In 2019, the Global Fintech Market was valued at USD 5504.13 billion, with a projected Compound Annual Growth Rate (CAGR) of 23.58% between 2021-2025. This is considerable, but doesn’t surprise financial security expert Alberto Bazbaz Sacal, who’s watched the industry soar in his home country of Mexico. In fact, Mexico is one of Latin America’s financial technology leaders and – since the inception of its 2018 Fintech Law – has served as a hotspot for global investors.
The growth of fintech in Mexico
So how exactly has Mexico’s fintech ecosystem become one of the most developed industries in Latin America? Alberto Bazbaz Sacal cites three reasons: demographics, economic promise, and overall need.
Data from the Instituto Nacional de Estadística y Geografía shows 30 million people in Mexico between the ages of 15-29, which means almost a quarter of the population is defined as being “young.”
Young people, meet financial technology tools and services. Fintech, meet young people. It’s a perfect marriage.
Outside of COVID-19, Mexico has been in an economic renaissance over the past few years. Its Secretaría de Hacienda y Crédito Público andBanco de México continue to operate in smart ways, affording the country plenty of interest from international investors.
Of course, fintech isn’t just a “young” person’s game either. It’s meant for anyone and everyone. What’s more, data from the 2018 Encuesta Nacional de Inclusión Financiera found only 68% of Mexican citizens between 18-70 have consistent access to financial products. See: opportunity.
What’s transpired in the form of fintech’s rise is a direct response to the problem of access and, specifically, digital access to one’s bank account(s). The digital divide that separated Mexico and much of Latin America from other countries across the world reached a point where it could no longer be ignored or mitigated with short-term solutions.
Fintech’s versatile nature allows it to streamline operations and help businesses function at peak levels of efficiency. Plus, Alberto Bazbaz Sacal mentions the reduction of pushback from traditional brick-and-mortars who, until recently, had viewed financial technology startups as enemies, or at the very least, disruptors to the financial community. Now, these same businesses are partnering with fintech startups.
And for Mexican citizens who have long experienced a lack of access to consistent financial services, fintech represents a viable solution. COVID-19 underlined the industry’s influence. In a matter of days, visiting one’s traditional bank was rendered obsolete, in favor of contactless services. What to do? In Mexico, Alberto Bazbaz Sacal witnessed fintech startups become the pulse of the financial ecosystem.
Consider this: Pre-pandemic, a diverse array of payment options – particularly those offered by peer-to-peer (P2P) services like Venmo, Zelle, and Apple Pay – were already in effect. Today, these contactless payment methods are more important than ever. Restaurants and other businesses have adopted digital menus into their in-house experiences, and cloud-based software like Toast and Square are popular POS options.
The world is changing, and fintech is a driving force behind this change. In Mexico’s case, Alberto Bazbaz Sacal points back to demographics, economic worth, and opportunity.
And a powerful Fintech Law.
How Mexico’s Fintech Law helps the industry
In March 2018, Mexico enacted its historic Fintech Law. The move was historic not only in the scope of the law, but in the Mexican government’s commitment to fintech growth in the country, and Latin America at-large.
Mexico’s Fintech Law provides a framework for fintech groups like crowdfunding and electronic payment platforms. More importantly, it outlines a detailed process for new fintech models, which Alberto Bazbaz Sacal attributes to Mexico’s rampant (and continued) fintech growth.
The law’s passing has made Mexico a key player in Latin American fintech, and a paragon for other Latin American countries looking to welcome the industry into their borders. Countries that form the Pacific Alliance trading bloc with Mexico (Chile, Colombia, and Peru) have made progress toward better financial technology options. The Chilean government released a first draft of its own fintech regulations back in 2019. At the time, Peru was also well on its way in forming regulatory materials.
In terms of total number of fintech companies, Mexico is now the leading Latin American country with over 441 startups. There’s consistent opportunity in the country. And, while COVID-19 deserves no recognition, it’s impossible to ignore the fact that it forced adaptive growth. Without access to traditional banking methods, a precarious portion of Mexico’s population – who had long distrusted cloud-based platforms and digital services – had no choice but to try services they deemed safe.
And in case any further proof of fintech’s influence is needed, Alberto Bazbaz Sacal points to data gathered through Santander Bank, Finnovista, and Google’s metrics. Today’s Latin American financial technology market is worth an annual value of 68, 409 million pesos, representing an average annual growth of 23% and including nearly 5 million users.
No financial specialist can say that fintech hasn’t had a profound impact on Latin America’s economy. Mexico’s Fintech Law provided the necessary regulatory know-how to achieve fluid growth, and the industry continues to develop because of it.
The future of fintech in Latin America
While Mexico’s Fintech Law is predominately focused on crowdfunding and electronic money and payment institutions, Alberto Bazbaz Sacal says it also covers denser industry areas like cryptocurrency regulation.
In 2020, secondary regulations were formed in order to strengthen Mexico’s legal framework. Then, just two months ago, the Comisión Nacional Bancaria y de Valores (CNBV)established secondary provisions centered around technology infrastructure, third party providers, information security, and the use of biometrics and operational for electronic money and payment institutions.
Today, crowdfunding and electronic money and payment institutions have to file authorization with the CNBV before they can offer services to Mexican citizens. A six month authorization period files. If extra time is needed, this period can be extended up to 3 months.
Here’s why Alberto Bazbaz Sacal applauds these efforts: While terms like regulations and provisions might sometimes be regarded as tiresome bureaucratic language, the strict processes that Mexico’s Fintech Law continues to uphold are due partial credit for fintech’s growth and, more importantly, its longevity.
In order to obtain authorization, a fintech startup must submit its operation model, business plan, shareholders’ information, capital and corporate structure, board of director’s integration, financial viability report, internal policies around complying with AML/KYC regulation, risk management procedures, client protection policies, and more. All of these documents must be extremely detailed in order for the CNBV to even consider approval.
An arduous process? Yes. Overkill? No. Mexico’s commitment not only to fintech, but strong fintech is why it’s served as an industry leader across Latin America, and it’s one of the main reasons that international investors are so interested in the country’s startup scene.
As we move forward in 2021, Alberto Bazbaz Sacal is interested to see what sort of developments are made in Mexico’s fintech landscape. He believes the Fintech Law adjustments will create more investment opportunities as global investors scramble to be part of the growth and more competition as startups scramble to be qualified to offer their services in Mexico.
Beyond the regulatory process, the financial expert looks forward to a year that suggests more growth in payment options, blockchain technology, and artificial intelligence-based operations.
About Alberto Bazbaz Sacal
Alberto Bazbaz Sacal is a specialist in financial intelligence and former president of The Financial Action Task Force on Money Laundering (GAFILAT) for Latin and South America.