In recent years, entities that arrived in Mexico such as fintech and whose model has been successful, have sought or achieved the banking license in the country due to the opportunity that this figure offers to offer more products, especially recruitment. At the same time, traditional institutions have created their own digital banks to compete in the ecosystem.
Moody’s Local Mexico sees this trend as positive, since, he noted, it will increase the development of the country’s financial system and could generate greater financial inclusion.
The agency highlighted, however, that this transition to multiple banking It carries with it a new balance of risks and benefits.
In an analysis released this Monday, he explained that among the benefits of this transition from fintech to banks are an improvement in deposit capture and coverage by the Institute for the Protection of Bank Savings (IPAB)but also greater control and expansion of the range of products offered, and the trust derived from the reputation of being a bank.
On the other hand, among the challenges of this process, the regulatory environment stood out; a rigorous, lengthy and expensive process; the requirement of a minimum capital to start and maintain operations; as well as an increase in credit costs as a result of prudential reserve standards.
Even floor, although with higher costs
“The transition of fintech that are already raising money from depositors or are already in a position to issue unsecured debts in the domestic market using the most regulated model that exists (the banking one), it would be positive for the stability of the financial system,” he stated.
At the same time, the agency mentioned, it would be positive for traditional Mexican banks, which will have competitors with the same regulatory costs and on a level playing field.
“And it would certainly be positive for disruptive models, since they will prove their validity, by complying with the rigorous and prudential Mexican banking regulationand would enjoy the benefits of having a banking license. The above will allow a greater range of products to offer access to the central bank’s discount window, extensive deposit insurance for its clients, among other benefits,” the analysis stated.
He added, however, that the evolution of the so-called “niche banking (figure modified last February) demonstrated that the experience in the mexican market It can be very expensive when operating a bank, due to the risk costs that must be assumed when complying with the banking regulatory framework, which requires taking great care of the quality of the participants’ assets.
“In addition, operating costs added to credit losses can quickly drain a bank’s capitalization and create situations where it ends up failing (as were the cases of Banco Ahorro Famsa, Accendo and Bicentenario),” he emphasized.
In this sense, Moody’s considered that this highlights the need for new players to have high risk controls, solid corporate governance and credit placement standards.
“Above all, because although the system’s depositors are highly protected by the IPAB, potential holders of senior or subordinated debt of the new entities would not have this protection,” he pointed out.
The agency’s analysis mentioned that adding models of consumer credit With rigorous placement criteria, with a good level of reserves and capital, it would be essential to achieve greater financial inclusion in the country.
Expect consolidation and confluence
Moody’s Local México anticipated that by 2025, a consolidation of innovative financial models is expected (fintech), as well as a confluence of these with the more traditional, although already widely digitalized, banking in Mexico.
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