Securing a banking license is the biggest challenge for fintech companies with regional expansion plans, Ualá Founder and CEO Pierpaolo Barbieri said at the LendIt Fintech LatAm conference on Dec. 7.
Speaking at a panel on payments ecosystems, Barbieri said that while obtaining regulatory clearance is key to cross-border product expansion, actually getting a license was no mean feat for a fintech company.
"People question your ability to get a banking license when you are a fintech," he said.
The Buenos Aires-based company has recently signed a binding agreement to acquire local lender ABC Capital SA Institución de Banca Múltiple. It also announced it would invest some $150 million in its Mexican subsidiary going forward. For Ualá, which set foot in Mexico in 2020, the deal is a shortcut to the coveted banking license that would allow it to deploy a wider array of financial products in the country.
"The biggest challenge is to acquire licenses that enable you to deliver the products," Barbieri said. "Pending regulatory approval, we will be able to offer services to more than 130 million people in Mexico."
ABC Capital is a small financial institution that faced pressure in its capital requirements ratio in 2021, according to credit rating agencies. It also happens to own one of roughly 50 banking licenses granted by the regulator in Mexico.
Barbieri argued that procuring licenses in Latin America is particularly difficult and that it is usually "part of the moat" that traditional lenders possess to fence off competition from newcomers.
"There is a race between incumbents that want to digitalize and challengers like us that want to grow to challenge them," he said. "The question is who gets there first."
The digital company launched an expansion phase in Latin America and has already reported some 400,000 customers in Mexico as of the current quarter. The company is backed by heavyweight investors in the industry, including Japanese SoftBank Group Corp. and Chinese corporation Tencent Holdings Ltd..
Ualá landed a $350 million investment in a recent investment round led by the two Asian investors, allowing the Argentine unicorn to attain a $2.45 billion valuation. Part of Ualá's decision to obtain a license lies in its core strategy of moving beyond payments and into a full-fledged financial services ecosystem.
In Argentina, where the company reports to have 4 million users, Ualá has transitioned from a digital payments provider to credit and investment products. The company also struck a deal in April to acquire Argentine digital bank Wilobank SA.
The purchase of ABC Banco could pave the way for Ualá to offer banking products in Mexico and consolidate its position in the region as one of Latin America's leading fintech disruptors.
