Fintech: A Promise of InclusionBy Jorge Ramos Zwanziger | Wed, 12/02/2020 - 17:20
Money is going digital. The COVID-19 pandemic has accelerated the use of online platforms to make transactions, argues Entrepreneur, as well as the use of smartphones, e-commerce and digital wallets. The new digital era has created a setting for a new contender to thrive: Fintech. “Financial technology holds the answer to solving the challenges of the unbanked. Fintech, and more specifically, Fintech-as-a-Service (Faas) has completely changed how financial products and services are created, developed and released to the market,” wrote Inigo Rumayor, Co-Founder and CRO of Arcus Financial Intelligence, for MBN.
Rafael Roncancio, Director of Financial Services of Capgemini Mexico, told Entrepreneur that “neobanks already defy traditional banking because of their growth and benefits.” Fintechs can offer cheaper commissions because they do not have to invest in physical assets, which translates to smaller tariffs, he continued.
For Rumayor, fintechs can change the world through financial inclusion. “Now, with the help of fintech, if a customer has a smartphone, they can access banking services directly from the palm of their hand.” Financial technology gives customers better access to financial services. There are barriers, however, to the penetration of fintech solutions into the lives of Mexicans. “Mexico’s Financial Inclusion Index is one of the lowest in Latin America, standing at 36.9 percent. Investment is worse. Informal saving is the main form of building wealth for many people. Distrust of banks or the perception of lack of benefits from them make people stay with the informal segment,” wrote Victor Hugo Flores, Partner and Head of Fintual Mexico, in MBN. According to him, the solution comes from allowing more competition in the financial sector, as it is one of the most concentrated in the world. “Approximately 70 percent of bank assets are in the hands of the Top 4 companies,” Flores continues. This is problematic because, as he argued, it creates economic inefficiency: higher costs, poor service and low innovation in the sector. Having more diversity in the sector would help solve all of those problems. The solution, he argues, is greater inclusion. “The financial sector should lower its entry barriers. Most fintechs need to go through the traditional financial sector. However, many of these put up several obstacles and barriers to acquiring their services or the costs are so absurdly high that it is impossible to connect with them,” says Flores. Allowing more fintech companies to compete would enable inclusion for both consumers and companies.
Recently, during the Mexico 5G forum, organized by the National Telecommunications Association (ANATEL) and DPL Group, there was a discussion about a collaboration between fintechs and the Mexican banking industry to allow for better digitalization and financial inclusion, El Economista reported. Luis Niño de Rivera, President of the Mexican Banks Association (ABM), said this would be the next step for the industry. “These are relatively small companies, new ones, with young people with great creativity and the technological capacity to go deeper into payment channels, savings services and credit services,” he told El Economista. Niño de Rivera highlighted that the digital world is the most viable channel for financial inclusion, making it a priority for Mexico to move forward, particularly in remote places far from the country’s financial infrastructure.