Chito Padilla
CEO & Co-Founder
Expert Contributor

Inflation's Impact on the Future of Fintech

By Chito Padilla | Tue, 07/05/2022 - 11:00

Inflation is the increase in prices of products and services caused by an imbalance between supply and demand. It is an economic phenomenon that the pandemic made more evident for the average consumer.

There are multiple fronts from which inflation hits our wallets: whether it is the lack of components for the tech industry that lead to elevated prices (which is terrible in the home office era), banks increasing interest rates charged to their clients resulting in the loss of purchasing power, and everything in between.

Every country in the world is seeing several effects from inflation, and in the case of Mexico, one of the leading indicators is the supermarket experience.

Fintonic explored and analyzed how Mexicans had spent their money throughout these challenging years and found some interesting data.

For starters, January 2021 was the month with the lowest recent inflation (3.54 percent). It was also the month with the highest spending rate at popular supermarket chains like Walmart, Chedraui, and Soriana.

This means that January 2021, almost a year after COVID was declared a pandemic, was the last time that Mexicans felt confident with their money. This is evident in how the rate of expenses incurred continues to fall, at least at the time of this writing.

In that regard, March 2022, when inflation was at the 7.45 percent mark, is the period when Mexicans spent the least at supermarket chains. That is understandable because let's not forget an international armed conflict began in February and kept the world in suspense while inflation triggered new levels of uncertainty.  

Between January 2021 and March 2022, there is a -10.71 percent difference in expenses incurred, and the projection is that inflation will keep it that way, at least during the rest of this year (the most optimistic scenario indicates that inflation will finally decrease throughout 2023, but nothing is certain).

The Bank of Mexico says that inflation will begin to decrease in the second half of 2022 and that, during the first quarter of 2024, it will reach levels close to its 3% objective. But then again, those are just estimates.

Because of this, the recommendation is to manage our budgets smartly. Some experts say that the best thing to do is to keep our distance from specific industries, like clothing, tech, automotive and real estate, because they are the ones where money is less valuable when inflation is around, but there are more to consider.

Inflation cycles like the one we are experiencing are typical in all economies and do not indicate an apocalypse: several factors economic, social, and political have generated a complex panorama; however, this is not the end. It is up to us, supported by technology, to defend our money in this inflationary cycle.

Some inflationary effects are already being seen and we have yet to feel the effects of others on our pockets: the prices of the most consumed products are the ones that will rise the most. Also, money begins to lose its value, which means that with the money you have, you can buy fewer things than before. On the other hand, the reference rate will affect the interest that banks charge for the loans they grant to their clients. Finally, as a consequence of requiring more money to acquire products and services, people's savings and investment capacity will be reduced. So, it is wise to take care of our money now.

Fintonic and other fintechs today can be the solution for many Mexicans to face this economic phenomenon in the best way. In addition to following specific guidelines that help with savings, tracking their income and expenses through fintech applications will allow more Mexicans to be more aware of their money flow and detect opportunities to manage it better.

Mexico has stood out as an attractive territory for developing companies that offer financial products and services through technological tools. According to an analysis by Deloitte, two reasons for this are that, in our country, cash is still " king" and there are low rates of financial inclusion.

In addition, Mexico has a high teledensity (reach of service concerning the number of inhabitants), with 88.2 million Mexicans using cellphones and, of those, more than 90 percent having smartphones to support financial operations, which means that fintech companies like Fintonic can reach more people and impact them positively.

There is a great window of opportunity for fintech given the context of the country and the current global economic context that includes inflation. What panorama awaits players in the sector in the coming months? Will we continue to see growth? What challenges will fintech face?

Today more than ever, we must keep in mind a mantra among entrepreneurs: when the economy stagnates, that is when entrepreneurs have an opportunity, more than with public policies or stimuli, due to their countercyclical effect. Far from being a prediction of stagnation, this moment is an opportunity for fintech companies in the region.

Inflation in Latin America and globally is an ideal factor in creating solutions and taking advantage of the environment to start companies or grow existing companies and high-potential fintech.

Photo by:   Chito Padilla