Marcos Sacal
Arcus Financial Intelligence
Startup Contributor

The Role of Fintech in Financial Inclusion in Mexico

By Marcos Sacal | Wed, 05/05/2021 - 12:48

There is still a long way to go in terms of financial inclusion in Latin America. Nearly half of the entire population in the region is unbanked, and less than 20 percent of a total population of 625 million are reported to have credit cards. In Mexico, the level of financial inclusion is the worst-performing relative to its income in the region. However, the future looks very bright, with a mix of several factors boosting the penetration of financial services. I will focus on three main factors: industry regulation, fintech penetration, and financial education.

Industry regulation has huge repercussions when it comes to the industry moving forward. Digital banking, contactless digital payments, debt consolidation, financial management and real-time payments have been growing since the introduction of the fintech ecosystem and, in 2018, they were fast-tracked in Mexico with the introduction of the Fintech Law, which has played a big role in regulating industry players and has had a huge positive impact on consumers’ overall trust as well. As time goes by, more and more companies will apply for a license to operate under the Fintech Law, which will pave the way for a more fluid process and open space for new companies to be born and grow.

This leads me to fintech’s market penetration, whose correlation with the number of banked populations is higher every day, and, therefore, has a direct impact on financial inclusion. Fintech innovations have forced a shift in traditional financial services paradigms, providing financial services to the traditionally unbanked and now prompting large financial institutions to re-evaluate how they do business. There is no doubt that the industry is growing and that every day there are more companies that enter the fintech space, offering innovative solutions. According to Finnovista, there were 441 startups within the fintech ecosystem in Mexico in March 2020. This represents a growth of 12 percent compared to the records in June 2019, when 394 fintech startups had been identified. In addition, and according to Statista, the total number of fintech users in Mexico is expected to be close to 97 million by 2023, up from almost 74 million users in 2017.

And while the advancements in new regulations as well as the growth in the fintech ecosystem penetration help a lot, there is still a barrier when it comes to achieving financial inclusion: financial education. This is undoubtedly a powerful tool that could help people take control of their financial lives and could, therefore, help countries achieve the inclusion numbers they deserve to move forward.

The way I see it is that as leaders and as growing companies, we have a huge responsibility to the public, whether they be  fintechs, clients or final users, but also with non-fintech users and, therefore, most likely underbanked people. It is our duty to create alliances with our fintech brothers and sisters, other companies, associations, government, and more, so that the public knows about the various solutions and types of companies that exist within our sector, so that the public gradually becomes familiarized with basic concepts of financial services. In short, financial education is a fundamental axis that must be worked on and which we must work on together from within the ecosystem.

Arcus Expands With a Solution to Help the Unbanked

In Mexico alone, there are 127 million people, and more than 63 percent do not have a bank account. This, however, is not entirely bad news since almost 60 percent have a smartphone. This leaves a massive population, 104 million to be exact, in need of banking services, which translates into a lot of room to grow as companies and, in my opinion, even more importantly, to help. This is why at Arcus we constantly strive to take steps that help us make payments possible for everyone.

New purchasing systems are changing the dynamics of how people pay for products and services. Cash and credit cards are being replaced with payments through electronic devices, especially smartphones.

Transforming physical points of sale into ATMs is one of our most recent launches and a vital step we’ve taken, which we believe will help provide banking-like services to the unbanked or underbanked population, enabling fast and easy access to deposits, withdrawals and payment services. Through ArcusPay, in essence, we will enable cash-in and cash-out transactions for fintech and neobank customers through a network of 60,000 physical points of sale. This is particularly important since one of the biggest challenges in Mexico is opening and managing bank accounts. With this solution, people don’t need to. They will have easier, more direct access to bank-like services, all through their smartphone.

If you sum up innovative and customer-oriented solutions with a positive industry regulation, an increased fintech market penetration and financial education, what you get is a booming sector, a sector which together, can achieve financial inclusion.

Photo by:   Marcos Sacal