Fintech Revolution in Mexico: Redefining Consumer Expectations

The landscape of financial services in Mexico is undergoing a seismic shift, driven by the rapid rise of fintech companies. These innovative startups are not only redefining traditional banking norms but are also reshaping consumer expectations, particularly among the youth and unbanked population. As the fintech revolution gathers momentum, traditional banks find themselves in a fierce competition to adapt and cater to the evolving demands of consumers.

Younger demographics, in particular, are gravitating towards fintech solutions for their convenience, accessibility, and tailored services. Othón Moreno, Director of Payments Systems and Market Infrastructure Policy and Research, Banxico, highlights how, just as fintech companies and SOFIPOs came to change the landscape of finance in Mexico, now it is the clients who are beginning to dictate new trends. "It is no longer the same to serve a 60-year-old man as it is to serve a 17-year-old girl. The way they understand financial services is fundamentally different in terms of immediacy and privacy."

Iván Canales, Director General, Nu México, identifies that the client in Mexico has learned to have better digital products and have access to global services, also leading them to demand better customer service. "Historically in Mexico, banking institutions have been characterized by being difficult to navigate. Now, the user has access to more tools and consequently demands better attention."

In response to this changing landscape, traditional banks are partnering or acquiring fintech companies, allowing banks to leverage the agility and innovation of startups while retaining their expertise and infrastructure. By integrating fintech solutions into their service offerings, banks can cater to a broader range of consumer needs and stay competitive in the evolving market.

Neri Tollardo, CEO, Plata, points out that "curiously", new generations have largely been the driving force behind the emergence of platforms such as fintechs, since "consumer expectations regarding their banks have driven innovation." Tollardo highlights three main ways in which traditional financial institutions have had to respond to new user expectations. First, banks have improved the quality of their products with digital services. Second, they have had to add value because it has never been easier for clients to migrate between financial services. Finally, the culture of the financial sector has changed in terms of the paperwork process due to the immediacy that the client expects.

Fintech companies have employed various strategies to capture the younger demographic in Mexico. By offering gamified experiences, personalized financial management tools, and social media integration, fintechs have created engaging platforms that resonate with the digital-native generation. Additionally, the use of data analytics and AI-driven insights enables fintechs to offer targeted products and services that cater to the specific preferences and needs of young consumers.

However, Luis Pineda, CEO, Now by Invex, recognizes that much of the boom in the adoption of fintech was due to the pandemic. But thanks to the adoption of digital solutions, clients are now not willing to endure traditional processes. Pineda explains that the revolution in the adoption of fintechs has occurred in three main stages. First, the landscape changed with the arrival of these new digital players. Then, the client has become an educated and banked consumer. Third, fintechs and SOFIPOS now must evolve because being first in the game is no longer enough to continue being competitive. “We owe the market more sophisticated mechanisms,” he adds.

To effectively compete for this crucial market segment, traditional banks must embrace a similar mindset of innovation and customer-centricity. By leveraging their brand reputation and extensive customer base, banks can introduce innovative digital solutions and personalized experiences that appeal to the younger demographic.

Despite the focus on the customer and their experience, fintechs must also take into account their cost schemes and how the implementation of these innovative strategies affects them. Stefan Moller, CEO, Klar, explains that competitiveness also lies in the cost structure and its comparability with other players within the sector. Moller highlights the importance of understanding that, as part of the digital DNA of fintechs and SOFIPOS, their cost structure should be seen as that of digital or software companies, rather than traditional financial entities. This implies that digital financial services companies have a great advantage, since when considered as software companies, costs per user tend to be minimal. Although this makes the sector competitive, Moller recognizes that traditional financial companies still have the capacity to continue developing their presence in digital services, anticipating greater competition on their part.

While the fintech revolution presents immense opportunities, it also brings regulatory challenges that impact the transformation of the Mexican financial landscape. Experts agree that regulation is a large part of the success of financial institutions, whether traditional or digital. They anticipate that users will continue to be more demanding in terms of security and data protection, and will continue to be demanding in terms of intuitiveness and ease of use of the services. While the costs of opening and maintaining clients remain competitive for fitechs, banking entities have a great capacity to catch up in this competitive environment. Furthermore, a crucial issue regarding customer expectations will be the expectation of remuneration for keeping money in accounts, a gamechanger for the industry that increases competitiveness even more.