In recent years, Mexico has been the preferred destination for many Latin American and global FinTechs to expand their operations. Characteristics such as the large size of its market, its high percentage of unbanked, its proximity to the largest global economy, the US, and the clear rules imposed by the FinTech Law, have made it a perfect breeding ground for the financial technology industry to flourish. Aaron Rodriguez, an expert on FinTechs, gives a more detailed explanation about the allure that the North American country has for FinTech companies.
Secured credit FinTech, Creditas, was already one of Brazil’s largest financial startups when it began its rollout in Mexico. The company founded in 2012 achieved unicorn status by being valued at US$1.75 billion in early December 2020 with investment from funds such as SoftBank, Kaszek Ventures, LGT Lightstone and Tarsadia Capital. With this series-E round, the startup became one of the most capitalized FinTechs in Latin America, with $570 million raised in five investment rounds.
During the third quarter of 2020, the company’s loan portfolio reached approximately $207 million, almost double that of the same period in 2019. In addition, Creditas ended the quarter with a record September in revenue of $6.05 million.
Despite being an established player in Brazil and its domestic peers are notorious for not venturing beyond their borders, Creditas decided to explore new seas and deliver its range of home equity loans, auto collateral loans, auto finance and payroll loans products. Its expansion plans coincided with the pandemic, so the startup not only had to set up the company in a foreign country, adapt to its language, users, workers and regulation, but also do it completely remotely.
But Creditas was not the only Latin American FinTech that decided to enter the North American country. Of the 25 largest financial startups in the region identified in KoreFusion’s 2020 Latam Fintech Report, eight are Mexican, six have operations in the country and two have announced plans to expand there. In addition, startups from other continents are also beginning to test the waters in Mexico. For example, US cryptocurrency trading platform Coinbase arrived in Mexico in March 2019, while English neobank Revolut opened the call to hire its head of operations in Mexico.
“And was it worth the bet? The numbers don’t lie; in less than a year, Creditas has the full product portfolio in Mexico and management advances that the company will be able to grow significantly just as they have done in Brazil,” says Rodriguez. “Other financial technology startups that entered the country are also experiencing accelerated growth, such as Chilean mutual fund investment platform Fintual, which recently debuted in Mexico and is growing faster in Mexico than it did in Chile at the same stage of growth. In the last month alone, its managed capital increased by 60%.”
For its part, the personal financial management platform Ualá has managed to issue more than 100,000 cards in five months since its launch in Mexico at the end of 2020 and adds between 1,000 and 2,000 Mexicans a day.
The entry of these new players “has undoubtedly increased not only competition but, more importantly, competitiveness within the financial sector, as it is forcing traditional institutions to accelerate their digitalization process,” asserts Rodriguez. “When there is an abundance of products and services and you reduce the control of oligopolies, you increase more and better offers accessible to the population.”
Having a large market close to the largest global economy, the US, is a characteristic that any company looks for when planning its expansion in Latin America. But, for Latin American FinTechs, Mexico represents a particularly valuable opportunity.
Not only is it the country with the second-largest population in the region, with 127.6 million inhabitants, second only to Brazil, but it is also one of the countries with the largest unbanked population in the world (63%) along with Morocco (71%), Vietnam (69%), Egypt (67%) and the Philippines (66%).
“Mexico is very interesting, because it is not so easy to establish a company because the regulation is complex and you must comply with many requirements to obtain a license, but that also generates certainty for investors, companies and customers,” Rodriguez points out.