SMEs are seeking financing to prevent the quarantine from killing their business and provide them with liquidity to confront the situation.
According to INEGI, Small and Medium-sized Enterprises (SMEs) in Mexico generate 78% of jobs and 52% of Gross Domestic Product (GDP). As they seek financing in order to survive, this pandemic is providing fintech companies with a great opportunity.
Fintech companies enable SMEs to avoid having to sell their assets, resort to credit cards or the use of personal loans, and offer immediate liquidity with resources obtained from other people willing to lend their money in exchange for a return on investment.
Yannick del Ponte Bonilla, Director General of the fintech company ID Finance in Mexico, says he’s seen the number of visits to his page go up during the COVID-19 pandemic, while they’ve had to take steps such as offering free extension of coverage on customers’ life and unemployment insurance for an extra 30 days.
“The health crisis is an uncertain issue in Mexico. No-one can say exactly how it will turn out, what’s going to happen, or what the consequences will be. These steps that we’ve taken show that we’re a company that adapts easily to changes and external eventualities by providing a 24/7 product that is truly 100% online,” he said in an interview.
There’s generally no need to go to a branch to use a fintech company, as all application procedures are performed digitally.
At the end of 2019, the amount invested in fintech startups was 11 billion dollars worldwide, according to the consultancy firm CB Insights, which specializes in new technology-based businesses. Despite this sum, the mortality rate for fintech startups in Mexico is 4.5%, according to the Third Fintech in Latin America Report, published in 2020.
Ventures and Risks
Those fintech service segments in Mexico with the greatest chance of short term growth during the pandemic are vertical ones for payments and loans, although they could face defaulting in the medium term.
Mexican fintech company Kueski, which offers personal microloans, has had to lay off 30% of its workforce to avoid greater financial impact due to the coronavirus.
For its part, ID Finance saw the opportunity to implement a product called Moneyman, which seeks to support personal finances, due to the the situation companies are experiencing in Mexico.
“Many people have seen their wages or their jobs affected. When you apply for it, you receive a loan that is quick, transparent, reliable, and offers the ability to obtain an extension or additional benefits,” said Bonilla.
Professor David Igual Molina, from the Barcelona School of Management, said that not all aspects involving fintech companies due to the coronavirus are positive.
“It’s come as a real trial by fire to verify their results in all spheres: loans, investment advice, payments, etc. One problematic aspect is lack of liquidity, one of the characteristics that all companies suffer from in situations of crisis,” wrote Molina.
According to this professor, fintech companies “exist on a day-to-day basis” and resort to new rounds of financing to maintain themselves and grow, so they could be affected by the slowdown in the economy.
For his part, Bonilla says that once the situation begins to recover, companies will consider new structures and mechanisms for continuing their business. For the rest of the year, the executive says that fintech companies will be affected to a lesser extent, as they can react much faster than the banks and maintain operations during the crisis.
“It’s not as much of a tragedy for fintech companies as it is for other businesses such as restaurants, hotels, schools, or airlines, where the scenario is much more drastic. We’re adapting the product with new evaluations for acquisition, credit, and risk. That means we can carry on generating business and helping our customers,” he concluded.