Tech-Driven Finance: Navigating Transformation in Latin America

In Mexico, less than half of the country's population has access to a digital account, hindering the financial inclusion efforts that industry players are striving to promote, according to Myriam Cosío, Chief External Affairs Officer, Clip, speaking at the Mexico Business Forum 2024. Despite advancements in technology such as AI, APIs, and open finance, Mexico still lags in the penetration of digital payments.

Banks are increasingly leveraging artificial intelligence (AI) and cloud technologies across various sectors to optimize services, introduce innovative offerings, and enhance customer experiences, as reported by Deloitte. The abundance of structured and unstructured data sources empowers banks to deliver tailored services and insights by gaining a comprehensive understanding of customer interactions.

A decade ago, out of 4.5 million formal businesses and 7 million informal ones, only half a million accepted digital payments. However, due to technological advancements and regulatory reforms since 2014, the number has surged to 5 million, with 55% facilitated by aggregators. While the penetration rate of digital payments in the country stands at 25%, it lags behind the 40-50% seen in other Latin American countries, according to Clip. This shift towards digital payments signifies a transformative focus on user-centric approaches within the industry, reducing reliance on cash.

Technology serves as the transformative engine in finance, particularly open finance and open banking, which redefine how institutions communicate with customers and enable hyper-personalization of products, according to Alejandro Servín, Head of Open Banking, BBVA Mexico. 

Thanks to open finance, coupled with AI, data, and usage history can be leveraged to offer superior products, expedite access to credit, enhance financial management, and empower users with their finances. "For SMEs, there are a lot of advantages, as information can be extracted from sources like IMSS or other bank accounts, not necessarily those to which the loan was requested. With a risk model, credit can be granted, potentially life-changing for entrepreneurs and the country as a whole”, added Servín. 

However, consumer trust still hinders the adoption of new technologies in finance. "Security and culture are the primary reasons," says Jorge Cabrera, Director of Individuals (B2C Banking & Payments), Mercado Pago. "It is essential to demonstrate and build them through real-life cases with technology and customer service. In instances where individuals contact us due to fraud, there is still significant investment required in technology and customer care within the industry."

AI applications are revolutionizing customer interactions in the financial industry by enabling algorithms to detect transactional patterns and anomalies, facilitating proactive fraud prevention, risk management, targeted marketing, credit assessment, and lending decisions. AI has the potential to enhance Mexico’s financial sector, as evidenced by the US$595 million in investments attracted between 2022 and 2023, with further growth anticipated. But Ana Cristina Gadala-Maria, Principal, QED Investors, says that financial institutions must have a robust data structure to ensure effective data acquisition and governance, guaranteeing the quality of AI generation.

For users to trust these technologies enough to use them and provide their data and access to their financial information, full transparency is paramount. "The importance of empowering customers to feel in control of their data is what will allow users to engage," says Ana Carolina Blanco, Deputy Director of Data and Information, BanBajío. She noted that regulators play a crucial role in structuring security measures to facilitate this trust-building process. By ensuring regulatory support and customer empowerment, the potential for establishing robust trust in data usage practices will fulfill its potential.

While Mexico already has data protection regulations predating the Fintech Law established in 2018, additional specificity regarding APIs is necessary. The current law primarily addresses ATMs in Mexico's financial sector, limiting the offering of tailored products that meet consumer needs. However,experts agree risks associated with data sharing must be carefully managed, with individuals maintaining control over their data through transparent authorization processes.