![Page 1: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/1.jpg)
THE EMERGENCE OF FINTECH IN MEXICO MICHAEL PEREZ
FINANCIAL ANALYST
FINANCIAL INDUSTRY STUDIES, FEDERAL RESERVE BANK OF DALLAS
THE VIEWS EXPRESSED IN THIS PRESENTATION ARE MY OWN AND SHOULD NOT NECESSARILY BE ATTRIBUTED TO THE FEDERAL RESERVE BANK OF DALLAS OR THE FEDERAL RESERVE SYSTEM.
![Page 2: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/2.jpg)
OUTLINE
• Overview of FinTech and current place in financial system
• FinTech opportunities in Mexico
• Broad look at different FinTech entities
• Opportunities and risks for commercial banks
• Regulatory responses
2
![Page 3: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/3.jpg)
WHAT IS FINTECH
• The use of technologies and innovative business models in financial services
• Sector comprised primarily of non-depository financial institutions that use online, mobile, and other technologies to deliver financial services
• Startup tech companies
• 128 in Mexico, 2,000 in U.S.
• Banks, non-bank finance companies entering FinTech Space • New products
• Investment
3
![Page 4: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/4.jpg)
A FINTECH FOR EVERYTHING
4
![Page 5: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/5.jpg)
Source: CBInsights
5
![Page 6: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/6.jpg)
FINTECH TRAJECTORY
• Complementary, not disruptive relationship with traditional financial institutions
• Partnerships between FinTech and banks present unique advantages for both sectors
6
![Page 7: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/7.jpg)
Source: CBInsights, Accenture *YTD Annualized
7
1.2 1.7 1.8 2.4 2.6 4.0
12.2
19.0 21.2
0
5
10
15
20
25
2008 2009 2010 2011 2012 2013 2014 2015 2016*
USD
Bill
ions
($)
Global Investment in FinTech
![Page 8: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/8.jpg)
8
![Page 9: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/9.jpg)
ECONOMY
• 15th largest in the world
• Privatization • Reforms in finance, infrastructure, energy, telecommunications
• High penetration of mobile and online technology
• Significant small- and medium-sized enterprise presence; most underserved by traditional banks
9
![Page 10: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/10.jpg)
FINANCIAL SECTOR
• Advanced, diverse, well-capitalized and regulated
• Low financial inclusion
10
79% 66%
52% 32% 30%
Panama Chile Brazil Colombia Mexico
Formal Finance as Percent of GDP
![Page 11: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/11.jpg)
DEMOGRAPHICS
• Population: 120 million • 70 percent under age 40, 41 percent between 15 and 39
• 39 percent of population aged 15+ has an account at a financial institution
11
![Page 12: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/12.jpg)
FINTECH MEXICO HEAT MAP
12
![Page 13: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/13.jpg)
PAYMENTS AND REMITTANCES
• Digital wallets • C2C: Consumers send funds to each other
• Remittances between Mexico and U.S.
• C2B: Consumers pay merchants
• B2B: Automated clearinghouse facilitation • Direct deposit, payroll, vendor payments
13
![Page 14: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/14.jpg)
ONLINE LENDING
• Consumer lending • Unsecured, personal loans
• 3-5 years, APR up to 35 percent
• Monthly payments, rare prepayment penalties
• Focus on borrowers with impaired or no credit histories
• Small business loans • MXN150,000 (USD8,000) or less
• 3-24 months, APR up to 100 percent
• Weekly or daily payments 14
![Page 15: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/15.jpg)
HOW DOES ONLINE LENDING WORK?
• Online application
• Origination handled by a partner bank
• Application collection and loan servicing handled by online lender
• Funding models • Direct debt or equity
• 3rd party sales
• Marketplace lending
15
![Page 16: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/16.jpg)
HOW ONLINE LENDING WORKS
16
Source: BI Intelligence
![Page 17: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/17.jpg)
WEALTH MANAGEMENT
• Robo-Advisors • Provide online portfolio management with minimal human interaction
• Algorithmic investing
• Reduce costs by cutting out need for human advisor
• Marketed to middle-class and young investors
• Automated savings platforms • Verify user bank account transactions to provide savings advice
• Some automatic, other provide notifications
• Guarantees
• Financial planning platforms • Gather information on financial accounts to provide summaries and suggestions
17
![Page 18: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/18.jpg)
CROWDFUNDING
• Raising capital through collective effort of individual investors through digital platforms
• Equity, rewards, bonuses
• Alternative to online lending for Mexico’s small and medium-sized enterprises
18
![Page 19: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/19.jpg)
OPPORTUNITIES
• More products
• Up to speed with young population
• New markets
19
![Page 20: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/20.jpg)
CHALLENGES & REGULATION
• Salient concerns • Money laundering
• Untested credit and business models
• Job cuts (paradigm shift)
• Disruption
• Steps towards regulation • Acknowledgement by financial regulators
• Trade groups
• Balancing act: fomentation v. security
20
![Page 21: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/21.jpg)
KEY TAKEAWAYS
• FinTech revolution is underway
• FinTech phenomenon not limited to developed economies • Salient opportunities in emerging markets
• Symbiotic relationship between FinTech and banks, but banks need to keep up
• Regulators aware of FinTech benefits and risks
21
![Page 22: THE EMERGENCE OF FINTECH IN MEXICO · the emergence of fintech in mexico michael perez financial analyst . financial industry studies, federal reserve bank of dallas . the views expressed](https://reader035.vdocument.in/reader035/viewer/2022070803/5f030ed77e708231d4075367/html5/thumbnails/22.jpg)
EXTERNAL RESOURCES
• Blogs • NerdWallet
• CrunchBase
• TechCrunch
• Mexico-specific • FINNOVISTA
• FinTech Mexico
• Newspapers: El Financiero, El Economista
22