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The Race to Modernize Banking Applications

By Nicholas Grassi - Finerio Connect
Co-CEO and Co-Founder


By Nick Grassi | COO and Co-Founder - Mon, 12/19/2022 - 12:00

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In Mexico, the number of banking app users doubled from 15 to 30 million between 2018 and 2020, according to reports from the Mexican Banking Association. According to the report Fintech App Marketing Insights: LATAM, 2021 edition, by AppsFlyers, Mexico stood out as the main potential market in Latin America, occupying the seventh position globally in the number of finance app installations between the first quarter of 2019 to the same period of 2021.

The main impetus for  this increase was the COVID-19 pandemic; in the midst of the lockdown, consumers were forced to switch from bank branches to digital channels that would allow them to easily access payments, loans, investments and other financial services, thus driving a high demand for financial apps. This digitization was not only for the population considered as digital natives, but also for those who did not have access to internet or financial services. 

In 2021, a Statista report estimated that only 65 percent of the population in Mexico had access to the internet, meaning that almost 4 out of10 Mexicans are outside the online banking offer. However, cellphone penetration has grown rapidly in the country and by the end of 2020, it was estimated that 9 out of 10 Mexicans had a smartphone, although less than 20 percent used mobile banking. 

Therefore, financial digitalization offers an opportunity to include in the financial system a sector of the population that has so far been unbanked, but this possibility depends, first and foremost, on reducing the digital gap.

Digitizing to  Obtain More Customers

Although at the beginning, this path to digitalization was not an initiative of the banking sector, but the product of an external threat  — the pandemic — statistics show us that the banking and fintech sector in Mexico are advancing in a tough race to attract more customers to their business, which leads the financial sector to worry about the modernization of their apps, and to generate a good user experience that is reflected in the retention of customers. 

In Mexico, we already have clear examples that show the development of apps and mobile banking is a good bet. For example, the super-app Baz, which belongs to Banco Azteca, recently surpassed more than 10 million users. It allows small businesses to accept digital payments and offers its customers the payment of services, making their lives easier.

In another instance, we have the incursion of OXXO into the world of the financial technology industry, when in October of this year it became the 41st fintech in Mexico to receive authorization from the CNBV and already has more than 4 million users. Spin by OXXO is the company’s new digital banking format that offers services that can be managed from the app, including  bank transfers, deposits, withdrawals at OXXO stores and more. In addition, the Spin by OXXO card has a loyalty program, where you can redeem points for products in OXXO stores for free.

According to Statista, with the increased use of information technology in the area of finance, the use of banking services has been increasingly concentrated on digital platforms. In Mexico, the number of internet banking users has been steadily increasing in recent years. Between 2010 and 2021, the number of people making online transfers, according to data from the last quarter of each year, increased by almost 56 million users, which represents a large market for banks to attract with better services. 

On the other hand, the same source reveals that the value of bank transfers through web pages from 2010 to 2021, has grown from approximately US$1.5 billion to US$4.4 billion . Therefore, the digitization of payment systems has meant new opportunities and challenges for the financial system and particularly for users. Forecasts for the value of digital payments in Mexico are close to US$59 billion by 2026. While digital commerce is the segment with the highest transaction value, the value of mobile payments at the point of sale is expected to grow faster.

Good User Experience Is Key 

McKinsey & Company's Next in Personalization 2021 report reveals that companies that excel at demonstrating customer intimacy generate faster rates of revenue growth than their peers. The closer organizations get to the consumer, the greater the gains. In the race to digitize banks, there is an essential factor: the user experience that banking and payment applications offer to the end user. 

For example, there are very few banking applications that offer their customers control over their personal finances, generate control of expenses by category, or allow them to access a range of savings and investment products according to their financial behavior, not to mention the limited access to payments and services outside the banking bubble. 

According to the Means of Payment Trends Report prepared by Minsait Payments in 2020, the population that uses two or more banks represents 55.3 percent; however, only 36.9 percent of the country's population is banked and the country has the highest dynamism in the banking sector in the entire Latin American region, since customers are constantly changing financial institutions. 

With the previous number in mind, what are banks doing to counteract this flow of customers and their retention? Definitely, the bet should be focused on the user experience flow, which  is where neobanks are making the difference and creating the path to follow, because they have a customer-friendly interface that is intuitive and, above all, fast, where the user can access a credit card product in an online process that takes less than 10 minutes for example. In the process, they can choose their maximum credit amount and the cut-off dates of their card. As if that were not enough, once the process is finished they can start using their virtual card. In short, neobanks offer a process through their app that is fast, simple, intuitive and that each customer can customize according to their needs. 

The case of Dinn by Actinver is a good example of a good investment bet on how a neobank can compete by being an excellent 100 percent digital platform that offers multiple solutions, such as a bank account, a debit card and investment services to its customers, all through an app with an excellent user experience. We can also mention Hey Banco, which offers a full range of financial products and services, such as loans, insurance, investments, stocks and others through a completely renewed app focused on giving its customers the best experience.

It is important to mention that with the growth of open banking/open finance in Latin America and the use of data analytics, such as AI and APIs, financial services are increasingly focused on hyper-personalization and it is a focus of attention that the banking sector should prioritize, since with all the data that a bank has from its users, it can create financial services that are increasingly tailored to the needs of its customers. 

It is here where the use cases of open banking come to the fore, such as the use of APIs that allow customers to connect banking information from another institution, so that the bank can have information on the financial products offered by the competition and offer better benefits to that customer, such as better loan rates, an investment product with lower risk or better returns, etc. All of the above is undoubtedly the next step we will be able to take by making use of open banking in Mexico to improve the offer of financial services for the benefit of all Mexicans. 

Photo by:   Nicholas Grassi

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