Nine Reasons Why Fintech Is so Hot in Mexico

The pandemic helped accelerate the adoption ⁠— and acceptance ⁠— of fintech as shoppers went online in droves and fintechs matched the opportunity with services and products. In Latin America, Mexico is a fintech leader as the first country in the region to implement a fintech law and regulate the industry.

There is no doubt the industry is flourishing. Here are nine reasons why:

1. An innovative regulatory framework

Mexico is one of the first countries in the world with regulation governing electronic money, crowdfunding and digital assets and mandating open banking. This regulatory certainty should trigger investment and level the playing field to attract competition. So far, it is working, with dozens of companies already operating in new ways which were not possible a few years ago.

2. A venture capital boom

Mexico is now one of the Top 22 countries with the most access to venture capital per capita[1]. Over US$3.8 billion were invested in Mexican startups in 2021 alone, up from an estimated US$1.2 billion the previous year[2]. Perhaps as much as 60% went into fintech. Incode and four others raised over US$200 million each[3].

3. Location, location, location

In line with the above, more and more capital is flowing into Mexico from the US (primarily) but also from Europe and Asia. Mexico City is on US Central time. Flying from San Francisco to Mexico City takes 4.5 hours, under six from New York City, 9.5 from Sao Paulo and under 12 hours from London… you get the idea.

Furthermore, the Mexican market is closely linked with the US market, with over 10 million Mexican citizens living in the US[4] and over 37 million Americans identifying as Mexican-American[5]. For many entrepreneurs, success on one side of the border creates network effects on the other side.

4. A large market of smartphone users…

Mexico has a large population ⁠— the 10th largest in the world. With a population of 130 million, largely urban (80 percent[6]) and young (29 years old on average[7]), it ranks seventh in the world for the number of smartphone users with 70.14 million (Japan ranks sixth with 80 million[8] and Germany ranks eighth, with 65.24 million).

5. …with plenty of room for growth

With roughly half of the population still lacking a bank account[9], there is plenty of room for growth, which need not come at the expense of incumbents.

6. Complacent incumbents

That said, I do expect digital players to increasingly wrest market share away from traditional players (gradually, and then suddenly, as they say). In Brazil, the vast majority of new accounts are opened with digital players. Mexico will likely follow this trend. Those who refuse to digitize will start running out of new customers. And while some banks in Mexico have upped their game through efforts in innovation and digital transformation, most have lagged behind. Customers will eventually vote with their feet and move their money to where they get better service and more value.

7. High margins

That complacency comes from an entrenched competitive position that is now being eroded by innovation. Compared to the US, where over 4,000 banks compete[10], Mexico has less than 50 banks, with most of the market concentrated in the Top 7. The lack of competition makes banking in Mexico wildly profitable, with over 15.5 percent[11] return on equity (versus about 10 percent in the US and Asia and about 5 percent in Europe[12]). As Jeff Bezos might put it, “your margin is my opportunity”.

8. Talent

Mexico’s best and brightest would often pursue a career in investment banking, consulting or move abroad. The influx of investment and the disruption in the market has made fintech the top choice for talented professionals looking to transform an industry and improve the lives of millions.

9. The pandemic

These forces have been catalyzed by the pandemic, as much commerce has shifted from offline to online. Financial services are no exception, with reduced traffic to bank branches and increased use of apps, as well as a higher proportion of spend going to cards instead of cash.

At Revolut, we are investing in Mexico and looking to compete to earn the trust of users in the country. We are proud to play our part in this revolution.

[1] https://news.crunchbase.com/news/countries-most-startup-investment/

[2] https://wortev.capital/venture-capital-cual-es-el-panorama-para-los-inversionistas-en-mexico/

[3] https://www.bloomberglinea.com/2021/12/23/2021-mexicos-year-of-unicorns-and-a-startup-investment-boom/

[4] https://www.migrationpolicy.org/article/mexican-immigrants-united-states-2019

[5] https://en.wikipedia.org/wiki/Mexican_Americans

[6] https://www.statista.com/statistics/275432/urbanization-in-mexico/

[7] https://www.worldometers.info/world-population/mexico-population/#:~:text=The%20median%20age%20in%20Mexico%20is%2029.2%20years.

[8] https://newzoo.com/insights/rankings/top-countries-by-smartphone-penetration-and-users/

[9]https://www.eleconomista.com.mx/sectorfinanciero/Pandemia-amplio-inclusion-financiera-en-AL-20210728-0111.html

[10] https://www.statista.com/statistics/184536/number-of-fdic-insured-us-commercial-bank-institutions/#:~:text=In%202020%2C%20there%20were%204%2C377,insured%20banks%20in%20the%20country.

[11] https://www.statista.com/statistics/1114551/banks-return-on-equity-mexico/

[12] https://www.ft.com/content/40961d14-f493-422c-9eb6-4d9949716301