FinTech Blooms, But Can it Fix Mexico's Financial Exclusion?

Mexico's banking system is a curious case, like a brightly colored cactus flower blooming in the desert – beautiful, but with a few thorns. Experts recently gathered at the National Finance + Inclusive Forum to dissect this paradox: a system boasting healthy institutions with high returns, yet struggling with low credit access and financial inclusion for a large chunk of the population.

Gerardo Esquivel, a former bigwig at the Bank of Mexico, kicked things off by highlighting the disconnect. The financial system, he argued, should be a "key instrument" for national progress, but right now, it's missing the mark. Throwing more players into the ring isn't necessarily the answer – just because there's a crowd, doesn't mean everyone gets a dance.

A healthy banking system isn't just about having a place to park your paycheck until payday. It's about empowering people to save, invest, and grow. Imagine a system that lets you buy that car, start a business, or simply whether a financial storm. That's the kind of system that fuels economic progress.

Esquivel emphasized the need for a multi-pronged approach: financial education for the public, more diverse players, tighter regulations, and a clear vision for the future. This means getting the Ministry of Finance, the Bank of Mexico, and the National Banking and Securities Commission all on the same page, working together to push the system in the right direction.

Enrique Provencio Durazo, another expert at the forum, echoed this sentiment. Financial services shouldn't be an end in themselves, but a tool for boosting productivity and access to goods and services. He pointed out the stark link between financial exclusion and social inequality. The longer these disparities persist, the harder it becomes to close the gap. It's a vicious cycle, and breaking it requires prioritizing financial inclusion and equity.

While Mexico's banks might look good on paper – with strong capital reserves, high liquidity, and low delinquency rates – a more profound problem lurks beneath the surface. The penetration of financial services remains low, and credit for businesses, especially small ones, is scarce. Provencio Durazo highlighted that only around 41% of companies even have access to bank credit, with the number dropping even lower for micro-businesses. This lack of access disproportionately hits the poorest parts of the country, further entrenching existing inequalities.

Jesús de la Fuente Rodríguez, head of the National Banking and Securities Commission, offered a glimmer of hope. He pointed to the recent rise of FinTech (financial technology) companies as a step in the right direction. These tech-savvy newcomers, born out of a 2018 law, have challenged the traditional, brick-and-mortar banks with their focus on digital tools and convenience. They're the perfect fit for a younger generation that craves speed, ease, and simplicity – a stark contrast to the slow-moving "elephants" of the traditional banking world.

Sergio López Ayllón, another forum participant, pointed out the dominance of big banks in Mexico. A 2021 rating report revealed that just seven banks controlled over 80% of the total financial portfolio. This lack of competition certainly doesn't help with inclusion.

However, the future might not be so bleak. The Ministry of Finance sees potential in the recent authorization of four fully digital banks, with more applications in the pipeline. This influx of new players could shake things up, fostering a more dynamic and competitive market.

Mariana Campos, an expert on evaluation, emphasized the link between financial inclusion and economic growth. A robust financial system, with access to credit, savings options, and financial education, can boost GDP by up to 14%. That's real money in people's pockets and fuel for the national engine.

Financial education is a crucial piece of the puzzle. Campos highlighted the vast knowledge gap, particularly in remote areas where basic financial literacy is alarmingly low. Plugging this gap is essential alongside regulatory changes and improved service offerings.

The forum also heard from Leonardo Wester dos Santos Ribeiro, representing the Brazilian embassy. He showcased the success story of Pix, Brazil's instant payment system, and Open Finance, a system that allows customers to share their financial data between institutions, leading to more personalized and competitive services. These innovations offer valuable lessons for Mexico as it seeks to cultivate a more inclusive and prosperous financial landscape.

Mexico's banking system might not be a garden of roses, but there are certainly some beautiful cactus flowers blooming. The challenge lies in nurturing these flowers, ensuring they flourish for everyone, not just a privileged few. By fostering competition, promoting financial literacy, and embracing innovation, Mexico can transform its financial system from a paradox into an engine for inclusive growth.