Alliances Between Fintechs, Banks Increase Financial Offering

The rapid digitalization of numerous sectors has led to the emergence of a new kind of financial service provider: fintechs. While some may believe that these newcomers want to challenge banks’ market dominion, by working together these two types of companies can further expand their services and increase their client bases.

After the pandemic, fintechs have become more popular because they are making financial services more accessible to all economic sectors. Fintechs are "a space where innovation and social integration are possible,” said Andrea Picardi, Country Manager, Triba. These companies have changed how financial services are structured, provisioned and consumed.

Fintechs, however, face obstacles when trying to partner with banks. “We must stop saying that we are fintechs and we must replace it with techfins because we are experts in technology,” said Picardi. Fintechs are introducing technology to the financial sector. There are opportunities for collaboration between traditional banks and fintechs because the first have more experience in finance and the second in technology.

Through these alliances, banks can offer complete and competitive products. “The greatest transformation that banks can have is through their involvement in financial inclusion,” said Loreto Zumalacarregui, Head, Bnext Mexico. If banks use technology within their operations, they can reduce costs by 80 percent and reinvest this profit in talent or their platforms. Banks can also greatly reduce the use of cash, which is “the greatest enemy for the development of an economy,” said Mariana Franza, COO, Ualá.

Fintechs are a good option for banks to bridge the gap between the formal and informal economy. “Both banks and fintechs must be clear about where each one of them adds value. This is crucial for these alliances to be achieved,” said Ricardo Godínez, CEO, Enso Fintech.

Although alliances benefit both players, so does competition.  “It is not bad to compete because in that way better products are generated and the user is benefited,” said Franza. Experts agree that the consumer is the center of these alliances and products must be created to offer friendly and transparent products.

In 2017, there were around 700 fintech companies; today there are almost 2,500. From these, 21 percent are in Mexico. Fintechs have identified an opportunity in Mexico because the country has extremely an large underbanked population, with millions without a bank account. “There are millions of Mexicans without a credit history. We want to reach more segments and help in the coverage needs such as health, food and housing,” said Godínez.

To transform this scenario, Fintechs have focused on increasing inclusion and democratizing finance. To become a user of a Fintech company, a person only needs a smartphone and internet access. In Latin America, 85 percent of the population has access to both. Moreover, a fintech’s “most effective value proposition is the transparency and safe ecosystem proposals that it offers,” said Franza. Fintechs are focused on digital and mobile payment solutions for B2B and B2C markets. “We offer digital and mobile payment solutions such as one-click solutions, which is something that brings significant value as users want to do their financial movements in just one click,” said Godínez.

Blockchain technology has boosted fintech growth. “It is impossible to talk about growth without mentioning blockchain,” said Zumalacarregui. However, blockchain technology also brings difficulties to the user and fintechs need to make products easy to use, she added.

The funding boom that took place in 2021 has reshaped the competitive dynamics and differentiation strategies of the Mexican fintech market. “These strong investments happened because investors saw in Latin America the need for segments to have access to banking and loans,” said Franza. After the pandemic, the need for digital media increased. In Mexico, 30 percent of adults made their first digital purchase during the pandemic and 75 percent of businesses offered digital payments for the first time, which increased their revenues by over 20 percent.

The talent available in Mexico is posing a problem for fintechts because there is not enough talent available to fill key positions. “There are many fintechs but insufficient developers,” said Godínez. As more money is invested, salaries increase, which in turn increases the competition for talent between companies. Therefore, Godínez argued companies it is crucial to invest in company culture instead of simply offering higher salaries.

However, during 2022, funding has been smaller as it was last year. “Funds have decreased amid the international context; numerous companies are losing their value and fintechs are susceptible to this risk. We must look for business models that promote investment in Latin America,” said Zumalacarregui.