Will Digital Banking Finally Break Through?

Q: How could COVID-19 change the way users relate to banking?

A: We are already seeing how people's habits are changing due to COVID-19. In Chile, we have just carried out a study where we found that people reduced cash withdrawals by up to 52 percent and increased the use of credit and digital cards by than 40 percent. People are being forced to use digital tools to avoid the use of cash.

There will always be a group of people who use cash in the informal market and other activities that in Latin America are difficult to eradicate. However, there is a clear trend toward using digital products and, as an immediate consequence, companies are concentrating their efforts in this area.

Q: Have you seen an increase in loans due to the COVID-19 effect?

A: Before the health crisis reached Mexico, there were many financial entities offering loans. Suddenly, with the COVID-19 effect, they stopped. This is natural because people no longer have the economic stability they once had and the unemployment rate is increasing. The market for loans should grow but the reality is that it has contracted. In Mexico, we have an alliance with Banco Sabadell to join the bank card market. We hope that by 3Q20 or at the latest 4Q20, we will begin our beta testing phase.

Q: How will Fintonic capture customers from the base of the economic pyramid?

A: At Fintonic, we continuously analyze our users anonymously and we have found that, although it is true that people who use digital options are mostly people who are already in the banking system, there is an important number of users who do not even have bank cards. In Mexico, we created Banco Monedero, a tool for cash management. This means that a user without bank accounts can use our app to manage their cash. We have thousands of these clients.

On the other hand, to reach new unbanked users, we continuously carry out marketing campaigns to invite new users. We have the opportunity to reach any type of user because Fintonic is and always will be a free tool for managing personal finances.

Q:  Is the Fintech Law made for large players or does it create opportunities for the generation of new companies?

A: Like all fintech laws, it was born with a spirit of including all players in the market. However, as it progressed, it became something much smaller, which does not include protection for entrepreneurship at neobanks. There is a need for regulation that encourages and allows banks as a service (BaaS) business models. Without these, it is complex for neobanks to exist and without neobanks, the entry of new competitors is not encouraged. This allows big players to compete against each other and impose commissions and interest rates that should not exist.

In 1Q20, the banks that control 75 percent of the assets in the Mexican financial system achieved growth rates of up to 16 percent from commissions. In Mexico, interest rates are very high and I would, therefore, be delighted if players like Fintonic joined the market to incentivize healthier competition, which only benefits users.

Q: Has Fintonic held conversations with the authorities to discuss the main regulatory obstacles in Mexico for the development of fintech banking? 

A: Through the Fintech Mexico Association, we have made Fintonic's proposal known. We believe that the best way to approach government entities is through an association like this, which brings together more than 70 companies that offer financial services based on the use of new technologies.

Q: What is Fintonic’s differentiating value in terms of data security?

A: We are a regulated company in Spain. This implies that we have to meet the security norms imposed by European banks. Our data encryption standards make our users feel confident that their information is fully protected. At Fintonic, we also do not transact with users' bank accounts since our customers only give read permissions on their transactions to categorize them and create reports with the sole purpose of improving their financial health.

Q: Where does Fintonic’s main income come from?

A: Fintonic's income comes mainly from financing. The business model for which we have made ourselves known and have won the award for being the best financial app in the world is Personal Financial Management (PFM). People request loans through our app and Fintonic, through its own financial company, provides those loans. We also have more than 15 alliances with companies in Spain, such as Santander, BBVA and other financial entities like Creditea. In Mexico, we already have five partners to whom we assign credit applications according to the user's profile and the risk appetite of each partner. This is a win-win process because Fintonic seeks the best value proposition for its clients and in return, we receive a cost per acquisition (CPA) designation from the partner for having managed this alliance.

Globally, we have defined the goal of being a profitable company. However, the crisis generated by COVID-19 has definitely impacted these objectives. This has now become a medium to long-term goal.

Q: Besides COVID-19, what are the biggest obstacles to achieving this goal?

A: Despite the fact that Mexico is a very competitive market, the reality is that competition has not grown adequately. Traditional banking in Mexico has failed many times and has scared away many people who could have been banked. Likewise, many people who have entered the traditional banking system have ended up overindebted. In this scenario, the biggest challenge is to come up with a transparent proposal, far from traditional banking, that gives users access. 

Since our inception, we have been characterized by a transparent proposal. At Fintonic, we alert our users when they are charged a commission they were not aware of. Having said that, the biggest challenge is reaching the market with a completely transparent and commission-free product. We know that with good technology, good automation and customer-oriented service, we can play for people in Mexico. Brands like Fintonic also have the power to gradually remove people's fear by being a transparent platform.

Fintonic is an app that was launched in 2012 in Spain to manage the personal finances of its users regardless of which banking services they use. One of the company's objectives is to become a fintech bank capable of providing a transparent and commission-free service to users