How Can Fintechs Unlock Maximum Value?

Mexico's fintech industry has been growing rapidly, attracting attention and investment from domestic and international investors. However, with so many new players entering the market, it can be challenging for startups to stand out and differentiate themselves from competitors.

Fintech is a relatively new industry in Mexico and Latin America but there has been extensive efforts to build the necessary infrastructure for this sector to flourish. “Building the infrastructure to launch financial products like these requires a significant capital investment. In Latin America, we have had to build everything from scratch,” says Antonia Rojas, Investor, VC LATAM.

Eric Pérez-Grovas, Co-Founder and General Partner of Wollef, explains that while the primary challenge in the past was determining to whom credit should not be extended, nowadays it is far more crucial to identify the ideal candidates for financing. “This is where we have found great opportunities by collaborating with fintechs that have the ability to identify ideal candidates using alternative sources of information and assessment methods,” says Pérez-Grovas.

One of the critical challenges that fintech startups face in Mexico is the lack of regulatory clarity and certainty. Fintech companies often operate in a regulatory gray area, which generates uncertainty and limits their ability to attract customers and investors. To succeed in this market, fintech startups must navigate the complex regulatory landscape and ensure compliance with applicable laws and regulations. This requires a deep understanding of the regulatory environment and a proactive approach to managing regulatory risks.

Another challenge is building brand awareness and customer loyalty in a crowded market. To differentiate from competitors, fintech startups must develop effective marketing strategies and build strong customer relationships. This can be accomplished through targeted advertising and promotions, as well as through the development of innovative products and services that meet the needs of their target customers.

Fintechs effectively address the current needs of clients, leveraging the extensive advancements of the digital world. People increasingly demand more remote and digital tools because ultimately it is how they navigate a significant part of their lives. “Fintech is the application of technology in the financial sector, providing more efficient and customer-centric services that align with what clients are seeking. This has emerged because in many countries, the financial sector has focused more on the banks' business rather than understanding customer needs,” says Diego Serebrisky, Co-Founder and Managing Partner, Dalus Capital.

Partnerships and collaborations can also play a critical role in helping fintech startups to scale and reach new customers. By partnering with established financial institutions, fintech startups can leverage their existing customer base and infrastructure to expand their reach and accelerate growth. Startups can also benefit from partnerships with other companies, enabling them to offer complementary products and services and create a more seamless customer experience.

Joaquín Abal, Principal, DILA Capital, identifies collaboration as key in light of the wide market that Mexico represents for fintechs. “Defining fintech companies in Mexico homogeneously is difficult. They all offer different products and serve different markets. However, a common challenge is collaboration and we are seeing many successful cases in Mexico. There is still much to be done and the importance of building partnerships is often underestimated,” says Abal.

Technology can be a powerful tool for streamlining the credit application process and reducing entry barriers while maintaining appropriate risk management and underwriting levels. Fintech startups can leverage advanced analytics and machine learning algorithms to automate the credit underwriting process, enabling faster and more accurate loan decisions. This can help fintech startups to attract and retain customers and build a competitive advantage in the market. Pérez-Grovas underlines that a robust technological infrastructure to assess credit has been paramount in choosing the right startups to invest in.

“The economic environment has greatly shaped the business models we see in fintech today. When we think of fintech, the first thing that comes to mind is a card but the models go beyond that and are closer to the user. We are changing a paradigm,” says Fabrice Serfati, Managing Director and General Partner, IGNIA Partners.

Experts highlight a paradigm shift in financial tools driven by technology. Rojas emphasizes that the focus has mainly been on digitizing existing solutions. “As we move towards a more integrated world, we increasingly find ourselves using financial products without even realizing it,” she says.

While startups face many challenges in Mexico, they will also find significant opportunities once they learn to navigate the regulatory landscape, differentiate themselves from competitors and build strong partnerships and customer relationships. By leveraging technology and innovation, fintech startups can transform the financial services industry and drive economic growth and development in Mexico.

Another main challenge brought up by Pérez-Grovas is the growing need for specialized talent: “In any company we invest in, the most important challenge is talent. The fintechs we work with already have in mind who they will incorporate into their teams even before a problem arises that requires it. Finding this talent is important.”

At their core, fintechs need to generate trust for the sector to find the balance it needs. “Access to liquidity remains a central challenge, especially for those providing credit. Fintechs are not traditional banks and must prove their liquidity in the medium and short term,” says Serebrisky. Experts concur that transparency and trust are key to navigate the ups and downs in demand.