The 2023 Fintech Panorama Will Surprise Us

Only 13 years have passed since PayPal arrived in Mexico, an event that could be considered as the first contact of the fintech companies with the Mexican market, but today, we’re talking about a solid ecosystem, with proven effectiveness and potential growth that still has  much to give in what remains of this decade.

Mexico occupies a very important place for the development of and investment in fintech. It is already the second-most attractive market for this industry in Latin America (a region that in 2021 attracted  the impressive amount of US$693 million in investment through venture capital, according to a study by the IDB and Finnovista).

By the end of next year, the trends will be focused on a more organic coexistence between traditional banking and startups of digital financial solutions. Therefore, we’re not surprised that the main banks have already started making announcements related to the topic.

However, not everything will be opportunities and good news; the fintech panorama in Mexico in 2023 will also bring decisive moments that we need to understand due to the consequences that they could have on the future of the industry.

These are, from a particular perspective, the points that will define the fintech sector in 2023:

Regulatory Changes

Since 2018, Mexico has made significant progress in terms of regulation for this type of financial entity by publishing the Fintech Law. Today, we know that the National Banking and Securities Commission is considering proposing some important changes with the aim of updating the regulatory framework for fintech companies operating in Mexico.

From the outset, changes would be sought in the terms and the procedure in which fintechs submit their regulatory reports, financial statements, and other financial information to the Commission.

The great challenge for these modifications will be that the renewed Fintech Law is not more restrictive than regulations, which would slow the growth capacity of these entities and the possibility of having an increasingly dynamic, diverse, and attractive offer for all types of banking products, from personal and mortgage loans to the best alternatives for SMEs that are considered unattractive for traditional banking.

The M&A Market

This year, we’ve already seen very interesting movements between the fintech world and different industries linked to mass consumption and traditional banking. For example, recently,  it was announced that FEMSA, the giant among  convenience stores in Mexico through the Oxxo brand, would include in its growth strategy the incorporation of Netpay, a fintech for payment solutions that complements the services that FEMSA offers as the main option for the mass consumer market in the country.

And it’s not the only case that resonates strongly in Mexico. There is also Banorte's new strategy to promote its services as a 100 percent digital bank, through the recently created Bineo.

These announcements anticipate what will come in 2023: many more banking options and digital financial solutions to cater to an audience that has received competitors, such as NuBank or Covalto, with singular optimism.

What should concern us? The possibility that the fintech market will concentrate on a few players, which can lead us to the problem of traditional banking, where a few banks determine the direction that the financial industry takes, with low-risk bets and high rates for consumers and SMEs.

Unbanked Sectors

During the last three years, the country has improved its “banking” reach thanks, to a large extent, to the new proposals of the fintech sector. We quickly went from 47 to 49 percent of the population banked in a matter of three years; however, there are still financial sectors and products that require the creativity of the banked and unbanked financial industry to amplify these numbers. For example, the fact that 7 out of 10 people don’t have access to credit, or that only 4 out of 10 adult women have a bank account are red flags that must be addressed as soon as possible if the income gap is to be narrowed along with  inequality in access to financial instruments.

SMEs also need more options outside of traditional banking. At Cumplo, we have identified a tendency to seek financing under diversified instruments, such as factoring.

And what about the new generations entering the job market or starting to manage their own money?

If we have learned anything from the so-called centennials, it’s the desire  to bring practically any behavior to the digital sphere, and the fintech environment could have  a considerable advantage there.

Finally, let's not lose sight of sectors that have gone unnoticed for years. I’m referring to those who have been given the label of people not subject to credit, such as migrants and informal traders as well as millions of people who live in the primary sector.

There too, for those who work with agriculture and livestock, there’s an urgent need for digital banking options at the level of SMEs and microcredit.

Remittances on the Horizon

Mexico is heading toward an end-of-year record for receiving remittances that will most likely be very close to US$60 billion. Although the amount has been driven by the benefits and support that the USgovernment has given to its residents, the important factor here is to think about how that money reaches Mexican territory.

Fintechs have provided new options for Mexican families, with platforms that considerably reduce the interest charged by the most conventional companies in the remittance sector and expand portfolios in terms of currency possession.

Bitso, for example, has highlighted that during the first half of this year, it processed about a billion dollars in cryptocurrencies for remittances. The projection for this platform is that it will  reach US$4 billion remittances processed by 2023. Not bad.

If this item has historically had few alternatives, it’s due to the restrictions and high rates for users; however, with the digitization of money, the most important thing now is to evangelize about the benefits that fintech offers the economy of millions of people.

What awaits us is a year of great changes in the nonbanking financial sector and a great opportunity to integrate fintech into the country's economic development landscape. Can we take advantage of it to its full potential?