Open banking is quickly revolutionizing global financial systems, including in Mexico where it has already started to reshape the country’s financial landscape. This concept, which implies the sharing of banking data between financial institutions and third parties, is driven by the core belief that individuals, rather than the financial entity, own their transaction data and therefore have the right to share it.
As explained by the Mexican Fintech Association’s Annual Report, Mexico has yet to leverage the wealth of information constantly being produced, with the finance industry only using 3% of the available data to make decisions. Simply put there is an unexploited landmine of data that could revolutionize financial services, not only in Mexico but around the world.
While Mexico was one of the pioneers of open banking legislation, with the Ley Fintech entering into force at roughly the same time as the United Kingdom’s open banking regulations in 2018, it has lagged behind in implementing secondary regulations laid out in the famed FinTech Law. The law requires financial entities to develop tools (in technical terms known as APIs) to facilitate the secure sharing of data with third parties. More specifically, the Ley Fintech refers to data generated by the financial entities, aggregate data related to the entities’ operations, and personal transactional data that can only be shared with the users’ consent. Thus far, only secondary regulations governing the sharing of data generated by financial entities have been published, preventing the country from experiencing the full benefits of open banking, while other countries charge ahead.
Despite the lack of clear regulation, several entrepreneurs are building the technology needed to unlock the power of the financial data being generated in Mexico. Those leading the way include Belvo a fintech that has built its own connections to prominent financial entities, and Finerio Connect, a fintech that offers white-label personalized financial products and services based on consumers’ data to banks – in October the latter secured US $6.5 million in venture capital funding to further develop its platform.
The transformative potential of open banking for Mexico’s small and medium-sized enterprises (SMEs) cannot be overstated. Currently, SMEs are estimated to receive less than 10% of private-sector financing, significantly restricting their growth opportunities. Open banking could play a key role in fixing this financing gap by allowing SMEs to share their financial data more efficiently with potential lenders. This, in turn, could have an important impact on the Mexican economy, given that over 95% of businesses in Mexico are considered micro, small, and medium-sized enterprises (MSMEs).
It could also automate some of Mexico’s notorious back-office operations, which according to Stripe, the majority of which are still performed manually by almost half of Mexican CFOs. This is something that the leading bank BBVA and fintech Syncfy are already addressing. It is also important to highlight that the most prominent open banking fintechs in the country have remained focused on business-to-business applications, leaving a big opportunity for consumer-focused applications.
Once the remaining secondary regulations are in place, which are anticipated to be finalized in 2024, or more likely in 2025 after Mexico’s Presidential elections have passed, open banking will transform the lives of millions of Mexicans. Looking further into the future, open banking will quickly be followed by open finance in which other entities such as insurance companies, retirement funds, mortgage companies, and other entities will share other financial data.
Belvo has previewed how this could impact consumers when earlier this year it launched a tool to allow consumers to share information from Mexico’s Social Security Institute (IMSS) via its platform to prove creditworthiness. The ultimate progression of open banking is expected to culminate in an open data ecosystem. In this scenario, data will be widely shared to guide decision-making across all societal layers, from individual choices to governmental policies.
While open banking in Mexico is still in its infancy, its potential to transform the financial landscape is immense. By improving the accessibility of banking data, it promises to unlock new opportunities for consumers and businesses, drive innovation, and foster a more inclusive financial environment. As Mexico navigates the complexities of implementing these changes, the focus should remain on ensuring that the benefits of open banking reach all sectors of society, rather than remaining isolated to the top of the pyramid, paving the way for a more connected and efficient financial future.
* Sara Hayden Van Velkinburgh is a senior analyst with the public relations division of Miranda Partners, where she works primarily with fintechs, investment funds, and startups. With a background in public policy and public affairs, she has analyzed Mexico’s regulatory framework and digital policy in Latin America as it applies to tech companies while at McLarty Associates and the Atlantic Council’s Adrienne Arsht Latin America Center. Twitter: @svanvelk
