Mexican fintechs eye a piece of the nearshoring pie.
Mexico continues to post record numbers for many of its economic indicators. And with what is projected to be a $30 billion-$40 billion nearshoring bonanza in its sights, financial institutions of all sorts are rushing to stake their claim.
The $644 billion-in-assets banking sector remains dominated by a few brick-and-mortar, multinational giants. BBVA México, Santander, and Banorte account for nearly 50% of the market, while Banamex, HSBC, Scotiabank and Inbursa contribute another 27%. But 66 million Mexicans, or 51% of the population, remain unbanked, creating cross-border payment and remittance opportunities for nearly 1,000 fintech startups.
Now is the time for anyone who wants to be in Mexico for the long term, specifically in the finance sector, according to Gilberto García, partner at Miranda Financial Advisory. “If you wait because you don’t know what’s going to happen when there’s more certainty, you’re going to tell yourself you should have done this before.”
Online-only neobanks have begun to have a significant impact. Although they haven’t broken into the upper echelons of Mexico’s financial market yet, they are promoting greater competition and improved access to financial products.
Described by CNBC as “one of the most disruptive companies in the world,” Kapital Bank is one such neobank.
A year ago, it acquired a nearly 50-year-old Mexican automobile loan provider, Grupo Autofin. Having injected $50 million to date into the lender, Kapital has watched 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 banking operations, usage has almost tripled,” he adds. “Instead of competing with commodities, we decided to compete with technology.”
Concentrating on small and midsize enterprises (SMEs), Kapital saw a need for a one-stop solution for businesses. It now offers over 15 services via its Automated Intelligence Dashboard (AID) all day, everyday.
“SMEs represent almost 70% to 80% of all employees in each Latin American country and they produce 50 to 60% of GDP, but they only receive 15% of the finance [from financial institutions],” Sandoval notes. “The only ways to grow are through friends and family or the usual providers [legacy banks and traditional financial institutions].”
Meanwhile, Kapital has expanded into Colombia and looks to exploit market similarities in Peru, Chile, Argentina, and Brazil as well.
Meeting The Challenge
Traditional banks like BBVA and Santander are highly dependent on Latin America—more than half of BBVA’s roughly €5 billion net profit came from Mexico last year—and they have clearly heeded the warning from the fintech camp. Banorte launched an online expansion this year via Bineo, its first fully digital banking platform. Santander’s Openbank and Banco Regional’s digital platform and app Hey are also now in the market, while at least five foreign banks, including Plata, Banco Masari, Banco ION, Konfio and Nu are awaiting licenses.
In May, Citi took a minority stake in trading platform operator Cicada Technologies, which trades 28 Mexican government bonds and plans to expand to other types of securities. At the same time, industry observers continue to eye Citi’s separation from Banamex ahead of a 2025 IPO.
“We need to stop thinking the bank is an impediment and start thinking the bank is going to be an enabler,” 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 wasn’t, but in Argentina it was the opposite?”
Making the most of financial services opportunities afforded by Mexico’s prospective economic expansion will take a collective effort, however. For all sides of the banking industry to continue to develop, better consumer education is needed, he argues. To fill that need and reduce costs, tech startups, legacy banks and everyone else must work together.
