Mexico becomes a bellwether for digital banks

Mexico’s banking market is growing strongly as fintechs gain banking licences through direct applications or by buying existing banking operations to compete with traditional banks. The number of deposit accounts has climbed nearly 30% in three years: for the time being, most remain with traditional lenders, but several new entrants that began as payment fintechs in other countries ten years ago are now fighting for coveted payroll deposits in Mexico. “The most exciting chapter in the history of digital banking worldwide will be written here in Mexico in the coming years, with both traditional players transforming and digital attackers arriving,” Juan Miguel Guerra, chief executive of Revolut’s Mexican operation, said in an interview with Bloomberg. “They’ll have the same opportunity, Guerra said, ‘but as the trend in digital products goes, winner takes most’.” Fintechs that now have or are pursuing full banking licences include Argentina’s Ualá and Mercado Pago, Brazil’s Nubank, the UK’s Revolut, neobank Plata (run by former operators of Russia’s Tinkoff Bank) and Klar, a Mexican start-up and neobank that is acquiring Banorte’s digital operation Bineo. “They’re doing it with heavy marketing and by going after payroll accounts, the ones where people’s paychecks get deposited automatically,” reports Bloomberg. “Those accounts, which are only available to regulated banks, are considered the crown jewel of retail banking because they feed lending, savings and investment products.” Maria Martínez, a 31-year-old is a good example. She has two bank accounts already but was happy to open a third for part of her salary. “I opened Nubank because it made it very easy to invest,” Martínez said. “It was really easy: earning returns on your money by keeping it there, all in one system.” For some fintech neophytes, she said, “The range of services can sometimes be overwhelming, and perhaps we don’t always have the information to know which is the best option. Instead, we simply go for the one that sells it best.” Meanwhile, BBVA is competing hard and Santander and Banregio have launched fully digital offshoots, Openbank and Hey Banco, to appeal to younger customers. And how many would guess this: Chinese ridehailing app Didi is also in the market offering debit and credit cards.

Amazon trials SME lending in India

SME lenders have traditionally grappled with a shortage of data but a massive trend in recent years is to use physical or digital point of sale data for merchant loans and cash advances. Chinese operators such as MyBank, tied into Ant Group’s ecommerce platforms, pioneered rapid and automated lending based on this model. Now Amazon is looking to do something similar in India. “Amazon is preparing to offer loans to small businesses in India, while Walmart-owned Flipkart is looking at buy-now, pay-later (BNPL) products as the e-commerce giants take on the country's banks with a push into financial products,” reports Reuters. “Amazon acquired Bengaluru-based non-bank lender Axio earlier this year. Currently focused on BNPL and personal loans, Axio will re-embark on offering credit for small businesses and start offering cash management solutions. Both Amazon and Flipkart operate apps that rank among the top 10 platforms used to make payments via India's Unified Payments Interface. Their financial ambitions gained a major boost earlier this year, when the RBI allowed them to lend directly to customers through wholly owned units. That also marked a significant opening of India's financial services market to foreign-backed tech firms. ‘There is immense potential for them to make a dent because they own both the supply-side and demand-side customer data’, said Rohan Lakhiyar, partner at consultancy Grant Thornton Bharat's financial services risk division. ‘But execution will be key as they venture beyond core retail’.

The Portal of Farce?

The film Wolf of Wall Street, along with being a huge commercial success, had a real-life subplot involving alleged fraudster Jho Lho, Malaysian political leaders, Malaysia’s national wealth fund and bankers from Goldman Sachs. This next story doesn’t quite hit those heights, but it’s close. The story is one of a new series of reports about cryptocurrency and money laundering from the International Consortium of Investigative Journalists. The main protagonist is Vladimir Okhotnikov, who has a new film out starring Kevin Spacey, the Hollywood actor looking for a redemption arc. “For the film’s creator, Vladimir Okhotnikov, an accused Russian cryptocurrency fraudster, the stakes were even higher: an entrée to Hollywood and a bold new stunt to draw in investors. Okhotnikov, 47, who goes by Lado, is the alleged mastermind of a series of cryptocurrency scams, including one called Holiverse, which shares its name with his evolving cinematic universe. He co-wrote ‘The Portal of Force’ based on a semi-autobiographical comic book and in February told a crowd of supporters in Dubai, United Arab.

Banks + telcos + new credit businesses

One of the popular new models for borrowing small amounts of money relies on three partners: the bank provides the money, the telco provides the customer, and behind the scenes a credit engine calculates a score to determine the amount of the loan. An emerging trend is a series of relatively small player providing the credit scoring, using behavioural data drawing on airtime or even electricity repayment patterns. One such player is ComZAfrica, which started as micro airtime lender in 2009, and has grown into a business processing $5 billion in loans, supporting 7.5 million borrowers across 11 markets, with another 14 in it targets. “In countries where financial data is limited or unreliable, ComzAfrica relies on behavioural insights within specific ecosystems. A customer’s airtime usage or electricity repayment pattern becomes more valuable than traditional credit files. And in ecosystem after ecosystem, that approach has proven remarkably accurate,” reports Business Insider. That’s also the model behind credit scoring business Optasia, which had a successful IPO on the Johannesburg exchange last month, valuing it at $1.3 billion. “Optasia said it works mainly in Africa, the Middle East, and Asia, and partners with telecom operators such as MTN, Vodacom, and Airtel,” reports Tech in Asia. “The company reported around 121 million monthly active users and over 32 million daily loan transactions.” FirstRand group took a 21 percent share in the business. Optasia is sub-Saharan Africa’s first publicly listed fintech.

Standard Bank opens payments channel to China

Relations between South Africa and the US have been tetchy this year. This week South Africa’s Standard Bank becomes the first African bank to integrate with China’s Cross-Border Interbank Payments System which will allow suppliers to pay through the yuan rather than route through the US dollar. “The bank noted the new system will also reduce exposure to dollar exchange rate volatility for African importers who rely heavily on Chinese machinery, electronics, textiles and construction materials. Standard Bank said the service provides clients with new ways to optimise trade operations with China,” says Business Insider. “African countries are increasingly exploring currency alternatives that match their growing economic links with China. The move also fits into the broader aspiration of the expanded BRICS group, which includes South Africa, to promote more local currency settlement and reduce dependence on the US dominated financial system.” South African leaders will be hoping that Mr Trump is distracted from this news by problems on the home front, including a sinking trend in the crypto market that Mr Trump has championed over the past year.

Fintechs are pushing banks to compete harder

In London, Barclays chief executive CS Venkatakrishnan told an FT banking conference that Revolut has a current advantage over traditional banks as it does not have a full banking licence and does not have to comply with regulations that banks must meet. (Revolut probably disagrees: the bank’s leaders give every impression that they’re unhappy that they have not been yet able to gain approval for a banking licence.) Venkatakrishnan admitted fintechs had “really laid down the gauntlet to the banks in terms of the quality of services they provide”. Paul Thwaite, head of NatWest, said he was not worried about his bank being overtaken by Revolut in terms of market capitalisation. “I don’t lose sleep thinking about market capitalisation. I lose sleep thinking about how we have got the best possible product and proposition to deliver to our clients,” he said.

PAPPSCARD offers new potential in Africa

In Nigeria, Payattitude has announced a strategic partnership with PAPPSCARD, which is the Card Scheme initiative of the Pan-African Payment and Settlement System (PAPSS). This means that Payattitude cards issued by banks and other deposit-taking institutions can be co-branded with PAPSSCARD, Discover, Diners and Pulse to be accepted across their networks in Nigeria, Africa and worldwide. Global card network Discover has long taken a different approach than Visa and Mastercard, building a “network of networks”. Among those at the launch during the PAPSS Cowry Conference in Lagos on Tuesday were Dr Agada Apochi, chief executive of Unified Payments, Mike Ogbalu, chief executive of PAPSS and Vivian Okolo, Director of Corporate Services at Unified Payments. “As an initiative of the African Export-Import Bank (Afreximbank) and a key financial infrastructure supporting the African Continental Free Trade Area (AfCFTA), the PAPSSCARD scheme will facilitate instant cross-border payments in local currencies,” writes Techcabal.com.