Fitch: FinTech Presents Opportunities & Challenges for Mexico

MONTERREY, Mexico--()--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.

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: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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 (c) 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. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Contacts

Fitch Ratings
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
or
Alba Maria Zavala, CFA
Associate Director
+52-81-8399-9137
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
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
or
Alba Maria Zavala, CFA
Associate Director
+52-81-8399-9137
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com