The pandemic generated by the sars-cov-2 coronavirus made its appearance in Mexico at a time when fintechs were consolidating. Could this crisis be the last necessary catalyst for these companies to realize their development?
Gerardo Obregón Salorio still remembers that day at the end of 2012 as if it had happened yesterday. After more than a year of working on the creation of Prestadero, a company that, through technology, allows people to give or receive loans, he went to the offices of the National Banking and Securities Commission (CNBV) and I enter.
There he was received by the team of Jaime González Aguadé, at that time president of the CNBV, with whom he had made an appointment to talk to him about the project he was working on and the possibility that it could, in some way, be regulated.
For little more than half an hour, Obregón presented to the head of the commission every detail of Prestadero; However, none of that worked, since, at the end of his talk, the manager was practical as he was at the beginning: he did not understand how the company’s model worked, much less the scope that the word “fintech” could have.
” The moment the conversation with González Aguadé ended, I realized that he really had no idea what I was doing meant, or what a fintech consisted of,” he explained to Forbes México, smiling, the entrepreneur.
And it is that, in those days, there were really few people in the country who had incorporated this concept into their vocabulary, being only a handful of subjects who, throughout Mexico, knew precisely what he was referring to and what this idea of fintech means.
The word invited us to think of something complicated; However, the essence and meaning of the fintech concept was simpler than one might think: Finding, via technology, different solutions to the existing biases in the Mexican financial system.
Like Gerardo, this word was also understood by other characters, such as Adolfo Babatz, founder of the payment company Clip; David Arana, who is behind Konfío, a firm focused on offering loans to small and medium-sized companies (SMEs); o Vicente Fenoll, founder of Kubo Financiero, an online loan and investment platform.
The Fintech era
Almost eight years have passed since that historic meeting between Obregón Salorio and González Aguadé, and a lot, if not almost everything, has changed during this time, basically because, in this period, Mexico achieved a fairly large deployment around the trend. of financial technology.
There is a series of numbers, developed mostly by the Finnovista analysis platform, which clearly demonstrates the magnitude of the explosion that the fintech world registered in the country in this period.
The first of them is the gradual growth that, over the years, the number of companies that work under this trend in Mexican territory was having. Here it is recorded that the country went from having 158 fintech companies in 2016, to achieving, this year, a total of 441 companies of this nature.
But it is not just any number: already with this volume, our country ranks as the territory with the largest number of fintechs being born in all of Latin America, ranking above countries such as Brazil (377), Colombia (180), Chile ( 112) and Argentina (110).
Things do not just stop there, since there is also more capital available for this type of company. According to the latest evaluation carried out in the country by Finnovista, up to 60% of Mexican financial technology startups have already received some type of funding.
This percentage is even validated by the national venture capital (CV) funds themselves, who today are paying special attention to what is happening with these companies.
“Clearly, we are very interested in everything that is happening today with fintechs in Mexico. Only about 25% of our third fund is allocated to financial technology companies, and we expect that, for our fourth fund, we will have a similar percentage in this area ”, explains Alejandro Diez Barroso, Managing Partner of Dila Capital.
This is how this interest from the funds has allowed higher seed investment rounds to be generated each time in companies, such as those achieved by startups such as Klar, a neobank that raised 7.5 million dollars (million dollars), or Minu, a company of access to earned wages, which earned $ 6.6 million in 2019.
Likewise, it highlights the success of some other Mexican firms, which have raised, in recent times, mega investment rounds, such as Clip, Konfío or AlphaCredit, which have received up to $ 100 million each, from international funds. with a presence in Latin America, as is the case with SoftBank.
“I see that there is really a huge appetite for what is going on in fintech here. The country has advanced very positively in the ecosystem and today it has the opportunity to take off even more ”, comments on this topic Cristian Huertas, Country Manager of the Spanish digital bank Bnext in Mexico.
It is all this context that has already made it possible to reduce the mortality rate of this type of companies in the country from 11.3% to 4.5%, offering fintechs in our territory already up to 60,000 jobs and reaching an annual operating value that exceeds the 68,409 million pesos (mp), the latter figure, according to an evaluation made by the accelerator Endeavor.
Reasons for success
But, why has fintech grown in this way in Mexico? There are three reasons that, according to Andrés Fontao, Managing Partner of Finnovista, promoted the present situation.
The first one is that the entrepreneurial ecosystem of the country in general finally had, at this time, an important deployment, developed not only by nascent companies, but also by the appearance of other important actors within this chain, such as funds. , accelerators and universities.
Second, this impulse led entrepreneurs to seek business opportunities that, invariably, reached the area of firms linked to banking and all kinds of financial services, a place where, until recently, there was a very innovative framework. reduced.
“Today there is an enormous opportunity to transform financial systems because it is an industry that has advanced very slowly in terms of innovation; this, basically because, until today, they had never had to worry about doing it, “explains Fontao.
This issue is directly related to the little financial inclusion that exists both in our country and, in general, in Latin America, a region of the world in which, according to data from the World Bank (WB), only 54.4% of the population adult has been a user of their services.
The last important issue that allowed this growth, says the expert, was, without a doubt, the enactment of the so-called Law to Regulate Financial Technology Institutions, also known colloquily as the Fintech Law.
“Mexico was clearly a pioneer at the time with the Fintech Law, since it built a regulatory framework and established a culture of recognition for these types of companies, which allowed them to obtain real validity to operate,” says the Finnovista manager.
It was precisely this regulation that Gerardo Obregón, from Prestadero, had been seeking for six years, and which, finally, at the beginning of 2018, was implemented.
“As a company, we saw very significant growth then, because, before that, many people had a concern about the service we provided: they did not know if it was real or could be a fraud. This allowed us to have legal certainty and to tell people: ‘Look, we are regulated,’ ”says the entrepreneur, whose company has granted, from its birth until today, around 470 million pesos in loans.
But what, in essence, did the law leave behind? Basically, explains Carlos Valderrama, founder of the firm specialized in fintech Legal Paradox, a series of tools that allowed regulating digital wallets and crowdfunding (collective funding), in addition to opening a new regulatory space, called sandbox, for the analysis of models innovations related to financial technology.
“ What I could tell you is that there is a before and after for Mexico after the enactment of the law, and what leaves us far behind today is a growth in the fintech ecosystem of up to 90%, in addition to positioning to Mexico as a leader on the subject in Latin America, because, even to date, many countries are following in our footsteps, ”says Valderrama.
This situation also generated an important diversification in the type of fintech companies that were emerging little by little in the country. Currently, the three main categories are made up of, first, payment and remittance firms, with 20%; then, companies focused on consumer loans, with 12%; and, in third place, corporate financial management companies, which are also at 12%.
Between Q4 and the pandemic
But not everything has been honey on flakes for the evolution of the fintech ecosystem in the country. The arrival of the new federal administration, headed by President Andrés Manuel López Obrador, has brought with it significant challenges, especially for the regulatory wing, in the hands of the CNBV.
This, basically, because the austerity policy implemented by this government affected the implementation of initiatives within the organization, which were focused, among other things, on supporting the evolution of the fintech framework in the country.
This is stated by Bernardo González, former president of the CNBV, who was directly involved, practically from the beginning until its enactment, in the development of the Fintech Law.
“Unfortunately, what happened is that, for the most part, derived from a matter of cutting budgetary resources, there was an important departure of specialist collaborators from the commission, in addition to the fact that the very fact made the creation of important spaces that were in the planning and consolidation process, such as a vice presidency exclusively dedicated to fintech and another for cybersecurity ”, says the current head of the Mexican Association of Afores (Amafore).
The commission registered, for this 2020, a contraction in its budget of -16.3%, compared to last year, which led it to go from receiving 1,699 million pesos, to 1,465 million pesos.
In addition to this situation, the global pandemic generated by the new SARSCov-2 coronavirus slowed down the approval processes that were on the table at the CNBV, for a total of 94 Mexican fintech startups that were seeking to obtain an endorsement in this situation. This circumstance is expected to settle for mid-August.
“It has been the combination of all these effects that has slowed down the internal efforts that are dedicated to the issuance of secondary regulation,” says González.
Despite this complex situation that has arisen in recent times from two different fronts, the regulatory specialist warns that, as an argument from Steven Spielberg’s famous film, Jurassic Park puts it, “nature will continue to find its way” .
And this is precisely what has happened since the health crisis has also brought with it important opportunities for the Mexican financial technology ecosystem, which benefited from the confinement that many people had to do to avoid getting infected.
“Clearly, as a result of this situation, many people had to be involved with digital financial services to be able to make transactions, such as transfers, online purchases or borrowing; and this has led to… this is not our data but it is worth taking it up again, the download of fintech applications has increased up to five times ”, says Andrés Fontao, from Finnovista.
It is with the knowledge of this context that Alejandro Diez Barroso, Managing Partner of the Dila Capital fund, today safely ventures to declare the following: “I believe that the pandemic advanced the evolution of things for fintechs by up to two or three years, which today have in their hands a great possibility of being even more winners. Most likely, we will be there to continue learning and investing in each of those great opportunities “