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Banxico sees banks investing heavily in fintech amid stiff competition

Mexico's central bank, Banco de México, expects traditional banks to make significant investments in fintech in order to remain competitive, El Economista reported Dec. 20, citing Banxico's November Financial System Report released earlier in the month.

Although the fintech sector is still relatively small in Mexico, with just 158 fintech firms, it is growing fast, partly due to the amount of capital seeking investments that offer higher returns than traditional banks, Banxico noted.

In order to remain competitive going forward, local banks are expected to absorb competitors in the fintech area or partner with entities that use fintech business models with proven success, the central bank said. Some banks that have already adopted fintech models have specialized in online lending to individuals and small businesses, while others are focused on crowdfunding, the report noted.

As for the economy, business innovation in the fintech sector can contribute to greater penetration in terms of lending and improved efficiency in credit intermediation, but it can also result in businesses and households becoming excessively leveraged since these types of loans are outside the formal financial system, Banxico warned.

As a result, lenders should analyze the potential risks to their financial stability that could result from these new financing schemes, especially paying attention to the credit profile of potential borrowers, the central bank added.