The long queues outside ATMs in Mexico may become a thing of the past, much to the detriment of traditional banks – that was one of the major takeaways from a fintech conference on Tuesday.

The business of “traditional bank markets are being cherry-picked by smart, agile fintechs,” Andrew McFarlane, managing director for financial services at Accenture, said during the Finnosummit in Mexico City on September 10.  

“Payment revenue is on a path to zero,” McFarlane said, as fintechs offer an expanding suite of free asset management, rock-bottom loan rates, and a host of other low or no-cost services. This, he warned, “is a threat to incumbent banks.”

START-UP CAPITAL FLOWING

Luiz Mazetto of São Paulo-based venture capital (VC) firm Monashees said that the “biggest companies in Brazil are financial services, the banks are huge [but] there's no product innovation at all.”

Because of this, and the size of the domestic market, as VC flowed to start-ups in Brazil its fintech ecosystem got a jumpstart on the rest of the region. Brazilian fintech “players are trying to attack specific products” as they cut away business from the country’s banks, Mazetto said. 

Now though, as more capital flows to start-ups around Latin America, Colombia and Mexico in particular are catching up. 

“Finally, we have access to financing,” said Federico Antoni, founding partner of ALLVP, a VC firm based in Mexico City. He listed the emergence of angel investors and the maturity of the VC scene as signs of this growing maturity. 

Indeed, while Mexico has seen a slowdown in other forms of deal financing – especially in terms of mergers and acquisitions and private equity – VC has grown rapidly of late.

According to Transactional Track Record, the total volume of VC deals in Mexico was US$450mn in January-July this year, a 31% increase from the same period of last year.   

“The system in Mexico has unique advantages now,” Antoni said, referring to the fintech ecosystem. 

“By definition, an ecosystem has many participants. We [in Mexico] have a healthy system of participants,” Antoni said. “It's an immense and divine greenfield.”  

Beyond the availability of capital, the conference panelists said Mexico’s fintech community has the advantage of having a tech start-up scene where expansion comes naturally. 

In the words of Mazetto: “These guys are born already with an international expansion vision.”   

RECESSION-PROOF, BUT CONSUMER DOUBTS PERSIST

“Fintech is isolated from a macro slowdown,” said Diego Serebrisky, co-founder of Dalus Capital in Mexico City. Rather, fintechs “are growing because they're serving a need that's out there.”

Amid concerns of a slowing global economy, with major economies like Brazil and Mexico flirting with recession, speakers at the Finnosummit struck a notably upbeat note. 

Michael Sidgmore, partner at Broadhaven Ventures in San Francisco, said that while Mexico's economy has undoubtedly slowed in 2019, fintech is a “structural growth story” that will sustain expansion by catering to “underserved consumer markets.”

Yet, other headwinds remain. Mexicans, like consumers elsewhere, are wrestling with how much of their personal data they want shared, and and with whom they want to share it.  

McFarlane at Accenture sees Mexico as folding into the larger doubt among consumers globally when it comes to the era of “open banking.” 

Like big banks and retailers, fintechs are struggling to marshal consumer data in order to provide custom solutions, while also not scaring clieoff customers by misusing their data. 

“People are willing to share data and information with third-parties, so long as there is a perception of value,” McFarlane said. 

The key, he cautioned, was that third-parties had to provide consumers with real value in exchange for their data. Around the globe, fintechs have initially gained that trust by catering first to different niches. 

In Singapore, which McFarlane cited as a potential model for Mexico, startups have grown into financial services first by targeting auto sales, parts, and financing. 

Another model for fintech expansion, he said, crops up around travel packages as a hook toward an expanded suite of financial products.  

“It’s not clear what model evolves in Mexico,” he said. 

 

Source: Business News Americas / BN Americas - Chile