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August 15, 2018

Mexico’s Fintech industry is poised for growth, leveraging recent regulations, a growing middle class population and increasing capital allocation.

On July 1, 2018, Andrés Manuel López Obrador was elected president of Mexico in a landslide victory that upended the nation’s political establishment and handed him a sweeping mandate to reshape the country. Mr. López Obrador, who is commonly referred to by his initials, AMLO, held a friendly meeting shortly before the election with the Consejo Mexicano de Negocios, a group comprising representatives of some of the country’s most influential companies. In the meeting, AMLO assured investors that his leftist party’s victory does not spell defeat for years of financial stability. Since his victory, Mr. López Obrador has dedicated a significant amount of his time stressing that Mexico’s social overhaul will come about with central bank autonomy, respect for government institutions and contracts and fiscal responsibility.

Although change is inevitable, we observe concrete investment opportunities in Mexico. We believe the financial technology (Fintech) industry in Mexico is poised for growth.

Mexico is among a small group of countries (12) who have shown interest in regulating the fast-growing financial technology sector, promoting optimism and a sense of financial stability among investors. In March 2018, Mexico’s lower house of Congress approved a bill commonly referred to as “Fintech law,” which creates a regulatory framework applicable to persons who, through IT platforms or tools, facilitate the execution of financial transactions and services. The bill is focused on three categories: crowdfunding, electronic payments and the use of virtual assets, typically known as "cryptocurrencies." The Fintech law also helps combat Mexico's lag in terms of financial inclusiveness of a vast portion of its population, while generating greater competition in the financial sector for the benefit of consumers.

According to the National Commission for the Protection and Defense of Users of Financial Services (Condusef), only 39 percent of the population in urban areas has experience with bank usage, leaving 61 percent substantially out of the financial services industry. Financial inclusiveness has been one of the main topics in the new president-elect’s agenda for years now, to the point where one of his key cabinet members recently referred to it as “...one of the main triggers for social and economic development. Financial inclusiveness, carried out in an adequate manner, can combat poverty, end hunger and achieve equality between men and women.” It is clear how Fintech companies could help in that matter and how they should be considered as a fundamental part of successful competition in the financial sector, always resulting in better prices and services for Mexican companies and families.

Fintech Mexico, the country’s leading association for the industry, announced that it will present AMLO’s transition team with a perspective of the Fintech industry and public policy recommendations to support the industry’s development for the benefit of the inclusion and democratization of financial services in Mexico.

As of January 2018, there were 238 Fintech startups distributed in 11 different segments in Mexico, positioning the country as the single largest Fintech market in Latin America, clearly surpassing other leading markets in the region such as Brazil, where 230 startups have been developed. According to Statista, an online statistics/market research and business intelligence portal, Mexican Fintech transactions will total USD $36.4 billion in 2018. By 2022, Statista expects the Mexican Fintech market to double that of 2018, reaching USD $68.9 billion. Just recently Amexcap, a nonprofit association representing over 120 private equity, venture capital (VC), real estate, infrastructure and energy funds that actively invest in Mexico, mentioned that there are approximately USD $800 million available in VCs for startups covering various industries.

Fintech startups must bet on a market still under development. For the sector to succeed, they must convince the vast majority of the Mexican population currently without access to the traditional banking system that alternative financial management systems are viable and trustworthy. These challenges have become the greatest opportunity for a region that is betting more and more in the Fintech industry.