Mexican Neobanks, who is the leading Neobank in the market?

Actualizado: ene 24



Authors: Carlos David Valderrama Narváez (more information here) and Diego Montes Serralde (more information here).


Context


Mexico is the Fintech leader in Latin America with more than 700 FinTech in a variety of sectors. Legal Paradox, S.C. has developed a Fintech Map in which we highlight each FinTech sector per State within Mexico (more information here). From the above, we can see that neobanks, fintech challenger banks or wallets, are in full growth in the fintech ecosystem despite the covid 19 pandemic or thanks to it.


In this article, we are going to describe this Mexican FinTech, their characteristics, pros, and cons, so you can decide and choose the "One" that best suits your needs.


¿What is a Neobank?


This type of FinTech, unlike a traditional bank or incumbent banks, is a new type of digital-only that exists without any branches. they are reinventing the practices and processes associated with customer acquisition, banking services, or traditional banking (more information here).


For example, they have Apps that facilitate digital banking, the administration of accounts and credit cards. They rely on their neobank customers to have a traditional bank account, with the underlying bank license, to offer a user-friendly interface that can generate greater financial inclusion and digital payments.


This sector is set for huge potential growth worldwide and even more so in Latin American countries like Mexico.



Disclaimer, it is important to comment that the connotation "Neobank" is used in this article in its globally accepted conception and not as a regulated bank for purposes of the applicable Mexican regulation. It is important to mention that even the term "bank" is of reserved use for entities authorized to operate as such.

¿Why Mexico is a top strategic location among Latin American countries and emerging markets for this type of FinTech? (more information here)


Mexico counts an estimated 42 million unbanked customers (more information here), and only about one-third of small and medium-sized businesses have access to banking loans.


In addition, Mexico is a prime country for FinTech due to its favorable regulatory landscape and consumer demographics as Mexico enjoys an exceptional demographic bonus of millennials (more information here) who love immediacy and online services, hence the resounding success of eCommerce activities, as well as companies like Uber, Spotify or AB&B in the region.



Mexico is digitally engaged – which could make consumers receptive to this new type of player. Mexico has a consumer Fintech adoption rate of 72%, among the digitally active population (more information here). The median age in Mexico is 28 (more information here), while 41% of the population is 25 to 54 years old, creating a wide base of young customers. In 2015, the adoption of smartphones was 50% in Mexico, by this year the adoption of smartphones increased to 70% (more information here). In addition, Mexico has sophisticated payment systems administered by our Central Bank (Banxico) such as SPEI and Codi making possible a real-time wire transfer.


It is important to mention this players has the opportunity to reduce the gap and provide financial inclusion. In this sense, financial inclusion or exclusion is measured from two perspectives, that of financial service providers and that of users. From the perspective of the provider, inclusion or exclusion has to do with market penetration, infrastructure, supply, etc., but the one that seems to us to be most relevant is that related to the users, that is, the use that people make of financial services.


In that regard, we are sure that you all have seen endless lines of people at ATMs every fortnight to withdraw their money. Why do they do this? The easy answer may be that users do not see the added value of having their money there. Here, it seems to us that this fintech startup has captured the clamor of the people offering multiple benefits that make having your money somewhere really worthwhile. Below we will compare some benefits offered by them in the region.


From a legal perspective, what type of fintech company are they?


A so-called Neo Bank, Neobank, challenger bank, digital bank or digital only bank, operates in Mexico as a Wallet. A wallet is a financial institution set at our Mexican FinTech law as an Electronic Payment Fund Institution and to date, there are 59 applications to operate as it and only one authorized (more information here).


Who is the leading one in Mexico?


Although it seems to us that the Mexican startup ecosystem is just beginning and the development of this type of FinTech is still incipient, there is already an interesting offer in Mexico supported by seed funding, crowdfunding, and even by the most important VC. The mexican market will only continue to improve with the arrival of giants such as Revolut (more information here) and other digital only banks, here are some players for you to deep dive and choose which is currently the leading in Mexico.


1. Cuenca (more information here)


Founded in 2018 by the entrepreneur Matin Tamizi (more information here) in Mexico City, Mexican neobank Cuenca is seeking to help with financial inclusion within the Mexican Society. Matin Tamizi wanted to create a financial product for the 60% of Mexican who can´t access financial services and do not trust financial institutions. Cuenca closed 2018 with more than $2 million dollars from investors and initiated 2020 with $9.6 million dollars series A.


Cuenca is a great FinTech, it has a lot of characteristics like being OpenSource, but for us, the most important is that it generates financial inclusion in only 90 minutes. This app is for everyone, not only Mexican citizens, after applying and performing the onboarding process you already have a virtual card, but if you wait just 90 minutes you can get the physical card to wherever you have requested (only if you are in Mexico City and have made a minimum deposit of 50 Mexican pesos). What a beauty of logistics, I´m sure traditional companies would die of envy, if only they knew. These are part of the reasons why at the date of publication they already had more than 100,000 customers.


Also, Cuenca has a lot of alliances with indigenous communities in Mexico and the company Someone Somewhere (more information here) that helps communities by giving them some part of the utilities for their work. When your Cuenca card arrives, they give you a woven cover for your card that has been manufactured by an indigenous community.



2. Albo (more information here)


Incorporated in 2016 by a young team, Mexican challenger bank Albo seeks the help of technology and creativity to clear and simplify processes in order to help you to receive, transfer, and spend your money freely.


Their purpose is to improve the quality of life of Mexican Society, by passion, total honesty, and integrity. In 2019, Albo secured a $19 million dollars extension to its Series A financing, led by U.S. based Valar Ventures. This FinTech previously raised $7.4 million dollars at the beginning of 2019, bringing the company´s total Series A funding amount to $26.4 million dollars (more information here). In 2020 Albo secured an investment of US$45M from Mountain Nazca, Greyhound Capital, and Flourish Ventures for expansion (more information here).


The founder of Albo is Ángel Sahagún Fernández (more information here), he was recently selected by Forbes 30 under 30 in Mexico (more information here).


As users, we are pleased with this debit card as its UX is clear, minimalistic, intuitive, and very easy to use. The security for entering this neobank account is by fingerprint, face recognition or a PIN and they even have a product for SMEs (Small and medium-sized enterprises) called Albo for business.



3. Klar (more information here)


Founded in 2018 in Mexico City, Klar is a financial technology company that gives you full control of your money through a mobile application and a debit card that has the benefits of a credit card.


The Founders are Daniel Autrique (more information here), Gianluigi Davassi (more information here), Jeronimo Riefkohl (more information here) and Stefan Moller (more information here).


Klar is an interesting FinTech as you get to open your account in 3 minutes tops, also they have a lot of benefits that are common for credit cards (i.e. they give you 1% cashback for all your purchases with Klar debit card and they pay you cashback at the first day of the month).


Klar just makes a big change on their platform and come up with a new, minimalistic and sophisticated design. You can also appreciate Klar´s new design on the main picture of this article.




4. Fondeadora (more information here)


Incorporated in 2011 as a Crowdfunding platform in Mexico City, Fondeadora was sold to Kickstarter (more information here) in 2016. In 2018, the original founders started Fondeadora with the purpose to give access to the financial system in a free and 100% digital way.


The Founders of Fondeadora are Norman Müller (more information here) and René Serrano (more information here). Fondeadora raised $8 million Mexican pesos through Propeler, a Mexican crowdfunding platform (more information here), to create the wallet and they did it again in 2020, and during Covid 19 pandemic, with a success rate of 240% on their second series (more information here). In addition, Fondeadora raised $14 million series A round led by Gradient Ventures (Google Fund) (more information here).


As users we think the best word to describe Fondeadora is “Digital”, this Challenger Bank wants to dominate the digital atmosphere by doing a lot of noise on social media. The platform is clean and sophisticated, they have an excellent UX too, and the front end is just magnificent, clean, minimalistic, and modern.


Recently, Fondeadora announced an impressive merger with Mibo (former Weex) (more information here). This was a logical move considering Mibo had 1 million downloads on their app, more than 100,000 debit cards issued, more than 3,000,000,000.00 Mexican pesos in deposits, and more than US25,000,000.00 raised from investors.


Fondeadora is about to launch new features including an enterprise account for SMEs called Fondeadora Negocios and a metal card for their best clients. Looking forward to it!



5. SWAP (more information here)


Incorporated in 2014, SWAP makes transferring money as simple as sending and receiving a text message for its users – with or without a traditional account. Swap is Mexico’s most-used digital peer-to-peer (P2P) payments platform, as well as a facilitator of mass cash disbursements for business clients.