Fintech consolidates in Mexico by offering solutions to the crisis

With an average annual growth rate of 23%, the companies in the financial technology sector, known as fintech, are consolidating their position in Mexico by offering solutions to the economic crisis caused by the SARS-CoV-2 coronavirus.

Mexico has positioned itself alongside Brazil as the technological centre or hub for fintech industry in Latin America.
Mexico has positioned itself alongside Brazil as the technological centre or hub for fintech industry in Latin America.

Sample of the thrust are the 441 emerging companies, also called startups, of the financial technology sector in Mexico, an increase of 14% over the previous year, according to Finnovista's Fintech Radar and the Inter-American Development Bank).

Proof of the adaptation to the crisis and the attractiveness of Mexico is the case of Matías Tini, co-founder of Apperto, an Argentine application that digitizes services, businesses, and transactions in cities of less than 500,000 people, where 50% of the Latin American population lives.

The annual value of operations in the sector is 68,409 million pesos (2,889 million dollars) with 4.7 million users.

After establishing itself in 15 cities in Argentina over the past two years, Apperto now operates in San Juan del Río, in the central Mexican state of Querétaro, with the prospect of expanding in the short term to the rest of the Bajío region.

Another attraction of Mexico is the Financial Technology Law or Fintech Law, enacted in March 2018 and in force since September 2019, which establishes rules for those who participate in electronic payment funds, virtual assets and collective financing.

Sample of the thrust are the 441 emerging companies, also called startups, of the financial technology sector in Mexico, an increase of 14% over the previous year, according to Finnovista's Fintech Radar and the Inter-American Development Bank).

Proof of the adaptation to the crisis and the attractiveness of Mexico is the case of Matías Tini, co-founder of Apperto, an Argentine application that digitizes services, businesses, and transactions in cities of less than 500,000 people, where 50% of the Latin American population lives.

The annual value of operations in the sector is 68,409 million pesos (2,889 million dollars) with 4.7 million users.

After establishing itself in 15 cities in Argentina over the past two years, Apperto now operates in San Juan del Río, in the central Mexican state of Querétaro, with the prospect of expanding in the short term to the rest of the Bajío region.

Another attraction of Mexico is the Financial Technology Law or Fintech Law, enacted in March 2018 and in force since September 2019, which establishes rules for those who participate in electronic payment funds, virtual assets and collective financing.

Fintech leads banks in the global mobile app market

According to the report, the size of the user base belonging to the top 10 fintech apps (measured in active monthly users) increased by 20%, while banking applications rose 15%.

Globally, new apps and fintechs dominated the list of "successful financial applications", which registered the largest annual increase in downloads.

Some apps that saw impressive growth were Postbank BestSign, a security application from German bank Postbank that grew 9,300% in downloads in 2019 since its launch in December 2018; and Tez (Google Pay in India) which gained 36 million new downloads and accumulated 50% year-on-year growth in its download base. Mint and Venmo experienced a 20% increase in active monthly users, 5% more than the main banking applications, and of course, Nubank itself.

Internationally, people used mobile finance applications (including fintech, banking, and wallets) more than a trillion times in 2019, twice as many as in 2017. Session growth rates range from 35% to almost 4 times more.

"The financial services industry has evolved significantly, fintechs are increasingly sophisticated competitors, banks are also creating spaces for internal innovation and opening their own fintechs, we are even seeing some alliances between banking and fintechs. Success does not depend on whether you are a fintech or a bank, it is achieved by developing services that meet people's needs in a simple and fun way," said Karl Berta, Liftoff's head of Latin America.

Five key aspects to understand the fintech law in Mexico

The Fintech Law in Mexico was created to accompany the innovation process that generated the application of disruptive technologies and the development of products and services more focused on the public.

This September 25 is the deadline for financial technology companies (fintech) operating and operating in Mexico to be registered with the National Banking and Securities Commission (CNBV), in order to have the powers, guarantees, and regularization of a financial institution, similar to traditional banking.

The Law to Regulate Financial Technology Institutions (Fintech Law) was created to accompany the innovation process that generated the application of disruptive technologies and the development of products and services more focused on the public, in addition to promoting more efficient, economical and attractive processes in the industry.

One of the most positive aspects of having legislation for new technology companies is that it emphasizes the transparency and security of the entire Mexican financial system, but also that the user can directly supervise, denounce and demand better digital financial services.

Mexico is the leading market in Latin America, with more than 394 companies offering financial services with the help of technology, according to Fintech Radars, developed by Finnovista. It is followed by Brazil, with 380; and Colombia, with more than 180.

The Fintech Law had its antecedent in 2018, when President Peña Nieto enacted the first law to regulate Financial Technology Institutions, with the idea of regulating the organization, operation and functioning of these companies to provide protection to users who request their services by establishing entry requirements, to operate, for consumer protection, as well as supervisory parameters.

A few months ago, the National Banking and Securities Commission (CNBV) presented the secondary laws of the Fintech Law described above, in order that, starting in September, interested companies present their application to demonstrate that they have the characteristics to continue operating; the deadline for requesting authorization to operate as a Financial Technology Institution is September 25, 2019.

The purpose of the Fintech Law is to provide confidence and certainty to users of financial services. Among other things, it will supervise that all Fintech transactions, whether through apps, websites, or social networks, are made in local currency and/or digital currencies authorized by the Bank of Mexico. On the other hand, these companies will be required to analyze their risk profile or credit bureau before granting credit to users, to avoid over-indebtedness.

Technological financial institutions see a potential in the Mexican market, due to factors such as the regulatory framework and low banking penetration, especially in small and medium enterprises (SMEs).

The fine for non-compliance with security and/or business continuity requirements is set at 30,000 to 150,000 UMA units.