Despite the economic hardship that the Mexican economy is facing this year, fintech remains an attractive investment if Klar’s recent success is anything to go by. But while fintech is on the up, 2020 will be a difficult year for insurance as the COVID-19 environment and economic woes push the sector to shrink. Citibanamex follows IMF’s lead in revising Mexico’s economic outlook upwards for this year, though the increase is not huge.
All this and more in The Week in Finance.
Mexico’s fintech boom has seen competition in the sector increase dramatically, and now one of Mexico’s own has strengthened its position. Klar, a challenger bank based in Mexico City, announced this week that it had raised US$15 million in Series A funding. The bank will use the capital to improve its engineering and expand its product suite.
In the bank’s statement, it outlined its intentions to serve the 90 percent slice of Mexico’s adult population that does not have access to credit cards from traditional banking institutions. “We have built a new banking infrastructure core that aligns with the financial needs of consumers and allows us to serve a massive segment of the population in Mexico that has previously been left behind when it comes to financial services,” said Stefan Moller, Klar’s Co-Founder and CEO.
Klar’s approach to first-time credit users is different to that of traditional banks and analyses the spending habits of consumers – via its mobile app – rather than basing it on a credit history. “We help people build credit by looking at how and where they spend their money, instead of being stuck with traditional credit scores that are backward-looking and obsolete,” said Daniel Autrique, Klar’s Co-Founder and CFO.
Macroeconomic pressures and a likely increase in claims will see Mexico’s insurance industry shrink, Fitch Ratings has said in a report released this week. “Fitch expects a contraction in real terms in the insurance and bonding sector of between 7.7 percent and 5.2 percent by the end of 2020,” said the agency, as a consequence of, among other things, loss in premiums revenue.
The health of the insurance industry is closely linked to that of the greater national economy said Fitch, which the IMF expects to shrink by 9 percent in 2020. “The demand for various insurance products is highly correlated with economic activity, which in periods of stress is reflected in pressure to generate premium volume. The contraction in premium production, in turn, could add pressure on profitability indicators,” said the credit agency.
The Mexican Association of Insurance Institutions (AMIS) said that only 7 to 8 percent of Mexicans had access to health insurance before the health pandemic and that COVID-19 had become extremely costly for insurers with treatment for the virus having reached an average of MX$429,615 (US$20,389).
A Citibanamex survey has come to the conclusion that Mexico’s GDP will grow 3.5 percent next year, a 0.1 percent increase on its previous survey. Among those groups involved in the survey was Thorne & Associates, which predicted 6 percent GDP growth, while Oxford Economics predicted GDP growth of 5.2 percent. On the other end of opinions from those surveyed was the Bank of America, which predicted just 2 percent growth.