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Fitch: FinTech Presents Opportunities & Challenges for Mexico
October 12, 2016 / 5:06 PM / 9 months ago

Fitch: FinTech Presents Opportunities & Challenges for Mexico

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(The following statement was released by the rating agency) MONTERREY, October 12 (Fitch) Financial Technology companies (FinTech) are becoming important players in the Mexican financial system and could support financial inclusion, says Fitch Ratings. As a Latin American market with significant growth opportunities for FinTech, these companies could help increase the country's financial intermediation levels, which are among the lowest in the region. According to Inegi's (National Institute of Statistics and Geography) latest report, approximately 50% of Mexico's population over six years old has internet access. Additionally, 77.7 million people in the country use a mobile phone, two-thirds of which are smartphones. In Fitch's view, the need for more agile and simpler financial services, the described growing usage of mobile devices and the shift toward technological and mobile financial services could underpin growth in this segment in the foreseeable future. According to Finnovista's FinTech Radar, Mexico is the largest Latin American FinTech market with approximately 158 startups. Most of these focus in payments and remittances, lending, enterprise and personal financial management and crowdfunding, among other segments. Underserved retail segments (individuals and SMEs) are the main focus of these new companies. Mexico's National Policy for financial inclusion supports the use of technology to reach dispersed locations and the unbanked segments of the population. The local bank regulator has also been active in supporting the development of technology in financial services. One of the most recent changes to the banking law (Circular Unica de Bancos), published in September 2016, focuses on the promotion of loan growth and product disbursement through electronic means. In Fitch's view, these changes enhance the regulatory framework for massive movable money and will allow banks to continue expanding their financial services and to develop strategies in order to be prepared to face the future growing competition from FinTech companies. A regulation tailored specifically to FinTech companies is still pending, but the government has announced it is underway. Fitch believes regulators will face the challenge of mitigating risks such as frauds, identity theft and money laundering, without discouraging financial inclusion, innovation and competition. Regulation could enhance transparency and security to lenders and borrowers. Some non-bank financial institutions (NBFIs) are investing through equity participation in FinTech startups or by developing a separate FinTech business line. Many Mexican banks are developing technological tools, mobile apps, digital branches and some other electronic products to enhance customer experience and satisfaction in order to strengthen their competitive position. Some banks are adopting collaboration models with FinTech firms to maintain their market positioning and expand their businesses more efficiently, promoting Fintech labs and innovation or even acquiring some equity interests in startups. Some Fitch rated NBFIs that have started placing bets on Fintech startups include: Credito Real S.A.B. de C.V., Sofom E.R. (Credito Real), Crediclub SA. de C.V., SFP (Crediclub), Corporativo GBM, S.A. de C.V. (Corporativo GBM) and Vector Casa de Bolsa S.A. de C.V. (Vector). Rated banks collaborating with Fintech labs and/or innovation programs include: BBVA Bancomer S.A. (Bancomer), Banregio Grupo Financiero, S.A.B. de C.V.(Banregio GF), Bankaool S.A. (Bankaooland Gentera S.A.B. de C.V. (Gentera). Gentera also has equity interests in a FinTech firm. In Fitch's opinion, investment in technology is positive to the extent that it is accompanied by a robust risk control framework to prevent frauds and operational risks. It is also important that use of these technologies does not translate into a general loosening of underwriting standards that may put pressure on financial institutions' asset quality. Mexican financial entities and authorities are taking important and positive steps toward the oversight of electronic transactions. However, there is still space to build a solid and complete regulatory framework for Fintech firms and to reach the ample unbanked segment, which will need to turn its payment habits to electronic or mobile channels. Fitch believes this cultural change may take some time. Contact: Bertha Perez Associate Director +52-81-8399-9161 Fitch Mexico SA de CV Prol. Alfonso Reyes 2612, Edificio Connexity Col. Del Paseo Residencial 64920 Monterrey, N.L., Mexico Alba Maria Zavala, CFA Associate Director +52-81-8399-9137 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. 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As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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