Fintech in Mexico: Breaking the Credit-Access Logjam
In the U.S., access to financial services is understood as a critical building block along a trajectory to reduce economic inequality. This realisation is fueling a growing number of fintechs to offer no-fee or low-fee products and services. In addition, U.S. credit bureaus are increasingly incorporating alternative data into their models. Meanwhile, thanks to a nascent ‘buy now, pay later’ (BNPL) wave, recent research suggests U.S. consumers will make nearly US$100bn in retail purchases using BNPL tools this year – up from $24bn last year.
We may take enhanced access to the financial services pie as a given in the U.S, but Mexican consumers are saddled with a lack of access in a context where 86% of all payments are made in cash; 37% of adults have bank accounts, and 30% of Mexican banks’ revenue on average comes from fees.
What’s more, Mexico has a high proportion of workers that form part of the informal economy up 57%, per research from INEGI, Mexico’s National Institute of Statistics and Geography. This means consumers have difficulty establishing credit histories that would make them eligible for loans and other mission-critical financial services.
And while some countries experienced growth in financial services access, Mexico has continued to fall behind when compared to other countries in the region. For example, the number of Colombians with bank accounts rose by 3 million during the pandemic, to 31.2 million, government sources told The Wall Street Journal. Mexico, by contrast, moved in the opposite direction. In addition, at 34%, Mexico’s credit-to-GDP ratio also lags behind other Latin American economies, including Columbia and Brazil.
Breaking the cycle of poverty
Removing barriers to financial services products is crucial to improve economic outcomes, ensure sustainable management of day-to-day living costs, and allow consumers to plan for the future. Access means consumers can “take advantage of business opportunities, invest in education, save for retirement, and insure against risks,” according to research from The World Bank. In particular, access to credit is a key that can bring greater predictability to the management of consumers’ financial needs, and ensure they have healthy financial lives.
Accessible credit for a wide swath of the Mexican population requires out-of-box approaches that go beyond traditional credit checks to meet a variety of financial needs across a consumer’s lifetime. These approaches can include leveraging alternative data to assess a user’s creditworthiness and ability to repay a loan, providing access to BNPL solutions that help grow consumers’ purchasing power while keeping repayment terms affordable, and offering employees early and interest-free access to a portion of their wages before payday.
The road to financial inclusion involves leveraging fintech innovation to develop products that reach thin-credit-file, sometimes unscareable consumers who otherwise would be left out of financial services. Fintechs like Kueski, for example, – and indeed other large global tech-enabled lenders and payment providers – are proof that these challenges can be mitigated by technology that has a direct line of sight into a customer’s behaviour, profile, and ability to repay a loan.
Currently, there is an unprecedented opportunity to reach millions of underserved, underbanked consumers that are willing and able to repay, and it’s up to the industry to figure out how to meet that challenge by using technology as a force for good.
***
About the Author: Adal Flores is the Co-Founder and CEO of Kueski.