FinTech Mexico Sees Major Opportunity in Underserved Population

Q: What is FinTech Mexico and what services does it provide?

A: FinTech Mexico was founded at the end of 2015 with two clear objectives. The first was to bring together the fintech companies that are emerging in Mexico to foster spaces of collaboration, explore opportunities and to create a community. The second objective, which emerged alongside the introduction of the Fintech Law in 2018, was to give direction to three business models that were not regulated by the law. This was crowdfunding, electronic payment funds or wallets, and cryptocurrencies. These were in the grey area of the law and it was necessary to offer guidance and work toward legislative certainty for these areas. Between 2016 and 2017, we were actively engaged with regulators in Mexico and helped push the Fintech Law toward the finishing line.

Since then, we have continued to be the eyes and ears of fintech companies and have collaborated with regulators to work on the secondary considerations that the initial processing of the law introduced. We have also pushed for networking and community building to give fintech greater exposure.

Q: How has Mexico’s Fintech Law prepared the ground for development and what needs to be done to see fintech grow in Mexico?

A: Most of the companies that are awaiting approvals had followed legal requirements prior to COVID-19 and applied on time. Nevertheless, it is important to understand the timeline of the Fintech Law.

The open banking law in Mexico covers not only banks but the entire financial sector, so we are really talking about open finance. When the law was enacted, the first thing that happened was that collective funding platforms (IFCs) and electronic payment funds (IFPs) were allowed to apply for their Financial Technology Institution (IFT) license. In March 2019, the authority allowed companies that had already been operating to request their authorization. The CNBV set the deadline for application for Sept. 25, 2019 and 85 companies successfully applied. Of these, 25 were IFCs and 60 were IFPs. The law provided time to make revisions and corrections to applications. This period ended in March 2020, just before the arrival of COVID-19, and the regulators were given 180 days to issue their decision on each application: authorization or an order to close operations.

This process was impacted by COVID-19, since the CNBV had to pause its process for three months. It reconvened in August. It is important to mention that the companies that had been operational were allowed to continue operating during the process because they applied for the Octavo Transitorio amparo, which allowed them to continue operating. Those companies that were not operating before the authorization process began have not been allowed to begin operating until they receive authorization. In Mexico, open finance means the ability to open an API to access open data, transaction data and incorporated data. The first open data controls for open data have been issued, which means offering access to data like the location of bank ATM machines or the bank branches.

The legal certainty that the law has brought to fintech companies has been extremely welcomed and offers greater security for potential investors. Additionally, it has generated greater levels of trust for end users. Nevertheless, challenging remain, which include cryptocurrencies, crowdfunding and wallets. This is because the law has created a more difficult environment for companies in those sectors to begin, learn and grow. There are still legal gaps to be addressed, such as fiscal issues among crowdfunding companies. The sandbox idea has proven to be a sound route for the creation of fintech companies and their ability to learn, improve, and attract investment, but it requires regulatory flexibility.

Q: How has COVID-19 seen fintech’s trajectory change and what are the areas for growth?

A: The pandemic has naturally propelled the growth of the sector and people have been able to use these platforms to work toward their financial goals.

For me, there are two clear areas of opportunity in the sector. One is remittances, one of the largest sources of income in the country. Fintech platforms can offer an improved user experience in comparison to traditional remittance services and do not require people to visit a physical branch to pick up money. Fintech platforms can offer lower rates for transactions. This market is huge.

The second route is credit, especially related to SMEs. In Mexico, only 8 percent of SMEs have access to credit and loans despite providing the majority of employment in the country. It is a market that is severely underserviced. Fintech channels, with their high accessibility and speed, can be the opportunity that many SMEs require.

Finally, companies involved in KYC (know your customer) and that want to reduce fraud are part of an area of investigation for growth. Those fintech companies that specialize in the reduction of fraud can clearly capitalize here.

FinTech Mexico is the country’s leading fintech association aimed at turning Mexico into a major fintech market by supporting companies and industry authorities through open, positive dialogue.