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How the banks will evolve in the era of fintechs

Mexico had in 2018 one of the most scandalous events in the banking industry. Between April and May of that year the Bank of Mexico (Banxico) estimated the theft of between 300 and 400 million Mexican pesos (from 15 to 20 million US dollars). Almost a year after the incident, there is still no clarity about what happened. Also, in 2018 the Fintech Law was enacted, positioning Mexico in the world.

On the incident of the Interbank Electronic Payment System (SPEI), in a 29-page statement signed by teacher José Jaime Cortina Morfín and addressed to Senator Ernesto Cordero Arroyo on June 21, 2018, the origin of the cybernetic incident is mentioned as a anomaly in the applications developed by third parties to the affected banks or a situation in the infrastructure of the participants where SPEI was installed. The violation of the systems left sequels in the banks.

The modus operandi was to inject apocryphal transfer orders into the systems from which the payment instructions are sent. This happened at “some stage of the process that is carried out in the applications of said participants to connect to the SPEI,” according to the statement. Nearly a year after the incident, Mexican authorities have not been able to determine whether the incident was due to the exploitation of a computer vulnerability or human error, for example, by transferring unencrypted data over the Internet.

Given the particular context, coincidences or not, Fintech companies began to operate by the end of 2018 already under the legal framework of the Fintech Law.

Those fintech whose business focuses on financial products such as loans or factoring obtain the raw material to operate directly from banks and then concentrate on the domain of technology platforms, marketing and their ability to join a mass market with financial needs with banks, but through the figure of financial technology companies or fintech.

A very close precedent is the Mercado Libre initiative in Argentina, which together with its partner Banco Industrial placed a novel product in the financial vertical: investment funds. The project represented 200 thousand new clients in Argentina in the last semester of 2018. They also replicated the model in Brazil, obtaining 400 thousand new clients in less than a month, according to data provided in the conference “Security Trends and how to mitigate vulnerabilities in the industries in Mexico “of the IDC Security Seminar of March 26, 2019.

Juan José Luis Cisneros, president of the Security Committee of the Mexican Association of Securities Institutions (AMIB), and CIO of Finamex, referred to how an issue of overregulation affects the business in the financial industry: “A brokerage firm, an insurer or a A bank that wants to go out quickly to the market is unable to do so, which causes a problem of competitive advantage “.

Fintech has a business potential superior to highly regulated industries such as banks, insurers or brokerage firms. The movement of financial technology companies has gone by so quickly that it could be compared to the change in Internet searches, where 80% of them are done through voice. That was unthinkable in 2010 and a reality in 2019.

The main hypothesis in this context is the evolutionary possibility of the banks, of not limiting themselves to lending money to clients through the figure of the fintech related to the financial vertical. This puts you just one step away from going the other way. How? With the acquisition of them to reach a new market. This would give the banks greater flexibility and better performance in the mass market. In 2019, if a regulated entity intends to market a product of investment funds, it has limitations: when exceeding 30,000 UDIs (investment units), a commercial contract must be entered into in person. A fintech develops a business through an app and can reach the mass market without the need to sign a contract in person.

Evolution of banks in the fintech industry era seems to be just around the corner. Cisneros said in an interview with My Press that 2020 or 2023 is going to be an aggressive change in digital matters in banking. One year without clarity of what happened with the SPEI event in 2018, it seems sensible the evolutionary step of banks towards business models of greater speed. At the moment the banking industry already has a foot inside. It will be a matter of time and how much you feel threatened to confirm further deepening at the business level and make the leap to the massive acquisitions of fintech companies.

Also published on Medium.

Published inFintech

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