Gustavo Méndez
Advisory Partner And Financial Services Leader
Deloitte
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View from the Top

Fintech Crucial for Banking Revolution

Mon, 09/24/2018 - 10:46

Q: What is your assessment of the Mexican financial and banking systems?
A: The Mexican financial system is solid and capitalized. The 2014 Financial Reform ensured the solidity and liquidity of banks, resulting in the robust system we have today. After the reform, banks also focused on implementing practices to improve customer service, as well as preventive schemes against money laundering. Credit has been growing during the past 17 years but it is not enough and there are still many people who do not have access to financial services. However, the banking system’s profitability is above 15 percent in return on equity.
Q: How can financial institutions work to expand credit opportunities for companies?
A: It is not a matter of a lack of appetite from banks; it has to do with a macroeconomic environment in which there are no investment projects large enough for companies to apply for financing. It is not just a matter of offer, but of demand. In addition, the Mexican banking system concentrates about 80 percent of the loan portfolio in seven banks, of which five have foreign headquarters. More competition is required and the big opportunity for smaller banks is to leverage fintech.
Q: How will the development of the fintech sector and its relationship with traditional banks impact the Mexican banking and financial ecosystems?
A: Fintech can help in the evaluation of creditors or borrowers in a nontraditional way. Today, banks are focused on the formal sectors to make money-lending decisions. For this reason, people in the informal market do not have access to credit since they do not have proof of payment and the bank does not know how much they earn. The opportunity that fintech opens is to help banks understand the behavior, consumption patterns and other relevant data that could help to include this sector of the population in the financial system.
We see two types of fintech companies: those that will be integrated into banks and those that will become service providers for banks. Many banks are looking for fintech companies that can solve the problems banks face and are integrating them into their operations, either by buying shares or by absorbing them completely.
What could have a major impact on the financial system is the use of cellphones as a bank account and payment method, which has been successful in China. It helps to eliminate friction in payment systems and provides another source of information for understanding the informal market’s behavior and income.
Q: How prepared are Mexican banks to face this digital revolution?
A: Excluding new players like Banco Sabadell, which has declared itself a digital bank, all big banks have operating systems with platforms created many years ago and changing them would cost a lot of money. The advantage of new technologies is that they allow the creation of applications around the central core, emulating what a person can do with the system and enabling digitalization processes. So far, banks are exploring the integration of artificial intelligence, digitalization and fintech in an exploration mode but this is insufficient. To really become leaders, banks will need a holistic strategy and a pragmatic implementation with the customer as the center of focus.
Deloitte recently conducted a global study that shows bank branches will not disappear as they are a relevant sales point. The problem now is how to complement bank branches with a digital offering. Sales and customer interaction can become more digital and banks can better understand the behavior of customers to offer customized solutions. For customers, it is very important to trust the technology that they interact with.