“In Mexico an estimated 44% of the adult population own no financial products. Many are put off by steep banking fees and past scandals, or they are too poor to save. Others shun the formal banking system to stay off the radar of tax collectors.”
In developing nations wrought with organized crime and corruption, it should not be surprising that a large percentage of the working class prefers to conduct their business and everyday lives in cash. In fact, according to the World Bank, “Globally, 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services.” This mobile device ownership is crucial because the World Bank has identified that financial inclusion is on the rise globally due to accessibility and prevalence of mobile phones – or in this case, simply the ingenuity of Fintech.
Fintech in the 21st century stands on the precipice of tapping into a seemingly overlooked market of over 1 billion people. Fintech’s ingenuity likely stems from the ability to identify the reasons 1.7 billion people may not have entered the formal economic system and offer alternatives. For example,
- Online Lending
- Alternative measures of creditworthiness
- Online Banking
- Access to Online Consumer Space
- Business Banking Integration
According to the Central Bank of Mexico, “on March 10, 2018, the Fintech Law became effective and established the foundations of a regulatory framework to facilitate the execution of financial transactions and services related to financing and investment through IT platforms or tools, services for the issuance administration, redemption and transfer of electronic payment funds, and the use of virtual assets in these transactions, whether through fintech institutions ("FTIs"), entities authorized to operate through regulatory sandbox models, or authorized Mexican financial entities ("Financial Entities").”
Over a year later, 85 fintech companies have submitted applications to Central Bank of Mexico to formally operate in the market under this new law. Due the strides and promise fintech companies pose for the unbanked globally, Mexico’s unbanked is ripe for the taking. The outcome of Mexico’s fintech law holds the potential to become the blueprint for other developing nations or provide critical lessons learned in the pursuit of financial inclusion.
The government has been looking to both banks and fintechs as it aims to reduce cash in circulation to cut down on money laundering and corruption, and to draw more people into the formal economy.