- The changes in the fintech sector in Mexico proposed by Cofece aim to increase access to financial services for the population, reduce costs, and enable the portability of accounts and payrolls between institutions.
- Open finance and digital correspondents will encourage institutions to offer better services. The goal is to benefit users and small businesses with alternative payment solutions.
In a country where 1 in 5 people rely exclusively on cash and have no access to alternative payment methods, fintech innovation is emerging as a powerful response. However, the path to transforming the financial ecosystem in Mexico and achieving broad financial inclusion still faces key challenges that limit its development.
According to data from the Bank of Mexico and the World Bank, Mexico has a considerable lag in basic financial services compared to other Latin American countries. This context underscores the need for structural changes that expand access to safe and efficient financial services.
This article explores the market opportunity in the fintech sector, current limitations, and recommendations from the Federal Economic Competition Commission (Cofece) to implement changes in the fintech sector in Mexico. These changes aim to incentivize effective competition and promote a more inclusive offering of financial services, as detailed in the “Study on Competition and Free Concurrence in Digital Financial Services.”
Financial exclusion in Mexico: a persistent gap
In Mexico, more than half of the adult population lacks a bank account, while credit card usage is even lower, covering only a tenth of adults. Additionally, only a third of the population uses digital payment methods. This has created a deep dependence on cash, which remains the dominant payment method.
The low adoption of formal financial services is driven by factors such as a lack of banking infrastructure, cultural preferences for cash, and the informality of the economy. Fintech companies, which offer digital services like savings accounts, loans, and payments, are beginning to fill this gap by facilitating access to financial services through online platforms that require less investment in physical branches and ATMs.
A driver for financial inclusion: changes in the fintech sector in Mexico
The development of fintech in Mexico is revolutionizing access to financial services and presents a key opportunity to reduce barriers in the sector. However, competition remains limited, and many fintech companies face high regulatory costs. In fact, Cofece’s study on “Competition and Free Concurrence in Digital Financial Services” highlights several areas where regulatory limitations are hindering sector growth.
Some of the main challenges identified in the study include reliance on branch networks, a lack of clear information for consumers, and the costs users face when trying to switch providers. The regulatory structure also represents a barrier, as while banking entities enjoy less restrictive regulations, fintech institutions such as Sofipos (Popular Financial Societies) and IFPE (Electronic Payment Fund Institutions) face stricter requirements that limit their ability to compete effectively with traditional banks.
Cofece recommendations: towards a more competitive fintech market
Cofece has proposed a series of recommendations aimed at strengthening competition in the digital financial sector in Mexico and facilitating access to more inclusive and affordable services. Some of the most notable proposals include:
- Facilitating institutional change: Cofece proposes a process that allows users to transfer their bank account comprehensively from one institution to another without additional effort. This includes the transfer of services like direct debit payments and other configurations associated with the previous account, thus incentivizing financial institutions to improve their products and services to retain customers.
- Extended payroll portability: Currently, users can transfer their payroll between banks, but this transfer is limited to the balance and does not include additional configurations and services. Furthermore, this portability does not include popular financial institutions (Sofipos), reducing available options. Extending portability to other institutions could allow workers to choose the entity that best suits their needs.
- Increased information transparency: Cofece also suggests that information about financial products and services should be accessible and clear for users, enabling them to easily compare options. Moreover, fintechs and other entities must be properly registered with financial regulators to ensure their reliability.
- Cancellation mechanism: Another key point is the creation of a general mechanism for canceling financial services, establishing clear timelines and necessary requirements, facilitating users’ exit from services they no longer need.
- Digital correspondents: Cofece’s proposal includes allowing more commercial businesses to serve as points of contact for financial institutions, enabling fintechs to operate as digital correspondents and extending the reach of financial services across the country.
- Promotion of alternative payment methods: Encouraging the use of alternative payment methods, such as instant transfers and other digital options, would reduce dependence on cash and allow small businesses to accept digital payments, decreasing financial exclusion.
- Implementation of Open Finance: Moving towards an open finance system in which financial data can be securely shared between institutions would allow for the creation of personalized products and foster healthy competition.
Structural and behavioral challenges in the fintech sector in Mexico
Despite the opportunities, significant obstacles remain. Branch networks and cultural preferences for cash continue to limit the adoption of digital services. Users tend to develop loyalty to a brand and face high costs when changing providers, which limits multihoming—the ability to have multiple financial service providers.
Moreover, while the regulatory framework has been relaxed in some aspects to facilitate fintech growth, the lack of clear standards in areas such as payroll portability and the hiring of third-party providers imposes an additional burden on new companies. This can disincentivize innovation and delay the entry of new players into the market.
The potential of Open Finance and novel models
An emerging area of opportunity in the sector is the advancement towards an open finance model, where financial data is shared between institutions under security standards. This practice would allow fintechs to design more personalized and competitive products, benefiting consumers by offering solutions tailored to their needs.
The Law to Regulate Financial Technology Institutions (LRITF) introduced the concept of “novel models,” designed to encourage innovation through flexible regulation. However, to date, no company has been authorized under this scheme due to ambiguity in the definition of innovation.
In conclusion, changes in the fintech sector present a critical opportunity for Mexico on its path to financial inclusion. Implementing Cofece’s recommendations, combined with a regulatory policy that allows fintechs to compete on equal footing, could transform access to financial services in the country.
For changes in the fintech sector in Mexico to fulfill their promise of inclusion, it is necessary to build an ecosystem of fair competition, where banks, fintechs, and other actors collaborate to create a diversified offering. Innovation in financial services not only represents a significant business opportunity but also a structural change that has the potential to positively impact millions of Mexicans, enabling them to manage their money and access credit and payments in a digital, safe, and efficient manner.