enrich it and make it useful so that people have better opportunities and a wider range of financial services and products.

Greater User Adoption

Finally, 2023 will be the year when end users will feel more comfortable and confident sharing their financial data through open finance platforms.  

With the expansion of information technologies in the financial services market, not only have the value and quantity of transactions increased, but also the number of users has grown exponentially. A study by Statista estimated that by 2022 there would be a total of 64 million fintech users of digital payments. In addition, other segments of the sector, such as digital investments and digital resources, have also presented a growing number of users.

The growth of the fintech sector in Mexico will be so large in the coming years that it is expected that there will be around 85 million active users for both digital payments and digital resources and investments.

This openness toward the fintech sector is the first sign that users are seeking and demanding greater digital services and are willing to try new ways of managing their financial lives. 

More than 2 million people have connected their financial data or initiated payments securely through Belvo, which gives us the certainty that this openness is increasingly evident, added to the fact that the big players in the region, such as Mercado Libre and Rappi, have already implemented this model to offer their services and are growing exponentially. 

As you can see, 2023 will bring great challenges but even greater rewards for companies that offer or have implemented open finance models. It is undoubtedly a golden opportunity to drive the creation of financial products and services that are relevant to users. Let's look at 2023 as the year when open finance will finally break down the barrier of financial inclusion in Mexico.