Wednesday, 20 Mar 2019

FinTech Pressures FI Giants To Strengthen SMB Lending In Mexico

Some of the largest global financial institutions are taking steps further into Mexico’s small business lending and finance space, the result of heightened competitive pressure imposed by FinTechs and alternative lenders in the market, reports in the Wall Street Journal said Thursday (March 14).

The publication pointed to Goldman Sachs as the latest FI giant to grow operations in Mexico, after it provided a $100 million credit facility to Credijusto, a FinTech startup that makes three-year loans to small businesses.

Mexico’s small business community is struggling with a lack of access to credit, reports said, offering an opportunity for alternative lenders and even finance giants to strengthen their position there. Analysts say the financial struggles of small to medium-sized businesses (SMBs) are challenging the strength of the national economy, adding pressure to a market whose gross domestic product forecast for 2019 was recently cut by Mexico’s central bank.

Further complicating matters is the fact that the majority of workers in Mexico are employed by informal businesses that don’t pay taxes or Social Security, making it difficult for these firms to obtain formal bank loans. Bank credit most often goes to larger corporations or to consumers for home lending.

The current market climate has opened doors for supplier financing companies, according to Banxico, Mexico’s central bank, and for alternative lending platforms to rush into the market.

Reflecting the ebb-and-flow of the market, this surge has now enticed traditional lenders to deepen their role in the small business finance space.

“I think the traditional banks do see an opportunity,” said Andres Fontao, co-founder and managing partner of FinTech startup advisory firm Finnovista, in an interview with the WSJ. “But they aren’t yet willing to take on that risk for the returns available.”

The other strategy is for FinTech startups to turn to venture capitalists, with online small business lender Konfio, consumer lender Kueski, and payments technology company PayClip all having recently secured VC funding. But traditional FIs are beginning to see value in financing small startups, too.

The nation’s FinTech landscape “is significantly less crowded in Mexico than it is in the U.S.,” said Goldman Sachs Special-Situation Group Vice President Jason Nassof, who led the investment in Credijusto, according to reports. “There are openings for companies to grab market share.”

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