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Online banking has become so common that some banks don't have physical locations at all. That's created an opportunity in places where many people haven't historically had a bank account. Wailin Wong and Darian Woods from our daily economics podcast The Indicator follow the growth of online-only banking in Mexico, where startups are eager to win over new customers.
WAILIN WONG, BYLINE: When Raquel Ramirez (ph) left California for Mexico City in 2020, she thought she would just stay a month. But that turned into two months and then three.
DARIAN WOODS, BYLINE: Raquel decided to stay, and part of making Mexico City her new home was opening a local bank account.
RAQUEL RAMIREZ: I went to, like, two to three different banks. And they didn't want to sign me up.
WONG: No permanent address, no bank account, they said. And then about a year ago, Raquel tried to open another account, this time with an online bank. And that was an instant success. She uploaded a photo of her ID through their mobile app, and they sent her a debit card in the mail.
RAMIREZ: I was really surprised. And I was like, wow, this is pretty great.
WONG: The contrast between her two banking experiences points to an opportunity that entrepreneurs are seizing in Mexico. There are more than a dozen neobanks operating in the country. These are fully digital banks that don't have physical branches or ATMs but offer services like savings accounts and credit cards.
WOODS: These neobanks are trying to sign up people that have never put their money in a traditional bank. As of 2021, about half of Mexican adults didn't have a bank account. But more than 70% of Mexican adults have access to a smartphone, and a lot of them are young people under the age of 25. Andres Fontao is the co-founder and managing partner of Finnovista, a firm that invests in startups specializing in fintech. That's financial technology for short.
ANDRES FONTAO: Their expectation for banking is that that experience resemble TikTok or Netflix or Spotify more than it resembles what our parents are used to doing, which is going to a branch, getting in line, depositing a check or going to an ATM to withdraw their money.
WONG: Andres says he and his business partner realized the potential for fintech in Latin America when they visited Mexico a decade ago. They found a lot of entrepreneurs with ideas but not a lot of infrastructure like venture capital investors or incubator programs. Plus, there was another challenge.
FONTAO: When we first landed in Mexico in 2014, nobody wanted to touch fintech with a 10-foot pole.
WOODS: Andres says that investors were hesitant to put their money into new companies that would be operating in this regulatory gray area. Should they follow the same rules as traditional banks, or were they something different? Mexico's fintech law took effect in 2018, and Andres is not thrilled about how the law turned out.
FONTAO: Startups do not need to be regulated in exactly the same way as billion-dollar banks. The systemic risk that they expose an economy to is not the same.
WONG: But the law established some important rules for fintech companies. For example, any company that now wants to offer savings products has to get a license from the country's banking regulator.
WOODS: Andres says that he expects some of the established banks will acquire neobanks.
WONG: And as is usually the case with tech companies, not all the new players will survive. But Andres says that with the Mexican fintech law in place, there should at least be an orderly process for shutting down those companies.
WOODS: Darian Woods.
WONG: Wailin Wong, NPR News. Transcript provided by NPR, Copyright NPR.
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