Mexico is in an exciting position. Thanks to forward-looking regulators, open banking has existed since the open banking clause in the 2018 fintech regulation – ‘Ley Fintech’. In response, major banks have developed open banking APIs and fintechs are rolling out innovative use cases.
This article explores the nature of the market and the different market players, describing the challenges and opportunities presented by open finance in Mexico.
La Comisión Nacional Bancaria y de Valores (CNBV), regulators of Mexico’s financial system, have taken a lead in driving open finance. In 2020, they regulated the exchange of open financial data and have subsequently drawn up a four-phase regulatory plan. This Summer, the first phase of this plan went live, as Jose Antonio Quesada, the Vice President of Regulatory Policy at CNBV, explained in his talk at the Open Banking Exchange (OBE) Mexico summit:
- Phase one: Exchanging public data through APIs. Live.
- Phase two: Standardising aggregated data (statistical information, such as age and gender). Scheduled to go live before the end of 2021.
- Phase three: Standardising the exchange of transactional data (private, financial information) over APIs.
- Phase four: Regulation for other types of data.
Reacting to this regulatory strategy, the banks have followed suit. Citibanamex, one of Mexico’s leading banks, rolled out its first public API this summer.
The State of the Market
Mexico presents a huge market opportunity. The size of the financial sector and the country itself – with a population of nearly 130 million – has a clear appetite for new, more accessible financial products. 50% of the population is under 24. For a fintech like Nubank, this market of young, digital natives is a perfect technological opportunity.
Currently, there are few financial providers in Mexico and they only serve a limited segment of society. Only 47% of the adult population in Mexico has a bank account, compared with 80% in Brazil, and only 10% have a credit card, compared with 30% in Brazil.
According to Ximena Aleman, CEO at Prometeo, there are three main challenges for open finance. The first is regulation: the financial sector is one of the most regulated in Mexico. The second is technology: Latam banks are far less advanced technologically than their US and European counterparts.
The third challenge, and the most important, is social. The primary goal of open finance is to change the relationship Latin Americans have with money. The cause for this unstable relationship is partly macro – a child in Latin America knows from a very early age what an economic crisis looks like. Unemployment and inflation sadly form part of a common economic experience. On an individual level, it is difficult for many Latin Americans to make money, keep it, count it, hold it, invest it, and benefit from it. As it stands, the financial system fails a vast proportion of the population.
Open finance can help solve these problems by putting the consumer at the centre of their financial experience. APIs will enable consumers to know how much money they have, what debts they hold, and what other available market services can help them.
Financial inclusion is a core goal of open banking in Latin America. To create financial inclusion, four things are necessary:
- Access: Traditional banking is often too expensive and exclusive, whether that’s related to the cost of transport, official documentation, or other requirements. Fintechs can offer a more agile, economic way of accessing financial products.
- Usability: Without use, access is meaningless. In addition to access, individuals must be able to use and benefit from financial services.
- Security: The potential benefits of open banking are void if the use of these services is not protected. Customers must have ultimate power over their data and be able to control how their data is shared in a secure environment.
- Financial education: To take full advantage of open banking, being able to understand and compare the different products to make informed decisions is essential.
What is the role of financial authorities in this new ecosystem? Big banks can share their expertise and experience to assist other players. Key to this is seeing fintechs as potential partners and catalysts for progress. This was a common message presented by every major bank at the OBE summit. All market players need to be aligned on the purpose and goals of open banking implementation: this is a key objective of Open Banking Exchange.
Banorte, one of the largest commercial banks in Mexico, has made it clear that open banking is a reciprocal benefit. Fintechs provide healthy competition and add value to the financial sector. Ultimately, this leads to better products for the end customer. Customers are at the centre of this conversation. For Citibanamex, open banking provides many benefits. Different apps and services create more touch points enabling better knowledge of customers and therefore more personalised products and services.
Linked to this idea of collaboration are scalability and common standards. It is easy for banks to interpret standards in different ways. While some level of dynamism is important, different implementations can slow down the development of open banking. As with many markets implementing open banking, fragmentation and complexity are a concern for Mexico.
Open Banking Europe (OBE) has helped solve this problem in the European Economic Area (EEA). It standardised the unique reference number for financial institutions and designed the access checks and workflows for third party providers. Open Banking Exchange will apply the learnings and best practices from Open Banking Europe on a global scale.
From a bank’s perspective, shared practices are essential for security. Citibanamex has been working actively with regulators to prevent fraud and identity theft. Similarly, Belvo, a start-up offering a financial API platform, has been supporting the creation of a standardised data scheme, helping hundreds of banks – each with their own system of data – to communicate. This data must be identical regardless of where it comes from. Progressing into open finance, information about pensions, shares and insurance must also be accessible in a common format.
Embracing the future
Banxico, the central bank of Mexico, has been turning the region into a viable market with support from other countries, particularly the EEA and the UK. According to the Department for International Trade Mexico, the UK has been collaborating closely with the Mexican authorities.
The different stakeholders in the ecosystem all have a common vision with the same priorities. Open data is the end goal and, to reach it, collaboration is essential. Open Banking Exchange has a role to play in achieving this vision by bringing fintechs, banks, regulators, and service providers together to exchange ideas and find solutions to shared problems and issues.
Mexico is brimming with entrepreneurial spirit. Over 2,400 institutions will become part of the open banking ecosystem, and if they unite in their vision and purpose, there is no limit to what can be achieved.
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