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Finance

Can Mexico be the hub for fintech in Latin America?

Financial technology, or fintech, is having its moment. Just a few years ago, startups operating in the fintech space struggled to gain the same sort of notoriety or investment rounds as the hottest chat app or mobile games of the time. That’s been rapidly changing.

Just recently we’ve seen Japanese electronics and ecommerce giant Rakuten launch a $100 million investment fund for fintech startups globally. Despite this potentially global reach, different regions will throw up different challenges for fintech. North America and Europe seem ripe for the picking with mobile payments, commerce and the traditional banking sector getting involved.

The landscape for Latin America is very different though. World Bank figures from last year show that in Latin America, just about 51% of adults have a bank account but this is growing compared to a few years ago, all the while internet and smartphone penetration is growing with it.

This creates a heady mix of opportunity for fintech. People are warming up to banking services at the same time that smartphone penetration is swelling so it makes sense, at least on paper, that fintech startups should benefit but there are still plenty of challenges.

Lawrence McDaniel is head of investor relations at Startup Mexico and says that of the startups he’s seen there’s little in the way of fintech: “All of them are between PowerPoint stage and trying to win a first customer or find an early adopter.”

Mexico is in a nascent stage but there’s a wealth of burgeoning innovation centres and resources like incubators and accelerators for startups to use, he tells IDG Connect. “There are hundreds of innovation centres in Mexico today, up from zero a few years back,” he says.

The growth appears to be slow but also methodical. Gradually Latin America and specifically Mexico has seen the emergence of startups targeting different segments of finance thanks to the spread of startup resources. For example Mexico City’s Rocket.La, which received two significant funding rounds over the last two years, targets millennials by connecting young users with a financial institution that can grant them a credit card. The startup claims that this is important because up to 80% of credit card applicants in Mexico are rejected.

meXBT, initially just a bitcoin exchange based in Mexico, launched Pay.meXBT in October, which now uses blockchain technology for transferring traditional currencies. The new platform will have a major impact on money transfer for internet users claims CEO, Gabriel Mirón.

With these ideas, Mexico could be a fertile landscape for startups in the fintech space. It not only provides opportunities for the unbanked and people that are getting online but as McDaniel explains, it also provides a gateway for expansion into the United States.

Expanding into the US

For many startups in Latin America, getting out of their home country and bringing their product or service global is always the main goal.

This was the case for Colombia’s Easy Solutions, an anti-fraud firm specialising in financial institutions, which moved to Florida in 2007 to expand its global operations but to still be physically closer to its roots than say Silicon Valley.

The company was founded in Bogota. CEO Ricardo Villadiego says this helped initially in hiring because of a young population coming out of many universities. “It is also a centre for financial services in the region, which helps support the creation of fintech,” he says, but adds that more needs to be done in Latin America to stimulate growth in the space.

“First, offer investor guarantees for their investments by having more stable economies. Often, taxes can fluctuate significantly in short periods of time, affecting the investor’s confidence in funding a growing organization,” he says.

“Additionally, the process of opening a company in the country can [be] very cumbersome because wait times are long and there is a big amount of entities involved to complete the process.”

The players within Mexico’s entrepreneur community have recognised this. In October, more than 70 members established the country’s first financial technology trade association that will be working towards staking Mexico’s claim as a LatAm centre for fintech.

Crucially the association feature some major companies to complement the local startups. MasterCard, Swift, and Microsoft are all on board.

“The purpose is to offer its members and the general public an environment of open and transparent collaboration which will boost innovation of fintechs in Mexico, by using the collective knowledge and best practices of the industry, thus improving the financial services for everyone,” explains Jorge A Ortiz of FinTech Mexico, who previously worked in the traditional finance sector.

The organisation will tackle a couple of key areas: education, technology, research, regulation, and networking as it seeks to develop a fintech ecosystem and establish Mexico as a hub for the fast-growing industry.

MasterCard has previously spotted Mexico as a lucrative spot by launching its first fintech accelerator program there last year too.

With such a growing interest, more and more international companies are extending features to Mexico, especially digital remittance companies which often target their services at people working abroad who want to send money home. Most recently, Seattle’s Remitly, which has backing from Jeff Bezos, began offering its services in Mexico, having already been established in India and the Philippines.

The startup says that payments between the US and Mexico are the “single largest corridor for international money transfers” in the world, which it claims amounts to $24bn transferred every year. “We’ve strategically focused on the world’s largest remittance corridors first,” says CEO Matt Oppenheimer.

Not just in Mexico, but across South and Central America, digital remittance startups have spotted opportunities, especially in the fact that there are now more smartphones than traditional bank accounts. “People are effectively using their mobile phone as a bank account, making transactions. Sending and receiving remittances via mobile devices has taken off hugely,” WorldRemit’s Jeff Pietras told IDG Connect earlier this year on the potential of Peru and other South American nations.

The bounty of potential customers isn’t the only reason why Mexico and Latin America as a whole can become a centre for fintech on a global scale. A lot of financial fraud originates in Latin America, claims Easy Solutions’ Villadiego.

“Fintech companies must pay close attention to what’s happening in Latin America, if they want to be able to protect their clients from emerging threats globally,” he says. “As a global company, we are able to take the intelligence we gain from seeing scams emerge differently in different geographies, and protect our customers globally.”

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Jonathan Keane

Jonathan Keane is a freelance journalist, living in Ireland, covering business and technology

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