Little credit card penetration and a very young population pose two critical drivers for long-term growth in Mexico’s digital economy, according to fintech executives who spoke at the Ebanx Payments Conference in São Paulo last week. The remarks come even as the country continues to grapple with one of the worst financial inclusion metrics among the region’s largest economies.
Just about 10% of adult Mexicans have credit cards, according to data by Banorte, one of the country’s leading traditional banks. Barely half of its population is banked.
Although these statistics paint a bleak picture of financial inclusion, they also illuminate a significant opportunity for traditional financial institutions and innovative fintech disruptors seeking to bridge the financial divide.
Mexico boasts a thriving payment market largely untouched by digitalization, making it a prime target for some of the region’s neobanks. Brazil’s Nubank and Argentina’s Mercado Pago have set their sights on this burgeoning market, while payment facilitators such as Ebanx and Clip have also made inroads. Banks and fintech companies strive to incentivize the adoption of digital payment methods in a country where cash-based transactions and traditional bills still dominate.
“Cash is still king in Mexico,” Constanza Lopez Vela, Acquiring Manager at Banorte, said. “Mexicans take pride in opening their wallets and showing lots of notes.”
According to the bank’s data, cash transactions account for 55% of all payments, followed by card payments at nearly 30% and electronic payments at 11%. This dominance of cash transactions is unparalleled in the entire region, highlighting the challenge and the opportunity awaiting.
A new generation
While Mexicans are used to dealing in cash, in large part due to a massive informal economy, Lopez Vela is hopeful that a new generation might herald a change.
“It is still a very young country,” she said about a nation of 130 million. “Over 33% of the Mexican population is below 19 years old. We expect them to enter the workforce soon and use digital payments.”
Financial inclusion ticked up slightly during the past few years, according to data shown by Ebanx. It rose from 47% to over 50% during the pandemic. Although the increase is relevant, it shows there is still a long way to go if Mexico wants to catch up with its peers.
Colombia and Argentina have managed to bank nearly 60% of their population, while Chile and Brazil boast numbers above 80%. “People do not trust banks, and we have not done a good job solving their issues,” she reckoned. “That is why neobanks and other fintechs with a strong customer focus are growing in the market.”
Growing fintech industry in Mexico
Improving financial conditions and a vast swath of the population without access to financial services pose opportunities for fintech disruptors.
In recent years, payment fintechs have sprawled in Latin America’s second-largest economy, aiming to take a piece of the pie of the growing digital business. Around 40 fintech companies, including Ebanx, Clip and Mercado Pago, now vie for market share, challenging traditional well-established lenders such as Banorte and BBVA.
Despite the drop in investment funding due to interest rates, the number of fintechs in Mexico grew last year. The country now hosts around 650 financial technology startups, up from approximately 500 in the previous year.
Initiatives like CoDI, Mexico’s counterpart to Pix, have faced challenges in gaining traction. Nevertheless, fintech leaders are optimistic that the tide may soon turn in their favor, ushering in a new era of digital finance in Mexico.
“80% of the volume is still with banks, but new players are pulling strongly,” Vela said. “Now is the time for fintech in Mexico.”
