Mexico Inclusion worsens despite fintech startups

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Mexico Inclusion worsens despite fintech startups

Financial inclusion levels in Mexico have worsened since 2018, according to official statistics, despite the burst of financial startups hoping to 'bank the unbanked'.

Mexicans with at least one financial product last year fell by 0.5 per cent to 67.8 per cent compared to 2018, according to the National Inclusion Report ENIF last month. Cash still drives 90 per cent of transactions under 500 Mexican pesos $25 and 78.7 per cent of payments over 500 pesos.

In terms of inclusion and its reliance on cash, Latin America's second most populous country is behind similar economies like India, Kenya and Brazil.

While attracting millions of users, these startups are struggling to move the needle around Mexico's informal economy, says Maelis Carraro, managing director at consulting firm BFA Global.

She said that fintech innovators have not yet delivered on their potential to build solutions that are centered on underserved communities, and that they focus on Latin America's metropolitan elite, rather than poorer, rural communities where banking infrastructure is most needed.

The fintechs say they need more regulatory support to have an impact.

Inclusion will continue to hit a ceiling until more digital players become licensed as banks, according to Juan Guerra, Revolut's Mexico chief executive.

He said that Fintech users still have to connect their digital accounts to licensed banks, which require a visit to traditional brick-and- mortar branches.

58 companies have been approved for payment licenses by the Mexican Fintech Association since the government introduced its 'fintech law' in 2018, but no new retail banking licenses have been issued, according to the Mexican Fintech Association.

The proportion of Mexican adults with bank accounts went up two percentage points between 2018 and 2021 to 49.1 per cent, while card usage for larger transactions increased to a modest 12.3 per cent.

Mexico is home to international startups like Nubank, Uala and Revolut, with ambitious full-scale banking plans.

Convenience-store Oxxo launched a banking app in November, and it already has 1.6 million users. Customers can sign up directly in Oxxo stores, which are more populous nationwide than bank branches.

The Mexican government has started a pilot project to get women banked, after the gender gap for financial inclusion doubled to 12 per cent in 2021.

The adoption of CoDi, the government's mobile payments system, is something officials are beginning to dispense welfare benefits via digital wallets or bank deposits rather than cash, as well as encourage adoption of the CoDi, which was launched in 2019.