Strength of Mexican fintech industry displays Latin American potential in Industry 4.0 era

23 August 2018 Authored by Consultancy.lat

Latin America may have skipped a beat whilst Asia reaped the rewards of the internet revolution from the 1990s onwards, however The New World is aiming to capitalise on the fourth industrial revolution. 

Latin America is the most urbanized region on the planet and has one of the highest penetrations for mobile technology as well. Both of these factors combined have produced a highly dense, tech-literate workforce which is the perfect breeding ground for software and computer engineering, and, in turn, Industry 4.0 technological adoption.

The fourth industrial revolution refers to the rapid advances in new technologies including blockchain, artificial intelligence, Internet of Things and automation. Whilst the majority of these technologies are still in their infancy, one Industry 4.0 technology is already being dominated by Latin America; Fintech. 

According to a recent article by PwC Mexico, “digital disruption is opening spaces for innovation and new growth opportunities, such as financial technology or Fintech” throughout the region. The Big Four consultancy has been heavily focused on the challenges and impacts of technological disruption, especially within the finance sector. 

“In Latin America, the [fintech] sector has grown at a high rate, and now accounts for 25% of venture capital investments in Information Technology. Mexico is one of the largest markets in the region, along with Brazil, and, globally, both are part of the six countries that have more Fintech companies with China, India and the US.”

Strength of Mexican fintech industry displays Latin American potential in Industry 4.0 era

Mexico has just gone through the process of passing a bill which regulates fintech through congress. The move creates financial stability around the emerging sector and provides assurance to investors and start-ups alike. 

"By offering certainty, the new law will enhance the attraction of investments in financial technology companies, making Mexico the epicenter of financial innovation and Fintech in Latin America," said Eduardo Guraieb, Managing Director of Fintech Mexico.

The security has been met with appraisal from the local Fintech community which outgrew Brazil in 2017 in terms of start-ups to become the biggest across the continent. Whilst Brazil is considered to be the region’s leader when it comes to early fintech adoption, entrepreneurship surrounding financial technology is driven out of necessity.  

Of Brazil’s fintech sector, only 28 percent of start-ups target the unbanked consumers or SMEs – which account for roughly 32 percent of the population. When comparing this number to Mexico – with a much larger unbanked figure of 61 percent – almost half of all (46 percent) Mexican fintech companies address the issue. The Fintech sector in Mexico is fighting to eradicate financial exclusion in the country and as a result is outgrowing regional competition. 

Fintech in Mexico

In Mexico specifically, the industry has grown at a rate of approximately 50% over the year to 2017, according to Fintech Radar México. The value of the sector’s transactions too has been growing in leaps and bounds, reaching upwards of $30 billion this year, and is expected to continue double digit growth over the next five years. 

Hand in hand with this successful industry takeoff is the regulatory environment which facilitates it. Mexico has recently approved a Fintech Law that opened the market up to greater investments and which generates financial inclusion. “It creates more stable financial systems and economies, helps reduce poverty and inequality by helping people to invest in their future.”

One of the reasons for such an aggressive uptake of the technology in the region, and which is cited by PwC Mexico, is the high percentage of unbanked citizens – or as the consulting firm calls them, future clients. “Almost 60% of Mexicans do not have access to banking products, which speaks of a potential market, as well as areas of opportunity for the development and implementation of technologies.”

“This opens up awareness about financial services: what are available, their use, benefits, and basic concepts such as interest and payments. Education is the key to the success of the sector, both to generate demand and take advantage of business opportunities, as well as for the effectiveness of the processes.” 

“The Fintech sector in Mexico is fighting to eradicate financial exclusion in the country and as a result is outgrowing regional competition.”

PwC Mexico’s Challenge

To ensure that education is present where it needs to be, PwC is involved at both an executive level – preparing the region’s business leaders for fintech – all the way down to developing talent in its own workplace. 

“Empowering and encouraging the development of digital opportunities and skills should be a fundamental long-term strategy, in which financial institutions should focus, with continuous learning and training essential for this,” the article’s authors stated.

The firm is also committed to developing talent at an educational level and is running a new challenge to bring banking and financial services to those currently outside of the system. The PwC Challenge: Banking the “Unbankable”– a financial inclusion puzzle – will run from 28 August in conjunction with the Autonomous Mexican Institute of Technology (ITAM). 

“This will allow students of the last four semesters to develop and incubate innovative projects and propose novel solutions to current challenges, while promoting the development of digital skills,” the article concludes, followed by a call to arms; “The challenge is about to begin, are you prepared to achieve it?”

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