Mexico’s largest non-bank lenders will likely need to become licensed banks.
This is confirmed by a group of market analysts consulted by Reuters.
The reason is that the turbulence of the international markets is still present and, if they do not make a decision in the short term, could suffer the same fate as the three large lenders that have had problems in recent months in Mexico: AlphaCredit, Real Credit and Unifin.
These three companies have fallen into different degrees of noncompliance.
Non-bank finance companies were already growing in Mexico and other Latin American markets since the middle of the last decade, but its exponential takeoff occurred in the health crisis of the covid pandemic.
In Mexico, according to Reuters, it came to represent a 20 percent of the private credit market from the massive granting of unsecured loans, including credits for SMEs.
When the pandemic ended, three players in the sector in Mexico fell into default: AlphaCredit, Crédito Real and Unifin.
This caused traditional banks to stop financing this segment with the same intensity and international investors also lost interest.
With less confidence and the consequent lower liquidity, to which was added the rise in interest rates, the rest of the players in the Mexican fintech sector foresee a complicated panorama, say the analysts consulted by Reuters.
Changes in the fintech ecosystem in Mexico
Moody’s analysts, for example, say that the most viable alternative for the survival of fintech companies focused on personal loans and SMEs is that of become banks.
This will allow them to continue lending to clients, but with greater support from having access to traditional credit markets.
A note from QED, a venture capital fund, says that “Any fintech with the intention of having a long-term presence in the Mexican market will have to find a way to become a bank.”
Along the same lines, at Barclays they say that non-bank lenders are going to have problems growing in today’s business climate and that becoming banks is the most feasible route.
However, they also say that becoming banks will not be a simple or fast path, since it implies high costs and regulatory steps that take a long time.
There is an example close in time, the fintech Covaltformerly called Credijusto, which became a bank after buying a regulated bank.
Others of these fintech have no intention of being a bank.
It is the example of tangelothe digital non-bank lender formed after the merger of Mexarrend and Zinobe, from Colombia.
In this case, since they have lines of credit from HSBC and Credit Suisse, they do not see the need to cross the barrier of traditional banks.
Now read:
The relationship with the client through FinTech in cyberspace
Mexican banks lose market share and demand more control for fintech
For these reasons HSBC Mexico plans to invest in Fintech in 2022