Banking and Fintech: Competitors or Allies?

The conventional financial sector is constantly challenged. Adapting to digital transformation is one challenge, as fintech companies set themselves up as the main drivers of change, forcing the more traditional players to grow at the same rate.

In the context of the Banking Convention held recently, Mark Thomas, Director of the World Bank, advocated increasing access to technology, since it offers an opportunity to increase the population's financial participation. "Fintech applications offer cheaper means of payment and represent a life-improving opportunity for Mexicans," he said.

Interesting data was noted at that event. One example is that during 2021, 1.6 billion transactions were made online, which represented an increase of 16 percent compared to 2020 and an increase of 70 percent in the mobile banking sector.

In this respect, the main challenge is to boost the digitalization of the industry, which is an important step toward financial integration, since the digital world builds links between all sectors. Therefore, the digitalization of banks must ensure optimal security conditions and protect resources and useful information.

Here at Sistema de Transferencias y Pagos (STP), we do not believe in competition between banks and fintech companies; quite the contrary, we see great prospects and opportunities for both parties. And although there is still a long way to go, it will be a path shared by traditional financial institutions and those that, like us, use technology as the basis of their operations.

In addition, we provide support to more than 90 percent of the fintechs that operate in the country; as a result, we can see how traditional banks create alliances with financial technology companies, which, in turn, shows that both sectors are complementary and together they make the ecosystem grow exponentially. As a result, those who benefit are the users, whether in personal financial services or in business services.

Here are some of the main key features that financial technology offers, whether it is provided by banks or fintechs:

Mobile Payments

Users, who used to line up to pay bills and use services, now do all that with their cellphones, using fintech and banking applications to make their payments.

We are convinced that the next big step for mobile payments will be CoDi by generating a significant improvement in the payment and collection experience for users through the use of QRs, payment messages and NFC technology.

Solid Technological Infrastructure

Whether it is a bank or a fintech, it requires a strong technological support, such as that which we offer at STP, which must follow strict security measures. With this, fintechs and banks can provide a fast service with the best experience for the user.

Digital Cards

It is increasingly becoming more common for traditional banks to offer the option of creating a digital card to make secure online transactions. This avoids the need to provide data from a physical card, in addition to the fact that to use digital cards, dynamic keys are necessary, which change from time to time or are generated for a particular purchase. Fintechs work under this model, assigning the digital card and if the user prefers, the physical card can be sent to the address he/she indicates.

Even in the race to become the definitive leaders in the financial sector, financial companies are seeking the help of technology companies to develop their infrastructure.

CoDi

The different options offered by each market to digitize their payments and provide "contactless" financial transactions have accelerated enormously in Latin America. In Mexico, the economy is rebounding. Consumption is recovering, people are starting to go to restaurants, they are traveling, they are staying in hotels. However, CoDi has not yet reached the initial target of 18 million Mexicans.

During the pandemic, according to data from the Bank of Mexico (Banxico), the use of cash was reduced from 93 percent to 86 percent, giving rise to payment methods such as CoDi, a platform developed by the same institution to facilitate payment and collection transactions through electronic transfers, quickly, securely and efficiently, using cellphones.

CoDi is a SPEI functionality that allows users to make electronic transfers through QR codes or push notifications directly to users' banking applications 24 hours a day, 365 days a year. Like SPEI, CoDi has great benefits for companies, such as lower cost, the opportunity to have immediate liquidity of what has been collected and an improved experience for end users.

According to the same survey, CoDi is the second-fastest growing method after the Interbank Electronic Payment System (SPEI), since 0.9 percent of the target population uses it, while before the pandemic no one used it.

Although in some businesses, the use of cash has predominated due to the low level of banking penetration among people, at STP, we see both scenarios as a great challenge to democratize the use of the digital economy for the vast majority. In this sense, the first step is to provide training and, if possible, develop the necessary communication mechanisms and alliances to raise awareness of these digital payment methods.

Finally, at STP, we see banks as strategic allies. We have complementary services, we serve specific users and the evolution, both in services and products, is being presented on both sides, thus creating two great advantages: the national financial system is safer and more reliable, and the end users are the main beneficiaries, as they have more and better alternatives.