INSUBCONTINENT EXCLUSIVE:
Thiago Paiva
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Thiago Paiva is a fintech entrepreneur, writer
He is the co-founder of Liquia Digital Assets, an investment platform for international investments using blockchain
technology.
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The emergence of super apps in Latin America
Banks in Latin America have long
dominated the market as oligopolies, becoming highly profitable but not serving well the population.
In the region, Brazil was the first
market to have the banks& oligopoly challenged by neobanks, with Nubank proving that it was possible to break them up
Providing a superior product and exceptional customer support, it was able to attract more than 15 million customers, valuing the company at
an astonishing US$10 billion in its latest round.
Although Brazil has been the center of the neobanks& emergence in Latin America, attention
has been shifting toward another country in the region.
The Mexican opportunity
Mexico, the second-largest economy in the region, has become
a relevant market for the fintechs in the region.
The reason is not exactly the most flattering; Mexico is a large country with almost 130
million population, but a large share are still unbanked
Indeed, 63% of the adult population still doesn''t have access to financial services, according to the Global Findex database, and banks
haven''t been able (or are not interested) to serve them.
Furthermore, Mexicans are very suspicious of banks because of their lack of
transparency, as well as recent financial crises.
Because of this skepticism toward banks, together with a cash-based economy, 90% of all
consumer transactions are still made in cash, which prompts a rather peculiar situation — twice a month (quincena) there are long lines at
ATMs all across the country with people withdrawing all their wages.
On the other hand, Mexico has a digitally engaged population (Mexico is
the fifth largest market for Facebook, ninth for YouTube and the third for Uber), with high smartphone penetration (85.8% according to The
Competitive Intelligence Unit).
All these elements put together create a rather attractive opportunity for the emergence of neobanks.
Mexico
becomes the next battleground
Mexico had a few neobank pioneers in the past couple of years; Bankaool launched its services in 2015, but was
too early in the market; later on came Broxel and Albo in 2016 followed by Flink in 2018.
However, the market started to garner more
attention in April 2018 when the Iranian Matin Tamizi raised US$2 million from Andreessen Horowitz (a16z) and Kaszek Ventures to create a
neobank in Mexico (Cuenca)
It is interesting to note that Matin, at that time, had never been to Mexico and only had a slide deck to demonstrate the
opportunity.
Neobanks aren''t the only ones trying to get a share of the Mexican wallets
This event, together with the success of neobanks in Brazil, sparked attention for the potential of the market.
A couple of months
after, Albo announced a Series A, raising US$7.4 million
It is currently the leading player in the market, with 150,000 customers and the third debit card issuer in Mexico.
Shortly thereafter,
Fondeadora raised a US$1.5 million seed round to enter the neobank market, pivoting from a crowdfunding platform.
Late in September, a new
entrant closed a relevant round; Klar raised US$7.5 million in equity and US$50 million in debt financing with the goal to become the &Chime
of Mexico.
Vexi is another player in the market, though it is focused on providing credit cards to people at the base of the pyramid
It has issued, so far, more than 20,000 credit cards and, recently, raised US$2 million in equity and US$1 million in debt
financing.
Regional and international players are also becoming interested in the opportunity
The Brazilian giant Nubank announced this year officially that it would be expanding there
From overseas, the leading Spanish neobank, Bnext, announced it would be entering the Mexican market, fueled by a fresh new round of €22.5
Different from other neobanks, Bnext partners with fintechs and financial institutions to provide services to its customers via a
marketplace.
Nonetheless, there are rumors that other heavyweights, such as the Europeans Revolut and N26, are planning to enter the market,
as well as the Argentinian Ualá.
Neobanks aren''t the only ones trying to get a share of the Mexican wallets
Many tech companies such as Cabify, Weex and Rappi are launching digital wallets and issuing debit cards, leveraging their large user
base.
To add a final spice to the market, traditional banks are making a significant effort to improve their digital offers — some even
going as far as launching digital branchless initiatives
The Spanish Banco Sabadell entered the Mexican market with a full digital strategy, while Banregio (a local medium-sized bank) launched Hey
Banco, a new digital account.
On the sidelines, there also are a few neobanks focusing on a different segment
Oyster and Evva are targeting the unattended market of freelancers, startups and SMEs, long neglected by the incumbents.
The stage is set
for an upcoming battle
Although the market is still in its early stage with just a handful of neobanks with running services, the stage is
set for an amusing upcoming battle
Most players will be launching in the next couple of months, which will trigger a race for acquiring customers and raising more money.
This
competition will definitely change the landscape of the financial industry in Mexico, bringing better and more affordable services to its
population.
It will be indubitably interesting to watch how the market will unfold in the following years, and the prize for the winners can
be quite attractive, as Nubank proved in Brazil.
