Fitch: FinTech Presents Opportunities & Challenges for Mexico
Mexico , October, 12 2016 -
Financial Technology companies (FinTech) are becoming important players in the Mexican financial system and could support financial inclusion, says Fitch Ratings. As a Latin American market with significant growth opportunities for FinTech, these companies could help increase the country's financial intermediation levels, which are among the lowest in the region.
According to Inegi's (National Institute of Statistics and Geography) latest report, approximately 50% of Mexico's population over six years old has internet access. Additionally, 77.7 million people in the country use a mobile phone, two-thirds of which are smartphones. In Fitch's view, the need for more agile and simpler financial services, the described growing usage of mobile devices and the shift toward technological and mobile financial services could underpin growth in this segment in the foreseeable future.
According to Finnovista's FinTech Radar, Mexico is the largest Latin American FinTech market with approximately 158 startups. Most of these focus in payments and remittances, lending, enterprise and personal financial management and crowdfunding, among other segments. Underserved retail segments (individuals and SMEs) are the main focus of these new companies.
Mexico's National Policy for financial inclusion supports the use of technology to reach dispersed locations and the unbanked segments of the population. The local bank regulator has also been active in supporting the development of technology in financial services. One of the most recent changes to the banking law (Circular Unica de Bancos), published in September 2016, focuses on the promotion of loan growth and product disbursement through electronic means. In Fitch's view, these changes enhance the regulatory framework for massive movable money and will allow banks to continue expanding their financial services and to develop strategies in order to be prepared to face the future growing competition from FinTech companies.
A regulation tailored specifically to FinTech companies is still pending, but the government has announced it is underway. Fitch believes regulators will face the challenge of mitigating risks such as frauds, identity theft and money laundering, without discouraging financial inclusion, innovation and competition. Regulation could enhance transparency and security to lenders and borrowers.
Some non-bank financial institutions (NBFIs) are investing through equity participation in FinTech startups or by developing a separate FinTech business line. Many Mexican banks are developing technological tools, mobile apps, digital branches and some other electronic products to enhance customer experience and satisfaction in order to strengthen their competitive position. Some banks are adopting collaboration models with FinTech firms to maintain their market positioning and expand their businesses more efficiently, promoting Fintech labs and innovation or even acquiring some equity interests in startups.
Some Fitch rated NBFIs that have started placing bets on Fintech startups include: Credito Real S.A.B. de C.V., Sofom E.R. (Credito Real), Crediclub SA. de C.V., SFP (Crediclub), Corporativo GBM, S.A. de C.V. (Corporativo GBM) and Vector Casa de Bolsa S.A. de C.V. (Vector). Rated banks collaborating with Fintech labs and/or innovation programs include: BBVA Bancomer S.A. (Bancomer), Banregio Grupo Financiero, S.A.B. de C.V.(Banregio GF), Bankaool S.A. (Bankaooland Gentera S.A.B. de C.V. (Gentera). Gentera also has equity interests in a FinTech firm.
In Fitch's opinion, investment in technology is positive to the extent that it is accompanied by a robust risk control framework to prevent frauds and operational risks. It is also important that use of these technologies does not translate into a general loosening of underwriting standards that may put pressure on financial institutions' asset quality.
Mexican financial entities and authorities are taking important and positive steps toward the oversight of electronic transactions. However, there is still space to build a solid and complete regulatory framework for Fintech firms and to reach the ample unbanked segment, which will need to turn its payment habits to electronic or mobile channels. Fitch believes this cultural change may take some time.