Belvo is one of a new and essential breed of tech player helping to enact an ambitious piece of payment transformation as Mexico transitions from a cash-based economy. Head of Business Development, Jorge Madrigal, talks us through it.
Add to that its largely cash-based systems and the blocks on pulling it into the modern payments age seem enormous.
The 2018 National Survey of Financial Inclusion, conducted by The National Banking and Securities Commission (CNBV) and the National Institute of Statistics and Geography (INEGI), says that 87 per cent of adults still use cash for purchases above 500 pesos, while 95 per cent use them to pay for smaller transactions. Which explains why newly emerging fintechs struggle to acquire the data needed to sharpen their products and offerings. While the established banking sector tries to evolve and innovate, it has its own set of obstacles to overcome.
But there is some good news: the high level of smartphone penetration that allows for a potential market for mobile money and digital wallets. To make use of the presence of the young and smartly connected, economically active population, the country has adopted an enabling regulatory framework along the lines of the UK’s open banking model, to encourage innovation and promote financial inclusion. Alongside it, the government introduced a QR-based electronic payments platform called CoDi in 2019 to select Mexican cities, in the hope that it can help generate enough data to drive the native digital companies.
And a set of new entities is emerging – the enablers – offering open banking application programming interface (API) platforms to connect the large financial organisations with the newer fintechs. Belvo is the latest among them.
About to celebrate its first anniversary, it was launched by Pablo Viguera and Uri Tintore in May 2019. It delivered its pilot for testing in October, collated feedback, implemented changes and then released the first official version of the platform in January 2020. By then, scores of software developers had already signed up for its API solution.
The popularity and attention that Belvo attracted came from its ability to enable developers and software engineers to create fintech apps that can access and interpret relevant data from end users. The platform hosts a range of useful tools – a free sandbox, software development kits (SDKs), plug-and-play modules and free API requests in its production environment, all of which are targeted at helping developers to build useful, relevant and engaging products for the best end-user experiences.
Jorge Madrigal, head of business development for Belvo, explains how he sees the new ecosystem transforming Mexico’s financial services.
The Paytech Magazine: How would you describe the state of financial inclusion in Mexico and how are new financial services and technology going to address that?
Jorge Madrigal: The Mexican financial setup has primarily been dominated by the large players, the large banks. Then there’s a second tier, with smaller, traditional lenders, such as Sofipos and Sofomes.The fintech companies are not necessarily competing with players already in the ecosystem, but enabling them to develop new products and services.
Most payments in Mexico today are made in cash. You might tend to think that, with nearly 60 per cent of the economically active population in Mexico being unbanked, they might not have access to financial services. The reality is that they do, but those financial services are usually expensive compared to what they could get from a bank or a fintech. And they don’t have any technology component, so the data and operations they’re generating live in someone’s mind or in an Excel spreadsheet. And that’s bad for the consumer because they can’t carry that information with them to another institution to get better terms, for example.
So that’s pretty much where things are for the majority of the economically active population today in Mexico.
We’re in the midst of significant growth in ‘bankerisation’ of the Mexican population. We have financial institutions doing their job, changing their strategies to increase the number of customers they’re serving, and, on the other side, a lot of fintechs are coming in to the market whose main focus is the consumer, and providing the consumer with tailored financial products and services.
TPM: With its very low rate of financial inclusion, is Mexico better placed than more mature markets, like the United States or Europe, to take advantage of a new fintech ecosystem?
JM: From our perspective, the answer is yes. There’s actually a target out there, to go from 40 per cent financial inclusion to 60 per cent in the next 10 years, and a big part of that is the technology, and how people use technology. Mexico is one of the countries in Latin America that has a larger penetration of mobile phones.
The other aspect is the make-up of the population. We have a very young population coming into their economically active years. That’s also very important, when you compare it to Europe especially.
And the other factor is the rise of people working remotely. An increasing number of people are in the gig economy, not only in delivery and driving, but also in design and finance work, and that’s growing. They too need to be financially included to get paid and to able to pay others.
TPM: How do the new digital technologies propel financial inclusion and new financial services for customers in Mexcio?
JM: The established players in the ecosystem are trying to improve their offering to the market, to bring in more people. On the other side, the companies that are fintech by design have very targeted offerings for customers. For example, there are neobanks targeting young people and fintechs targeting people in the informal economy and trying to bring them into the formal economy through improved offerings and by making them feel safe in the way that their money is secured, stored and moved easily.
TPM: As more financial institutions plug in and play with the fintechs that typically don’t have the customer base or the regulatory insight, how critical will the role of enablers be?
JM: Large banks want to work with fintechs, especially when they find that they can do something really fast which would otherwise take them a lot of time. Now, the size of banks and the projects they’re doing don’t always allow them to open up to all the fintechs that want to work with them. That’s where enablers can play a big role – in helping banks to open up and helping the ecosystem to innovate faster. So, enablers will play a critical role in the years that financial institutions will take to build a new financial infrastructure, compared to the amount of resources that fintechs would have to put in to develop it. This time and resource is better used in developing the core businesses of the institutions or fintechs, whether it is lending, debit card, credit card, or whatever they’re doing. That’s where I see the enablers coming in.
TPM: What can fintechs and financial institutions gain from all the new data that is being obtained through digitisation?
JM: More data in the ecosystem is better for the consumer because, at the end of the day, the most important thing should be the consumer. If you have all the information, you can develop better products that are more targeted to your consumers’ needs. For financial institutions, the data can help to improve all their risk modelling with more precise information than what they have today, and that should enable better services and products for the consumer.
TPM: How can Belvo contribute in the journey towards open banking and interconnecting fintechs and large financial institutions?
JM: At this point, I think a lot of ‘open banking’ is in conversations. At Belvo, we see ourselves as enablers of that connection between large banks and new fintechs, helping both sides to collaborate and making the ecosystem friendlier for consumers. We see ourselves as a bridge between financial institutions and fintechs.
We believe that we are building the infrastructure that’s needed for fintechs to be able to access their customers’, or prospective customers’, financial data. At the same time, we are allowing for banks to share information and access information in a way that’s going to be more useful and make it cheaper and faster for them to develop better services and improve their risk models.