Six U.K. fintechs have been chosen by the Government’s Department for International Trade (DIT) for the third trade mission to fintech conference Finnosummit from September 9-13 2019 in Mexico City. Boseman, ComplyAdvantage, Duesday, Tokenise, Paymentology and Rhisco Solutions will attend the event and participate in a Mexico fintech immersion day, further advancing their understanding of the fintech ecosystem in the country.
The fintech firms, which were picked for this expertise after a rigorous recruitment process, will have the opportunity to network with over 3000 entrepreneurs, financial services innovators, financial executives and international investors. They will also attend bespoke one-to-one meetings, alongside presentations and workshops that will outline the main considerations to have when conducting business in Mexico.
Liz Truss, Secretary of State for International Trade, highlighted that the companies chosen for this year’s trade mission are world-leading in the fintech sector, and attract the highest levels of capital in Europe. “Whether it’s our comprehensive State of the Nation report, partnerships with FinTech Alliance, or the launch of our new Pilot Bridge Programs, DIT continues to be a firm ally to the U.K.’s fintech industry and I am delighted we are supporting this mission to Finnosummit.”
Joanna Crellin, Her Majesty’s Trade Commissioner (HMTC) for Latin America, added: “The strength of the U.K.’s thriving fintech sector is rapidly receiving great interest around the world. We are delighted to be supporting these fintech firms as they offer their innovative solutions to one of the fastest growing ecosystems in Latin America and the Caribbean. Mexico has taken significant steps in providing an open and collaborative market for fintech to flourish in supporting underserved businesses and helping to meet the needs of the financially excluded.”
The U.K. Government is also supporting the fintech industry in Mexico with initiatives such as the Prosperity Fund Mexico programme, which will reach £60 million over eight years and seeks to support growth in the region through technology and innovation through digital financial services, including the fintech sector. £11 million of the fund has been allocated for this.
In March 2018, Mexico’s lower house of Congress approved a bill to regulate fintech in the country, promote financial stability and minimize money laundering. According to Reuters, the law provided assurance and better awareness when it comes to crowdfunding and the rules around cryptocurrencies, like bitcoin. It also permits open banking and sharing of data by financial institutions through public application programming interfaces, more commonly known as APIs.
At the time, President of Fintech Mexico Francisco Mere said: “Open banking recognizes that the information in the hands of the financial institutions is the property of the user, not the institution’s, and that it can be brought to other financial intermediaries. With this, smaller banks and startups would be able to use client information from larger bank through APIs with the user’s information.
“This will allow better services, better costs and more inclusion,’ Mere said, allowing fintechs to compete with traditional banks with more gusto. This ties into research that was found in 2017 that three in four customers were indifferent to, or unhappy with their bank, according to a Gallup poll. Opening up the space further for new fintech players, Mexican startups are focused on the unbanked.
As reported in the Financial Times, fintech startup accelerator Finnovista predicted that new financial companies has the potential of taking over 30 percent of Mexico’s banking market in the next ten years. Retail banks and payment services would be more so at risk as most of those in Mexico have been working in payments, remittances or lending. 158 fintech companies exist in Mexico and that includes smartphone banking service Albo, mobile phone credit card reader provider Clip, peer-to-peer lender Kubo Financiero and micro-lender Kueski. They all secured funding and are expected to bridge gaps in the traditional banking industry.
Fintech also has potential in this country because of the convenience that the startups offer. 61 percent of Mexican adults do not have a bank account and there are only 14 bank branches per 100,000 inhabitants, that’s 7142 people per branch. As well as this, inefficient transport means that the average time to get to a bank is 42 minutes in rural areas and 22 minutes in cities, according to the National Survey for Financial Inclusion.
On the other hand in 2015, the Pew Research Center found that 35 percent of Mexicans had a smartphone while only 29 percent of adults accessed credit, in comparison to 25 percent in Brazil and 7 percent in Chile. Again, when the regulation comes into effect, although fintechs will have to provide information about their company, this could help improve the credibility of fintech in Mexico.
However, recent news revealed that Mexican regulation could result in a number of fintech firms shuttering after the Bank of Mexico (Banxico) issued a new fintech law targeting crowdfunding and electronic payments, specifying which digital currencies are permitted in Mexico and establishing the conditions in which banks can use cryptocurrencies. Today, fintechs would need permission from the Mexican Central Bank to transact with virtual currencies and those that do, are susceptible to fines.
Investment in fintech may also become a little more difficult. “POs can only be carried out by public stock companies or transitional stock companies. These companies are required to be authorised by the National Banking and Securities Commission (CNBV) and must list their securities with the Security National Registry and get a favourable review from its exchange partner. Last but not least, crowdfunding platforms and e-money institutions will have to get a special license to be able to operate in Mexico from now on,” Coinrivet reported.
This is inherently better for traditional players, but also end-users as fintech firms would be forced to implement a transparency policy and ensure that they provide information about interest rates, fees and risks associated with cryptocurrencies. “This new Mexican regulation is expected to generate visible changes in fintech platforms. Companies will have to register templates for their contracts, for instance. At the same time, they’ll need to build a series of departments for compliance and customer service that most traditional financial companies already have.”
This could result in a number of startups shutting down with regulation slowing down the impressive growth of fintech activity in Mexico; El Economista predicted that 201 of the country’s 500 startups could shutter.