Fintechs and Banks Compete with High-Yield Savings Amid Rate Cuts

Fintech companies and banks are competing to attract and retain customers by offering high-yield rates on savings accounts. However, as Mexico’s Central Bank (Banxico) lowers its interest rates, these companies might struggle to maintain these yields and keep their customers.

Last year, Ualá increased its account yield from 12% to 15%, aligning with industry trends set by competitors like Nu and Stori. “We want to prevent our customers from having to move their money around within the app or keep their money frozen for some time,” said Andrés Rodríguez Ledermann, General Director, Ualá Mexico. New user acquisition increased by 84% during the week of Nov. 14-20, 2023, compared to the week of Oct. 14-20, 2023, which was the launch period. The digital bank can offer such a rate due to its low operational costs, which are between 80% and 90% lower than those of traditional financial institutions, according to Ualá.

The increased yield applies to all customers with a balance in their accounts without term conditions, aiming to enhance the financial experience for both first-time users and existing customers. Customer funds at Ualá are protected by the Institute for the Protection of Bank Savings (IPAB), with insurance coverage of approximately MX$3 million.

“Currently, the fintech market is opening up in the banking sector, and whenever a new market begins, competition is tough,” says a source to MBN. “In this case, given the conditions and the limited number of consumers–mainly young people–institutions will make risky decisions in order to capture the largest number of customers.”

Stori in partnership with Savvi Financieros, and Ualá recently reaffirmed their commitment to maintaining a 15% nominal annual total return rate (GAT Nominal) on their savings accounts for the coming months as a strategy to “invest and return to the customer the best possible rate,” said Joaquín Domínguez, CCO, Ualá, in an interview with MBN.

This is despite changes in Mexico's central bank policies. Following Banxico’s Mar. 22 announcement adjusting the Interbank Equilibrium Interest Rate (TIIE) to 11%, Stori and Ualá chose to uphold their 15% nominal yield. In contrast, Nu Mexico lowered its rate to 14.75% in line with Banxico’s interest rate adjustment. Despite the competitive rates, only 7% of economically active individuals in Mexico possess an investment account.

“With our banking license, we possess the resilience to navigate through any market fluctuations, and we are prepared to adjust accordingly to any shifts that may occur,” says Domínguez. “Mexico has shown effective control over inflation and has taken a conservative approach to lowering interest rates.” He anticipates that authorities will continue with this cautious approach to interest rate reduction, especially considering the evident decline in inflation.

“It is a simple and easy investment alternative,” noted Domínguez.  “From there clients can build a whole investment path and better their financial education, since part of our mission is to facilitate financial inclusion in Mexico and Latin America.”  Only 8.2% of Mexican users making digital payments fall within the 55 to 64 age bracket, according to Ve Por Mas. According to the latest Nacional Financial Inclusion Survey (ENIF), more than 21 million adults carried out transactions, financial transactions, and queries on their accounts through a mobile application or the financial institution's website. Of those, 20.4 million used a mobile application and 1.9 million adults used the Internet for their financial transactions.

In Ualá’s Argentinian market, there are more investment strategies for clients. It has recently added options for investing in bonds, mutual funds, MEP Dollar, Cedears, and stocks through Ualintec Capital, as well as the possibility of investing in fixed-term deposits with Uilo, an Argentinian digital bank. These options are not available in Mexico yet, but according to Domínguez, they are looking for strategies to introduce these options in the country. However, he did not specify a timeline but aims to “bring finances to the 21st century to offer simple investment alternatives to Ualá’s clients.”