Fintech Frontier in Mexico: Navigating the Competition Landscape

The onslaught of financial giants entering the fintech space in Mexico poses a significant challenge for local fintech startups, as they bring extensive resources, brand recognition, and established customer bases, intensifying competition and raising the bar for innovation. “In Mexico there are nearly a thousand fintechs operating. Financial services have become an important vertical for many businesses, but as they grow they also face new competition challenges,” explains Pamela Ceballos, Vice President of Business Development, Visa México.

In response, Mexican fintechs are embracing innovative strategies to differentiate themselves and stay competitive in the market. Looking back on more than a decade after the introduction of startups and financial services that have now become fintechs, experts share their pride and excitement over the achievements of the industry.

"Today, fintechs are very relevant. Getting here has been an enormous infrastructure-building effort that took years," explains Héctor Cárdenas, CEO and Co-Founder, Conekta. Despite this, there are still significant challenges that speak to how Mexico is fertile ground for innovation, the very value that inspired entrepreneurs to bet on the Mexican market a decade ago.

"One characteristic that speaks volumes about the Mexican market is the fact that people make online purchases but want to pay in cash. We have adapted to this demand, but it is very difficult for entrepreneurs from other countries to understand this unique concept," Cárdenas adds.

Experts share their pride in considering the market's opportunities a decade ago and working under such uncertainty to what the industry is now. However, they warn of the risks of scaling operations too quickly now that the market is obviously attractive. New players must understand that giants entering the market or turning their attention to it represent great competition that will continue to raise the bar. Nonetheless, entrepreneurs were born in a context of adversity, where competition only means future innovation for them.

Mexican fintechs are leveraging various innovative strategies to carve out their niche in the competitive landscape. Some are focusing on specific markets or underserved segments, offering specialized services tailored to certain customer needs. Others are differentiating themselves through personalized customer experience, user-centric design, and seamless integration with existing financial ecosystems.

Partnerships and collaborations with other fintech startups, traditional financial institutions, and even corporate giants have emerged as a strategic avenue for growth. By pooling resources, expertise, and market reach, fintechs can accelerate innovation, expand their customer base, and enhance their competitive advantage in the market.

Gabriela Estrada, CEO, Vexi, shares valuable insights that guide Vexi’s offer to what remains its niche market: unbanked population. Despite much talk about this issue, shares Estrada, only 10% of Mexicans have access to a credit card, 20% to formal credit and 40% to debit. Meanwhile, 40% of transactions are still made with cash. “One would think that now, with a wide financial offer the numbers would have changed, but they did not. Sixty-five percent of Vexi’s clients acquire their first credit card with us. This continues to be a niche market,” she says, adding that this is due to outsiders failing to comprehend the profile of Mexican customers.

Gerardo Obregón, CEO, Prestadero, agrees with this idea, adding that Prestadero was one of the very first institutions to grant credit completely online in Mexico. Nonetheless, he also shares a unique perspective showing another innovative way to cater to the market. Obregón explains that while the company rejects about 95% of the credit requests it receives due to the usual suspicions, it also thought about where these people were getting their resources from. Prestadero found out that 75% resort to friends and family, so the company launched a product to formalize these agreements between both parts to ensure payment, even at 0% interest rates, giving clients another chance to generate credit history, allowing them to access credit later on.

Vincent Speranza, Latam Region Managing Director, Endeavor, shares a skeptical approach to the industry saying that while there are many fintechs, only a handful can “tickle” traditional giants and foreign competition. Still, this is a great achievement for previously unmovable banking system. Further on, says Speranza, Mexico is extremely attractive for investments: “there is talent, there is capital and players will have to keep innovating to face this landscape.”

While some fintechs are starting to seek collaboration opportunities with corporate giants, others maintain their independence and market differentiation. Collaboration offers potential benefits such as access to resources, distribution channels, and market insights, but it also carries risks, including loss of autonomy, dilution of brand identity, and conflicts of interest.

Obregón shares that collaboration depends greatly on the service each company provides, making alliances only where it makes sense for both parties since some actors would not be willing to bet on ventures such as Prestadero’s friends and family loans strategy. Cárdenas explains that collaborations could be difficult to navigate as they are often seen as a zero sum game, but the conversation continues to improve in this regard. Speranza adds that these collaborations look great on paper, but, oftentimes, when one player launches a proposal, it might affect the other part’s interests leading to difficulty in negotiation.

The regulatory environment plays a crucial role in shaping the competitive landscape for fintechs and traditional financial giants in Mexico. Key regulatory considerations include streamlining licensing and approval processes for fintech startups, promoting interoperability and data sharing within the financial ecosystem, and enhancing consumer protection measures to mitigate potential risks associated with fintech innovation.

Estrada shares that she expects future regulation will continue to evolve over the next few years allowing for the exploitation of opportunities in the finance realm, led by consumer protection.