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The fintech wave that moved banking

June 3, 2020

Read for 12 min

The opinions of the employees of s You are personal.

The fintech wave that moved bankingThe fintech wave that moved banking

Raúl is 40 years old, has worked for the same company for 12 years and has a debit card that he only uses three times a month: “If you deposit me, in the middle of the fortnight and before you deposit me again. ”

All of his transactions are done in cash, from paying the cell phone in the department store to buying the pantry in the supermarket. You only use your card at the ATM on the ground floor at work and do not have the bank app on your phone. “I had on the phone before I downloaded it, but I only used it to see if they had already deposited me,” he admits.

Raul’s case is not that strange. According to the Banco de México (Banxico), 95 million people over the age of 18 live in the country, of which 37 million have an account. That is, only 39% of Mexican adults have their money in a bank.

How do they use your card? Around 90% of the population still use cash as a daily means of payment. Only 12% use debit cards. 4% credit card and only 3% make payments or electronic transfers based on the results of Quantitative and qualitative studies on cash 2018, Banxico.

There are also 70 million smartphones in the country, 58 million of which are owned by adults, Banxico says. Of those with bank details, only 24 million have an application from the institution with which they have an account and make movements. That said, almost two out of three people with cell phones are like Raul.

What does that mean? Regardless of the advances that traditional banking offers in its digital offering, a large percentage of the population is not convinced to use mobile applications out of fear and distrust, which prevents them from making the most of technological advances.

Why is it important to have financial services?

Access to and use of formal financial services is referred to as “financial inclusion”, while the ability to make economic, personal and social choices and use financial products and services to improve quality of life under certain conditions is defined as ” financial education “.

Both of these things are a great opportunity in Mexico today, because on the one hand there are people who do not manage a financial instrument and on the other hand people like Raúl who have an account with the bank but do not know how to benefit from the services or benefits, that it could offer you.

“These problems have worked for a long time in Mexico, but we have to step up our efforts because we are behind. However, there are joint private sector initiatives with the government to involve more people in the banking sector, ”said Andrés Fuentes, principal partner of Ernst Young’s financial services practice for Latin America North.

“With bankarization, you help people get access to other services that they need for their well-being, such as loans,” he says. “Digitization is an advantage for the user, because today everyone needs and wants quick and immediate access to all services.”

And this type of user consumption has forced banks to make more and more efforts to ensure that their system meets user requirements quickly and without so many obstacles.

Banking and fintech alliances

The new times have led other players to offer innovative products to users. One of these players is Fintech, a digital platform through which digital services are offered Internet sites, mobile applications, social networks and other virtual tools.

Fintech companies were born as a kind of addition to traditional banking. The relationship between the two was complicated, however. “One of the big differences is that banks have a large portfolio of services such as money exchange offices, wire transfers, loans, insurance and investment banking, while fintech companies generally focus on doing just one of these things,” explains Gerardo Obregón , Founder and CEO of Prestadero, an online peer-to-peer credit community.

Banks and fintech companies were originally supposed to enter into various alliances worldwide. However, the trend has been that banks are strengthening their digital products and only offering complementary services such as data analysis or regulation, he says. “Banks and fintech live together, which leads to a significant improvement for the end customer, since this creates more competition and a wider range of offers,” Obregón analyzes.

However, there are some cases in Mexico where “traditional” financial firms work with fintech companies like Visa and the Mexican fintech company Konfío, who have jointly introduced a business credit card for SMEs.

“By working with Fintech, we are more involved in the digital transformation and more based on the technological part. They are essentially the same type of products but offer a different experience,” said Luz Adriana Ramírez, CEO of Visa México .

Neobanks and cryptocurrencies

Another new player that has entered the financial world is the so-called “neobanks”, which are fintech companies that offer 100% digital banking products. Nubank – or simply Nu – is one of them and defines itself as the “largest independent digital bank in the world” with 20 million customers in Brazil and branches in Mexico.

“We were born in 2013 with the goal of reducing the complexity of financial services for clients,” said Emilio González, Country Manager at Nubank in Mexico. “We have always tried to make democratic products, even though we are naturally more attractive to young, technologically indigenous people who are already interacting with services like Uber, Spotify or Netflix.”

They currently only offer one credit card in Mexico, but hope to launch new products soon. “We meet all legal requirements and analyze all regulations that enable us to offer other products in the most efficient way,” he says.

But the alternative financial product that has gained more fame – although it is ironically one of the least understood – is cryptocurrency, which in a nutshell is a kind of alternative currency and digital currency.

One of the main problems for recognition as a common financial product in Mexico is regulation. “There are some companies in the country that allow these digital assets to be sold. There is no direct regulation of cryptocurrencies, but it does regulate financial institutions and the fintech companies that offer them, ”says Bernardo González, specialist at KIO Networks, a technology services company.

“As with traditional financial systems, the regulation seeks to keep records of issues such as customers, anti-money laundering laws, or the identification of those who conduct the transaction,” he said.

According to a report by computer security company Kaspersky, 74% of Mexicans have never bought cryptocurrencies, and only 13% really know how they work. Therefore, this digital instrument is growing slowly due to ignorance and distrust.

The new atomic bomb

Security is another concern of users to manage their money in formal instruments. In the first half of 2019, around 430,000 users were confronted with malware aimed at stealing money, cryptocurrencies and Internet payment services. However, financial institutions of all sizes are at greatest risk, according to Kaspersky.

“Attacks on financial systems have increased steadily worldwide recently. Frequency, shape and capacity have increased, ”warns Roberto Martínez, senior security researcher at Kaspersky Latin America.

The good news is that these institutions intend to act in time. “In the key areas of banking security, there was clear integration and communication in banking associations to define clear rules of the game, for example the exchange of important information in connection with threats in order to identify them in good time,” says Martínez.

Michael Plichta, director of corporate security at Scotiabank Mexico, points out that this will also force governments and police officers around the world to deal with regulatory and intelligence issues, but the banks have already set out .

“All major and international banks invest millions of dollars annually in hack protection because it is now considered a new atomic bomb,” he said. “So we are very close to checking the systems 24 hours a day so that we can take immediate action if we suspect it.”

The inevitable digitization

Banks, fintech and users can be sure that there is no turning back for the digitalization of financial services and everything indicates that it will gradually become more common, even for those who do not have a bank yet.

The big transactions are digital today: “They no longer see anyone with millions and millions of dollars and they are also not managed in a branch. The commercial banking market is almost entirely virtual today, ”says Plichta. “Digital banking helps streamline all processes so you can become more competitive in the international market. The world is changing and we all have to make the same progress to survive. “

One of the major advances that have been made in the past few months for more people using electronic banking is the CoDi, an electronic payment system sponsored by Baxico to make payments and purchases by mobile phone by scanning a quick response or QR codes to make the mobile application of a bank.

This system tries to reduce fraud since all transactions have to be confirmed by the seller and the buyer.

According to Banxico, 29 banks introduced this option in October 2019, and it is targeted that 37 million Mexicans with a bank account will use it by 2022. By the first days of 2020, there were more than 1.6 million validated CoDi accounts. from users, of whom more than 133,000 had made a collection or payment transaction.

This method of payment was very successful in Asia, where there are fully automated shops that can record all transactions and movements with QR codes.

It is still too early to know whether this initiative will succeed or not, but over time other new payment methods will be introduced that no longer require cash and people like Raúl, yes or yes, will need to be digitized. Of your financial services.

“I know that one day I’ll have to pay for everything on my cell phone, but the most difficult thing right now is to put the code of the prepaid cards on the Amazon site so I can get them there,” he says when he says leaving an oxxo There he paid for the tickets for the NBA game in Mexico, which he had put aside on the internet a few hours earlier.