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Fintech Startups

Fintechs in Mexico follow the rules

At three o’clock on Wednesday, September 25, the National Banking and Securities Commission closed the window. At that time, the deadline for the platforms operating under the eighth transitory of the Law to Regulate Financial Technology Institutions (Fintech Law) to request its regulation expired. Not all did.

The American company PayPal send a message to its users in Mexico. They reminded them that from that date, they would automatically transfer to their bank accounts all payments received. The measure had already been announced in advance. The message begins with large white letters on a blue background:

Now your money will always be available.

The company summarized in three points the changes in its platform: 

  • All payments will be automatically transferred to the user’s primary bank account.
  • Recharge balance will no longer be available.
  • The balance remaining in the PayPal account can no longer be used to top up balances.

The company did not mention in the mail nor in the extra information the reasons behind the changes: the law published since March 8, 2018. 

Now everyone will follow the rules.

A public company with extensive resources such as PayPal preferred not to request authorization from the CNBV to operate as a wallet. “This tells us that the law is no small matter,” says Gerardo Obregón, CEO and founder of Prestadero, the pioneer platform for crowdlending in Mexico. As of September 20, the Prestadero team submitted their application to be authorized as a Collective Financing Institution (IFC), the legal name for Fintechs in Mexico).

The CNBV received the first applications in February of this year. The crowdfunding platform for real estate development M2Crowd was the early risers. At that time, M2Crowd CEO Simón Dalgleish said that, since they began operations, they turned to the Fintech regulation in the United Kingdom to anticipate the requirements that could be demanded by the Mexican authorities, published on September 2018.

In some sections, the Fintech law is quite severe, in consideration of Gerardo Obregón. Cash restriction is an example. IFCs are imposed on measures for the prevention of money laundering on stricter occasions than other financial institutions. Although for fintech, it is a minor problem, since most of the payments they receive are digital since they are institutions that were born in the digital world. However, it limits the payment options of the users.

Obregón also considers that the restriction on bank accounts is another problem. With the current regulation, users can now only transfer money to accounts in their name. The director of the Prestadero makes an analogy with online purchases, where one can buy a product that will be received by another person to explain the inconvenience. This option should also be available when sending money.

This video explains Fintech law in Mexico (in Spanish).

Clear rules make long investments.

In Mexico, the fear of fraud is one of the main reasons that stops people when paying online. This fear is justified if we consider that the country ranks second in digital fraud in Latin America, after Brazil. The figure is surprising, but it is also a logical consequence. Mexico represents the second-largest e-commerce market in the region after the South American nation. When you face with higher transactions, you take higher risks. 

Specific regulation for the sector offers guarantees to both entrepreneurs and platform users. Gerardo Obregón is so in agreement with this that Prestadero was one of the companies that promoted the elaboration of law for Fintech. Although “Like any regulation, it is still perfectible,” he said.

In 2012, distrust of digital platforms was more significant than now. The director of Prestadero says that when the startup started operations, not only investors showed suspicion of putting their money. Credit applicants also raised their eyebrows in disbelief. 

Why would a stranger on the Internet offer me credit with more favorable rates?

A natural reaction. Financial institutions have been specialists in hiding Leonine conditions among the small letters. The Journalist Michael Lewis told in The Big Short that investor Danny Moses once asked the seller of a transaction that seemed perfect: I just want to know one thingHow are you going to fuck me?” Fintech is also a business with profits and losses. Nothing can be so good to be true.

Banks are specialists in offering loans with high rates for applicants, while investors receive returns at penalties above inflation. In fintech, this is different. At present, the Prestadero’s gains are an average of 14% per year, – after considering the commissions and overdue portfolios -, while applicants with the best score can obtain rates from 8.9% per year. The competing IFCs give similar conditions to applicants and investors. For example, the Yotepresto platform offers higher returns to investors. Although the rates are higher than in Prestadero, they are lower than in the banks.

Prestadero solicited authorization for operating in CNBV

If you have some experience with financial products, you want to know what the trick is, or in the words of Moses, how are you going to fuck me?

Fintechs arise outside the boxes

Fintechs have two characteristics that have allowed them to break into a field where banks maintained an unquestionable hegemony: technological innovation and peripheral vision. With technological innovation, IFCs reduce operating costs and have greater possibilities for expansion. The peripheral vision allows them to think about new financial products.

Sometimes, good ideas come from outsiders. The Brazilian unicorn Nubank emerged when Colombian David Velez noticed that in Brazil, banks treated customers as if they were doing them a favor. They did that because there were few competitors. The brasiñelos told him that he could never win against them. Sergio Furio received similar comments when he founded Creditas, a startup that has recently acquired investment from Japanese corporate Softbank. This company was born in response to the high interests of Brazilian banks.

Gerardo Obregón is also an outsider, a foreigner in a nation of bankers. Many venture investors would have refused to issue a check, not because of the business model, but because they lacked market experience. He studied chemical engineering and before Prestadero, he worked in areas that had nothing to do with financial institutions. For him, that was a fortune.

In one of his first works, he was soaked with knowledge about technology. Then he undertook with a meat distributor. One day, when Obregón noticed a worried employee, the man told him that he had trouble paying a loan he had requested for ten thousand pesos. After paying one thousand pesos promptly in six months, I still owed more than eight thousand. 

Gerardo was impressed with how such a modest credit could damage a person’s economy. For that reason, he thought of financing alternatives.

Gerardo investigated business models. During this period, he discovered that these alternatives already existed in countries such as the United States and the United Kingdom in a model known as P2P Lending. In 2005, Zopa began operations in the United Kingdom. They’re one of the pioneers in this area. In 2006, Prosper started operations in the United States.

These companies had to learn in a hard way and in one of the worst times for finance. Larry Ludwig, the founder of Investor Junkie, mentions that Prosper’s risk management model was horrible. He said that “the platform allowed anyone with a pulse to get a loan.” The overdue portfolio was alarming, a situation that worsened with the economic crisis.

Although there were references abroad, P2P Lending, now known more as crowdlending, was a diaper model. Around him, Gerardo heard that that could not work in Mexico because “the Mexican does not pay.” Despite this, Gerardo jumped into an industry he was beginning to know, with an unproven business model in the country.

“An entrepreneur must know everything,” said Gerardo, explaining how he leaped chemical engineering to financial innovation. He investigated the requirements demanded by Mexican law, prepared a business proposal, and hired a lawyer to check that everything was in order. He also worked closely in the development of the platform. “I am aware of the Front-End and the Back-End.” About software development, he only knows how to make queries in databases, but he understands enough to specify what changes it wants in the platform. Gerard uses to make suggestions to its team about how it can be improved.

Does regulation kill innovation?

Gerardo Obregón admits that, with the current regulation, he would not have been able to start with Prestadero. 

Rigid legislation is a concern not only in Mexico but also in countries such as Chile and Brazil where the desirability of a specific regulatory framework is recently discussed. This situation will have repercussions on the ecosystem. Estimates indicate that only 40% of the institutions required by law to request authorization did so. However, the CNBV has not yet given official figures.

The legislation also offers a legal sandbox to test new models. This part of the law gives space to innovation. The Prestadero’s team asked the CNBV if his PrestaPal product would enter into this scheme, an alternative so that people without credit history or with a bad history can request family and friends credits with rates of 0% to 35% per year. 

In Mexico, most loans are informal. In other words, between family and friends. This fact means that their credit behavior is never reported to the credit rating entities. Therefore, they can never apply for a loan with more favorable conditions or of a higher amount. At the same time, the main problem of collective financing platforms is finding applicants who meet the profile to be subject to credit. The same mechanisms that protect investors from losses constrain their opportunities for expansion. A space for innovation is necessary to create new opportunities.

At this time of regulation, the CNBV will analyze each of the authorization requests for companies operating under the 8th transitional. Within three to six months, the agency will offer a response and, if necessary, other institutions such as Banxico or SHCP will provide feedback. If they are rejected, they must stop operating.

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Fintech

Highlights of the Finnosummit Mexico 2019

The Blackberry Auditorium is usually the setting for the best electronic music events, a genre that combines creativity and technology. However, between September 10 and 13, this auditorium of the Condesa colony hosted one of the most influential fintech events in Latin America: the Finnosummit Mexico 2019.

Fintech, like electronic music, combine creativity and technology. This sector broke into financial services for several years, and there is currently a Latin American boom. Banks have recognized the potential of startups to improve the customer experience; governments have seen the need to create a regulation, and the first unicorns – like Nubank – begin to appear.

These actors, who have played a vital role in the consolidation of the sector in Latin America, were present at the Finnosummit Mexico 2019. For three days, attendees were able to enjoy the more than 100 conferences, talks, and exhibitions of the leading experts in Fintech, in addition to listening to the pitch of those seeking to innovate in the sector. These were some of the highlights of the event.

Big tech must have the same regulation as banks.

In his participation, Ángel Rivera, vice president of Commercial Banking of Santander Mexico, expressed his concern to create homogeneous rules for large technology companies such as Google, Apple or Facebook, which have also created financial products.

“Regarding the big techs, in the end, what we have always asked for is an even regulation, a regulation similar to that of the banks.”

The main concern of the manager of Santander Mexico is the handling of customer information.

“The banks have been and are guarantors of the security of our clients, we do not commercialize the data, and that is why the’ regulator’s concern with the arrival of some of these big techs that have commercial objectives different from the banks,” he said.

He added: “If they are going to compete in the world of payments, what we want is for the regulation to be even, that the financial entities that have these new companies have, and we are open to competition.”

Ángel Rivera celebrated the presence of greater competition in the financial sector and mentioned that Santander has participated in promoting it through an alliance or investment in Fintech. He commented that, globally, they have a fund of 300 million pounds to support these types of companies.

“Regarding fintech, we are collaborating; we do not see it as the competition but as a complement to the development of solutions … we are encouraging that collaboration,” he said.

“We invest in the capital of some fintech; we do it in Mexico, England, and Spain; The idea is to support all that digital transformation because what we are looking for is to serve the customers,” he said.

In the case of Mexico, he said that there had been small investments in local fintech. “Today we work with this ecosystem more directly.” and proof of this is the companies that developed their Tap app, with which money can be sent from networks social.

Fondify, winner of the Radar Santander 2019

Santander also participated in the Finnosummit through the Santander radar, a competition between fintech, whose winner it supports. This bank sponsored the contest for the second time.

The startup winner of the Radar Santander 2019 award is Fondify, specialized in collecting and managing resources for social causes while offering sustainability through a technological platform.

Fondify competed with five other fintech finalists in the contest. The startups held two pitches sessions that were held at the Finnosummit Mexico 2019. The entrepreneurs exposed their causes and intentions. The judges of the competition opted for Fondify, a financial technology company, which is based in the city of Guadalajara, in the state of Jalisco. This fintech has as its mission the search and financing of associations, projects, and causes with a deep social sense, through which substantial changes in all strata of society in Mexico can be operated and implemented.
Corin Robertson, ambassador of the United Kingdom in Mexico; David López, technical vice president of the National Banking and Securities Commission (CNBV); Ángel Rivera, vice president of Grupo Santander México; Javier Castrillo, deputy general manager of Santander; Carlos Marmolejo, executive director of Innovation of Santander and Alejandro Maldonado, director of Innovation of the same institution, were the synodal of the contest that this year brought together more than 70 proposals and whose objective is to promote technological and digital innovation in Mexico.

The other finalists of the contest were Paynom, a company specialized in payroll advance loans; Compare it, whose business lies in presenting mortgage loan options; SME District, which serves the SME market in terms of credit options; Fingame, which through a playful process offers financial and savings plans, and Finauta, a bot analysis and business plans.

Fondify won a trip to the United Kingdom, where the Innovate Finance event will be held in April next year, bringing together the most emerging companies in the fintech industry in Europe. In the same way, and like the five finalists, it will have the advice and mentoring by Santander to develop and optimize its services.

Radar Santander 2019 is an innovative program that seeks financial and technological solutions, as well as new businesses aimed at transforming the financial industry and positively impacting banking users in Mexico. In particular, thanks to this initiative, the winning Fintech has the opportunity to participate in an incubation process with Bank experts and strategic partners.

In its second edition, this year Radar Santander expanded its coverage, and three communities were chosen where Fintech entrepreneurship is especially active: Guadalajara, Monterrey and Mexico City. This methodology allowed Santander to meet the best entrepreneurs in the country face to face.

More than 70 projects were applied to the initiative, Demo Days were held in the three cities with presentations of more than 15 Fintechs.

MOYO AI, finalist of BBVA Open Talent 2019

MOYO AI won the 2019 BBVA Open Talent contest in Mexico, after competing with six other finalist startups. MOYO AI is an alternative credit rating tool. The startup measures the intention to pay, building the trust that financial institutions request from their clients.

The startup will represent Mexico in the global final of BBVA Open Talent 2019, in Madrid. MOYO AI will have the opportunity to present its project to international investors and receive investment.

During the final held at Finnosummit Mexico 2019, Marce Zetina, Head of Open Innovation and Open Banking at BBVA Mexico recalled that this is the 11th edition of the international competition.

“We are pleased because we have improved year after year” and mentioned that making the award in “the most important week in entrepreneurship and fintech in Mexico” is a pride.

In the BBVA Open Talent contest, more than 800 startups from 90 countries participated this year. The startups come from countries in developing economies such as Argentina, Peru, Turkey, Paraguay, Colombia, Uruguay, and Mexico. Moyo AI will be the representative of the country at the end of this year.

“The whole team is pleased that BBVA and the entire community have recognized the effort we are making to bring finances to the most disadvantaged segments,” said Carlos López, founder of MOYO AI, who said he was delighted with the award.

The finalists startups were: Baubap, a platform for the processing of microcredits through the cell phone; Zendal, a digital comparator to customize a car insurance policy; MOYO AI, a tool that qualifies the intention of paying people; Acorn Insurance, solution to initiate a retirement savings plan; Blue File, which automates the integration of files; and Aleph, which through savings helps to get the hitch for a home.

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Fintech

Chilean Fintech is growing a triple-digit

The Fintech sector in Chile is the most mature in Latin America, according to the latest edition of the Fintech Radar in Chile by Finnovista.

Finnovista is an organization that encourages investment and development in this sector of the digital economy. The Chilean fintech won this attention thanks to the longevity they have shown their companies in the last three years. Two-thirds of Chilean startups were founded more than three years ago.

The success of these startups contrasts with the low investment, support, and, sometimes, the problems that entrepreneurs face to find the talent they need to start their business, according to a study conducted by the consultant EY Chile together with FinteChile in May. The May’s report indicated at that time that Chilean fintech grew 94% in the last year.

Finnovista data is more moderate but no less encouraging. Fintech Radar estimates that the sector grew 114% in the last three years, with a death rate of just 12%.

The accelerated growth of Chilean fintech is far from being an atypical situation in the region. On the contrary, this is the general rule. In July, Fintech Radar said that Costa Rican fintechs increased 400%, while Mexico regained regional leadership by surpassing Brazil with more than 400 ventures in the country. Technological gurus were not wrong to point out that the low banking of Latin America, rather than an obstacle, is an opportunity to innovate in financial services.

What makes Chile’s Fintech ecosystem so unique?

The Fintech Radar study identified 112 Chilean startups in the fintech sector, of which 44% were consulted to collect data from their research.

Comparing the numbers with Finnovista’s report last year, 46 new startups have emerged in Chile. Payment and remittance services are the most popular services and represent almost a third of the country’s startups. Business Finance Management follows with 19 startups. Practically all Fintech sectors grew in Chile, highlighting the Business Technologies segment for Financial Institutions. This segment surpassed Crowdfunding in the last year, which in Chile has companies such as Fondeadora that compete internationally. Crowdfunding fintech in Chile slightly decreased its presence in the country, with a 9% drop, one of the few segments that contracted.

Fintechs that work on Score, identity, and fraud also had a bad year. These startups had a resounding drop of 50%, a situation that contrasts with the boom in business technologies. In 2018, only two startups were working on this turn. Now there are thirteen companies identified by Finnovista.

Chilean fintech has its own trend

The distribution of segments in Chile differs with the other three most important ecosystems in the region. In Brazil, Colombia, and Mexico, the Loan companies usually occupy the first three places, while Chile these startups maintain a relatively marginal presence. This difference may be because, in Chile, banks offer loans with lower interest rates. Online loans have not been able to find a way to gain the trust of the population.

Another critical difference in Finnovista’s report is the maturity of digital financial companies in Chile, where more than 69% have more than three years of operation, while in Colombia 55% of the businesses in Fintech have less than one year.

The survival of most Chilean startups is a good sign for investors, but it also explains why 91% of Chilean companies are preparing to expand their operations both in Chile and in the rest of the continent.

The expansion to new markets is a common-sense decision in the South American country. Chile has strengths to compete on the level of development, infrastructure, or standard of living that most of its inhabitants maintain. However, it is a relatively small market compared to Brazil and Mexico. Internationalization, rather than a matter of ambition, is a necessity for Chilean businesses. This context explains why 53% of Chilean fintech companies are international, while this figure does not exceed 32% in the region, according to data from the Inter-American Development Bank.

Mexico, Colombia, Peru, and Argentina are the countries where Chilean companies tend to look for new opportunities.

Job creation of Chilean fintechs

The presence of fintech in Chile is still reduced to talk about a significant impact on job creation. Almost half of these startups work with a workforce of fewer than ten employees, while only a quarter of companies work with more than 25 employees. Gender equity figures are also not the most encouraging in the region. In Chile, 24% of women occupy executive positions in the industry, a considerable difference compared to the rest of the continent, where this figure rises to 35%. Even so, Chile is above the international average, where only 7% of women have the opportunity to develop in managerial positions.

Chilean companies in this sector have also had to deal with the problem of finding the talent they need. According to the report made by EY Chile in May, 50% of these companies have these kinds of issues.

The development of the Fintech ecosystem in Chile has also become a job-creation engine. Today, 25% of startups surveyed said they had more than 25 employees and another 31%, said they had between 11 and 25 employees. At the other extreme, 47% of companies still have less than ten employees. In terms of gender equity, it is estimated that around 24% of Chilean Fintech startups have female members within their founding teams. The figure is below the average observed at a regional level that is 33% and could be a symptom of the efforts still needed to promote female inclusion in technological or financial sector ventures.

Currently, about 4 million Chileans are active users of fintech and move nearly 600 million dollars, according to the survey conducted by Finnovista. For understanding these numbers, The report indicates that in Mexico fintech trades close to two billion dollars. This figure is 3.3 times higher than in Chile. However, the Chilean ecosystem is 3.3 times smaller.

In 2018, 120 million dollars were generated by this sector, according to economic estimates. On average, each Chilean startup earned $ 1.1 million in revenue. This amount is a great number, but many of these startups are still far from reaching the breakeven point. So far, Chilean companies have received 175 million dollars in financing, and 80% of them claim to have received investment outside the company. These numbers are more optimistic than those delivered by EY Chile in May, where they indicated that only 65% had received financing, and 71% thought that there is a lack of investment in the sector.

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Fintech

Key points about Libra, the cryptocurrency of Facebook

Facebook today published a 29-page white paper with details about the Libra Project.

Mark Zuckerberg’s company has worked with other companies and organizations to create a stable and secure cryptocurrency that allows international payments without generating a high cost to its users. This cryptocurrency was referred to in several media as “GlobalCoin” before its official name was revealed on June 18: Libra.

In a report, Facebook details what Libra is and how it will work. In this document, the white paper compares the current banking system with the communications system of a few decades ago, where sending an international message was slow and costly. Now, communication is instantaneous and free.

Why use a cryptocurrency?

Libra’s white paper points out how, for the population with fewer resources, financial costs tend to be more expensive. Many people without financial services say that fees are often expensive, do not have enough funds or lack the necessary documentation to open a bank’s account.

The document published by Facebook recognizes how blockchain and cryptocurrency create new possibilities to solve accessibility and trust problems. “These include distributed governance (which ensures that no single entity controls the network), open access (so that anyone with an internet connection can participate) and security through cryptography (to protect the integrity of the funds),” notes in the report.

Why create a new cryptocurrency?

For those who promote the Libra Project, despite the advantages offered by popular cryptocurrencies, these digital currencies still have several drawbacks to be adopted among more people due to “volatility and lack of scalability.”

Libra aims to solve the problems that popular cryptocurrencies have for their massive adoption. The report states that “The world needs a reliable digital currency and infrastructure that, together, can deliver on the promise of ‘the internet of money.'”

Three key points on how Libra will work

  1. Use a blockchain. Like other cryptocurrencies, Libra will use the blockchain technology to function, called Blockchain Libra. However, this will be a private blockchain that requires permission to participate in the validation nodes. The report points out that this situation would be temporary and that over time, the agencies want Libra to become a public blockchain where anyone who meets the technical requirements can participate.
  2. An asset reserve will back Libra. This feature has been one of the most controversial parts for the cryptocurrency community and one of the points that bitcoin critics have applauded. The value of Libra will be associated with a “basket of currencies” to avoid its volatility. For Jon Martindale of Digital Trends, this means that Libra can be affected by the same political problems that affect fiat currencies, unlike cryptocurrencies that tend to strengthen when fiat currencies depreciate.
  3. The Libra Association will control the currency. The cryptocurrency community also view this point with skepticism. “This goes completely against the idea of cryptocurrency, says Jon Martindale. The skeptics of the public blockchain applaud that it is centralized and even affirm that “blockchain only has the name,” like Nouriel Roubini, a famous economist.

Analysts like Jemima Kelly of the Financial Times point out that the blockchain Libra “is not a blockchain” because it is centralized, based on foreign exchange and has some variations in its structure.

An easy-to-program blockchain

The Libra blockchain was created from scratch to ensure its security and scalability. Likewise, it has been programmed with open code to allow the participation of everyone in the project.

The programming language that Libra will use is called Move. Move aims to be a flexible and safe language that can be used for transactions and smart contracts. Move uses a semantics inspired by linear logic. Although it is a language that has special protections, Move resources are ordinary programming values that can be stored as structured data or move from arguments to procedures.

The Libra core is available for those who want to become familiar with this programming language.

The assets of the reserve

The Libran currency will have a reserve of assets to support its value to maintain stability, low inflation, and global acceptance. These assets will consist of “bank deposits and short-term government securities in stable and reputable central bank currencies,” according to the report.

These assets do not eliminate currency fluctuations, but they help reduce volatility so that Libra users can rely on the value of the currency over time.

The profits generated by these assets will be used to cover the cost of infrastructure and pay dividends to the project’s investors. The report ensures that users of the currency will not receive any bonuses.

The members of the Libra Association

The Libra Association will be made up of a government like many non-profit associations, where each representative of a validation node will have one vote, and the decisions require two-thirds of the Association Council to be approved. This association will also administer the Libra reservation.

Among the founding members of the association are several organizations and companies of worldwide prestige in the area of payments, blockchain, economy, and financial inclusion. This is the list presented in the white paper:

  • Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
  • Technology and markets: Booking Holdings, eBay, Facebook / Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
  • Telecommunications: Iliad, Vodafone Group
  • Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
  • Venture capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
  • Non-profit organizations, multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking.

Among the founders, the payment system used by Mercado Libre, Mercadopago, stands out as a representative of Latin America. Also striking is the presence of two of the largest transport services companies: Lyft and Uber, as well as the inclusion of MasterCard, PayPal, and Visa in the founding council.

Facebook hopes to lead this association until its maturity and will look for more organizations to join the Libra association.

Reactions to the initiative

Doug Morgan, an analyst at JP Morgan, described the initiative as Facebook’s best idea so far and an opportunity for the company to diversify its business and its sources of revenue.

SunTrust analysts were more cautious and assured that the idea would take years for their adoption and to show their results.

In the cryptocurrency media, they were less optimistic and called Libra’s initiative “Disney Dollars for new world order.”

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Fintech

What is GlobalCoin, the new Facebook’s cryptocurrency?

Facebook has been building out its cryptocurrency for over a year. Facebook’s cryptocurrency will be governed by a consortium of firms known as the Libra Association, which includes the likes of Visa, Mastercard, and PayPal. The cryptocurrency, which will reportedly be called Libra, will be unveiled on June 18th. The Facebook coin, or GlobalCoin, is expected to be a stable coin tied to several major currencies and is also being lined up for usage in Facebook-owned messaging app, Whatsapp.

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Fintech

Fintech in Mexico: with almost 400 startups, the country regains leadership in LatAm

Mexico regains its leadership in Latin America in the Fintech sector with 394 startups, according to the latest report by Fintech Radar Mexico. With this number, the country exceeds Brazil, which has 380 startups, according to the Fintech report in Latin America 2018: growth and consolidation presented in November by the Inter-American Development Bank and Finnovista.

In 2018, the enactment of the Fintech Law in March and the publication of secondary laws in September created uncertainty in the sector. Despite this situation, the number of fintech in the country increased by 18% since July 2018, when Finnovista made the last measurement. Since then, 98 new startups were created, while the mortality rate was 11.3%. Finnovista surveyed a third of the startups that exist in Mexico for the Fintech Radar report.

Fintech Radar Mexico 2019

Of the companies that make up the sector, the sub-strata of Loans, and Payments and Remittances continue to be the most popular in Mexico and, as a whole, make up more than 40% of the country’s fintechs. Most fintech branches in Mexico grew, except for Crowdfunding and Patrimonial Management, which fell -3 and -20% respectively. Digital banks had the highest growth (200%), an indicator of the acceptance of startups such as Albo or Hey.

Mexican Fintech by categories

The fintech sector is made up of young companies. 70% of the fintechs were founded in the last five years. More than half of the startups are in Mexico City: Monterrey and Guadalajara are the other two cities with most companies. Only one in five Mexican startups operate outside of Mexico, with Latin America being their preferred destination, followed by the United States.

Banking in Mexico is on the rise, and financial products still have plenty of space to expand. The banking population grew by 37% in the last six years and now 68% of the population has some financial product. 38% of Fintechs seek to increase financial inclusion.

The Fintech law in Mexico gives greater legal certainty to the sector. However, 53% of the surveyed companies consider that it will be a barrier to the incorporation of new players, while 46% think the costs to comply with the law will cause inefficiencies.

In addition to the proliferation of new competitors, Mexico is one of the most attractive markets for companies in the region that are becoming internationalized in countries such as Chile. The country has also seen the entry of startups in the region such as Nubank. Foreign competitors only concern 5% of Mexican startups.

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Fintech

Scotiabank will partnership Fintech in Startupbootcamp

Scotiabank announced that it joins as a corporate partner of Startupbootcamp programs in Latin America.

The decision of the Canadian bank responds to a strategy of innovation and approach with the financial-technological ecosystem.

The association will foresee the launch of the Startupbootcamp Fintech acceleration program in Mexico City, one of the programs that Startbootcamp has in the Latin American region.

The third generation of this acceleration program focused on FinTech will be chosen among the best talent in the region. Those who want to be part of it can register before June 23.

The initiative aims to consolidate high impact companies of Fintech. Entrepreneurs will receive mentoring and collaboration with key agents. Among the sponsors of the initiative are Visa, Scotiabank, HSBC Mexico, Banregio, IGNIA, Latinia, Fiinlab powered by Gentera, EY Mexico and White & Case.

Christine Chang, director of both programs in Latin America, comments: “A few weeks ago we opened the third call for our acceleration program: Startupbootcamp FinTech Mexico City, and today we strengthen our reach with the support of Scotiabank.”

Startbootcamp arrived in Latin America in March 2017. Since then, the team has met 300 eligible startups and accelerated to 20 early stage companies.

“Through this collaboration, we reaffirm our commitment to connect with the best FinTech talent in the region, and remain the only facilitating agents for the consolidation of the best FinTech businesses in Mexico and Latin America,” adds Chang.

Cristina Cacho, Vice President of FinTech Partnerships at Scotiabank for Latin America, comments: “At Scotiabank, we have a robust innovation strategy oriented to provide the best experience for our clients. The alliance with Startupbootcamp expresses our commitment to startups in Latin America that are in different stages of development and maturity. “

At the end of this process, the ten best FinTech startups in the region will be chosen, who will be the recipients of financial support of USD 16,500, a workspace in Finnovista Loft in the heart of Mexico City, specialized mentoring and access to a global support network.

The selected companies will be announced in August, although the program will start on September 9, and will last for three months.

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Fintech

Digital bank Nubank arrived in Mexico

The Brazilian fintech Nubank arrived in Mexico, according to Business media. Nu will be the name of the company in the country, which will seek to compete with the traditional banking system.

Nubank began operations in Brazil six years ago as an alternative to traditional banks. In that time, Nubank went from having 12 clients to 8.5M users. Since then, this Brazilian fintech has grown with the founding of different venture capital firms such as Sequoia Capital, Founders Fund, Kaszek Ventures, Tiger Global Management, Goldman Sachs, until becoming the third Brazilian startup to achieve the status of ” unicorn “(after PagSeguro and 99) in 2018.

In this year, the company announced the start of operations in Argentina and now in Mexico. These announcements talk about a process of international expansion that the company is experiencing, mainly towards Latin American markets where the level of banking penetration is deficient, and there is a lack of confidence in traditional financial services.

David Vélez, CEO of Nubank, commented on the current expansion process that the company is undergoing: “We finally took the step of taking our revolution to new markets, and we see a great opportunity to do the same in Mexico.”

Velez said that before arriving in the country, the company studied the Mexican financial system for several years, as well as consumer complaints about traditional banking.

Nubank is focus on customers

As a bank, Nubank is a digital native and seeks to distinguish itself from traditional banking by focusing on customers. On this subject, Vélez said «We created a company focused a 100% on the client and a product that solves their problems. When you see the traditional banking industry in all countries are oligopolies that 4 or 5 banks own 70-80% of the market, then there has not been much competition. You want a credit card or a bank account, and they are doing you a favor, and it must be the opposite. “

In recent years, traditional banks have introduced digital products such as mobile banking or new electronic payment options. However, Vélez does not consider that they represent a problem for the growth of the company. «Banks now see the success we are having, and logically they are in a stage of reinvention of their business. Some of them still think that the challenge is to create a better website or a better app, which often seems like a Blockbuster wanting to compete with Netflix, or taxi drivers creating an app to compete against Uber. It’s not just technology; it’s more a cultural challenge ».

Both Mexico and Brazil are fintech leaders in Latin America, occupying the second and first place in the region of ventures related to digital financial services, according to data from Finnovista.

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Fintech IT Development

Send money through an Instant Message

Mexican bank Banorte already allows its clients to send money to their contacts from text messages on WhatsApp, Facebook Messenger, SMS or any other social network, the bank’s corporate reported.

The function is called Banorte Go and is available to all Banorte customers who have the Banorte Móvil application on their cell phone.

With Banorte Go, Banorte customers can choose any of their contacts and transfer them up to 8K pesos in a day, without the need to contact the bank’s customer.

The transaction is carried out without the need of any bank key or any other banking data, thus ensuring that the bank’s customers keep their bank information protected.

This transfer option works through the Banorte Keyboard. On the keyboard, you can see the Banorte logo which, when clicked on, displays the bank transfer options.

The amounts that can be sent from this option range from 100 to 8K Mexican pesos per day.

The new functionality only works with the Android system, which is used by 80% of Banorte’s customers. For the next quarter of the year, it is estimated that the function of the iOS system is ready.

Banorte, a second chance

Sending payments through social networks is not a new attempt by Banorte. In 2017, this bank launched Peper, an application that allowed sending and receiving balance through social networks. The way of employment was different from Banorte Go. With Peper, users needed to download an app that was linked to the Facebook account and WhatsApp to make the shipments.

In March of this year, WhatsApp also reported that it would launch a payment platform from its application, which would be available in its trial version in several countries, including Mexico.

It will probably still take some years to know if the use of social networks as channels for online payments will become popular in the coming years. If this is the case, we will see a new trend in e-commerce, where instant messaging will no longer be just a channel to communicate with the customer, but will also be consolidated as a sales channel.

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Fintech

Creditas could be Softbank’s next investment

Since March, several media began to comment on the investment plans of Softbank Group for Latin America. This Japanese conglomerate will allocate $5B to support startups in the region.

Marcelo Claure, COO of Softbank Group, said earlier in an interview that Softbank is looking for unicorns or companies with the potential to achieve the status of unicorns to invest in Latin America. Therefore it was not strange that Rappi was mentioned as one of the first investments of the tech fund in the region. The Colombian delivery company would receive one billion dollars from the Japanese conglomerate to complete this operation.

The next startup on the list to receive a portion of the multimillionaire fund could be a Brazilian company. Anonymous sources reported to Bloomberg that Softbank executives are in talks to invest about $230M in Creditas, a Brazilian lender fintech.

The details of this transaction are not yet public, and no decision has been made so far. The sources who spoke to Bloomberg on the issue indicated that Softbank could retract the operation.

Latin American startups established a record figure in 2018 in venture capital investments, managing to raise more than $2B.

Creditas is a fintech that offers loans at lower interest rates than what Brazilian banks usually offer. Since its creation in 2012, the Brazilian company has lent more than 500 million reais. This company raised 250 million reais ($ 63.4 million) in two rounds of investment in 2017 and grew seven times concerning 2016. In 2018, the Fintech startup became five times bigger about 2017.

Among the investors of Creditas are InnoVentures of Banco Santander SA, Amadeus Capital Partners, Quona in Capital and Vostok Emerging Finance.