Mexican fintech companies are eyeing a piece of the coastal pie.
Mexico continues to post record numbers in many of its economic indicators. And with $30 billion to $40 billion in profits expected in the future, financial institutions of all stripes are rushing to stake their claim.
The banking sector, with assets of $644 billion, remains dominated by a few traditional multinational giants. BBVA México, Santander and Banorte account for almost 50% of the market, while Banamex, HSBC, Scotiabank and Inbursa account for another 27%. But 66 million Mexicans, or 51% of the population, remain unbanked, creating cross-border payments and remittance opportunities for nearly 1,000 fintech startups.
According to Gilberto Garcia, partner at Miranda Financial Advisory, now is the time for anyone who wants to stay in Mexico long-term, especially in the financial sector. “If you wait because you don’t know what will happen, when you have more confidence, you’ll tell yourself you should have done it sooner.”
Online-only neobanks have begun to have a significant impact. Although they have not yet penetrated the upper echelons of the Mexican financial market, they are helping to increase competition and improve access to financial products.
Kapital Bank, called “one of the most disruptive companies in the world” by CNBC, is one such neobank.
A year ago, the company acquired Mexican auto finance company Grupo Autofin, which has a nearly 50-year history. Having invested $50 million in the lender to date, Kapital has seen deposits double from 3 billion Mexican pesos (approximately $150.3 million) to more than 7 billion pesos, says co-founder and CFO Fernando Sandoval.
“Since we took over the banking operations, usage has almost tripled,” he adds. “Instead of competing with commodities, we decided to compete with technology.”
With a focus on small and medium-sized enterprises (SMEs), Kapital saw the need for a one-stop business solution. It now offers over 15 services through its Automated Information Panel (AID) all day, every day.
“SMEs make up almost 70 to 80% of all workers in every Latin American country and produce 50 to 60% of GDP, but receive only 15% of financing (from financial institutions),” Sandoval notes. “The only way to grow is through friends and family or traditional suppliers (legacy banks and traditional financial institutions).”
Meanwhile, Kapital has expanded into Colombia and hopes to exploit the similarities in the markets of Peru, Chile, Argentina and Brazil.
Meeting the challenge
Traditional banks such as BBVA and Santander are heavily dependent on Latin America—more than half of BBVA's net profits (around €5 billion) last year came from Mexico—and they have clearly heeded the fintech camp's warning. This year, Banorte launched an online expansion through Bineo, its first fully digital banking platform. Santander and Banco Regional's Hey digital platform and app are also now available on the market, and at least five foreign banks are awaiting licenses, including Plata, Banco Masari, Banco ION, Konfio and Nu.
In May, Citi acquired a minority stake in trading platform operator Cicada Technologies, which trades 28 Mexican government bonds and plans to expand into other types of securities. At the same time, industry observers continue to expect Citi to split from Banamex ahead of its 2025 IPO.
“We need to stop thinking that the bank is an obstacle and start thinking that the bank will be a helper,” says Kapital's Sandoval. “Mexico is a big bet right now, but each country has its own rules. Why was Walmart successful here and Carrefour not, but in Argentina it was the other way around?”
However, making the most of the financial services opportunities offered by Mexico's promising economic growth will require a collective effort. In order for all aspects of the banking industry to continue to grow, consumer education must be improved, he said. To meet this need and reduce costs, tech startups, legacy banks and everyone else must work together.