Why Are Mexican Fintech Companies Increasingly Investing in Small Banks

There are more and more cases in which financial technology companies, fintech companies, are breaking into the Mexican banking sector, either by buying or investing in this type of entities, mainly the smaller ones operating in the country.

The most recent case was announced this Monday, when it was reported that the fintech company Kapital, which specialized in credit products for companies, had injected capital into Banco Autofin, an entity that, according to recent statements made by its director, Carlos Septién Michel, had been looking for a partner for some months.

In this operation, there is talk of an initial investment of US$50 million.

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There are several fintech companies investing in small banks in Mexico

This is not the only case in which a fintech company injects capital into a bank, although so far, in the case of Mexico, it has been to small institutions, and what the financial technology companies are looking for with this is to strengthen their businesses to make them grow more, especially by offering deposit products, for which only regulated institutions have a guarantee.

In 2021 the purchase of the then Finterra Bank by the financial technology company, Credijusto, took place. This entity, one of the smallest in terms of assets, was subsequently renamed Banco Covalto.

Similarly, in 2021 the Argentinean fintech company, Ualá, announced the purchase of the bank ABC Capital. The authorization, however, was given in the first quarter of 2023, and now the entity is only called Ualá.

In recent statements to the press, Ualá’s founder and CEO, Pierpaolo Barbieri, explained that Mexico is the big bet among the three countries in which the company operates today, given the size that the market represents. “We want to be one of the largest banks in Mexico,” he said last June.

These three Mexican banks in which fintech companies have invested in the last two years represent, however, according to information from the National Banking and Securities Commission (CNBV), only 0.10% of the sector’s total assets.

However, banks are not the only regulated institutions that fintech companies are seeking to grow and strengthen their businesses. Others are doing so with popular financial companies (Sofipos), as is the case of the giant Nu, which in Mexico bought Akala in 2021, and in 2023, Klar bought Sefia and Stori bought MasCaja.

Fintech companies are seeking to continue with business growth

For Álvaro Vértiz, partner at Dentons Global Advisors, a strategic consulting firm, this trend is due to the fact that fintech companies and neobanks, once they have reached a certain size, are looking for ways to continue with the growth of their business models.

In an interview, he considers that just as fintech companies and neobanks are trying to adapt to traditional banking models, the latter is also creating its digital arms to compete with financial technology, which, he says, is good in competitive terms of achieving greater financial inclusion.

He pointed out that there will be regulated entities in the market under the so-called Fintech Law, and others with more traditional licenses such as Sofipos and banks, but with fully digital models, which will result in greater benefits for the customer.

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(Featured image by photos71 via Pixabay)

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First published in EL ECONOMISTA. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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