FINANCIAL INNOVATION IN MEXICO.
RICARDO AZCONA PALAFOX, MARILI ARAMBURU MENDOZA, MARIANA
NAVARRO HERAS, Universidad Anáhuac Puebla ricardoazconapalafox@hotmail.com,
marili.aramburu@gmail.com, marianaelynh@hotmail.com.
ABSTRACT.
This essay focuses on the nature and prospects of financial innovation in light of
the recent global economic crisis. Provided that we strengthen prudential
regulation to discourage excessive risk taking in the future, innovation can
continue to benefit our societies.
Its importance in the business world through of the analysis of its impact on
analysis, counting for it with the experiences gathered by the business world.
Considered modern the term financial innovation is the act of creating new
financial instruments stories like fresh technologies, institutions and markets. It is
also protocols such as the product or processes of renewal with product
innovations through modern derivative contracts, new securities corporate or
different forms of concentrated investment products, as well as the
implementation of a process of improvements through these new means to print
security in transactions or their prices.
INTRODUCTION.
Crises are the way to detonate financial innovation, from the need to find solutions
leads to the invention of new instruments that help to face real problems, noted
Robert C. Merton, winner of the Nobel Prize in Economics in 1997 and in that
Mexico has great potential; "Mexico has great potential to take advantage of the
benefits of research in order to find new ideas either in the development of
technological tools or in the design of new regulatory structures"
Financial innovations have served as comprehensive solutions to expand
markets, as they arise to meet the need that appears as a result of changes in
the economy, financial systems or regulations. These include the introduction of
new financial products or changes in processes, as well as renewal and changes
in instruments or institutions.
The distinguished professor of finance at MIT Sloan School reviewed some cases
that resulted in innovations in the financial market, mainly in the derivatives
market.
"The explosion of risk in the 1970s led to an explosion of financial innovation in
the United States that was adopted in other developed and developing markets
such as Mexico," he said.
It was in that decade that the options market, currency futures market, the first emarket, the Nasdaq, were created; money market funds, index-linked funds; the
derivatives market was adopted; the national mortgage market; among others.
"The lesson was that a crisis doesn't mean it's going to back down and necessity
is the key to innovating."
He acknowledged that it is not easy and requires research work, having
mathematical bases and knowledge of the science of finance to be able to find
practical solutions, but can be found in instruments such as futures contracts, a
solution to challenges as was the case with the emergence of oil options.
DEVELOPMENT.
WHAT IS FINANCIAL INNOVATION?
Financial innovation can be defined as the act of creating and then popularizing
new financial instruments. This implies advances over time in the financial
instruments and payment systems used in the lending and borrowing of funds as
well as innovations in the payment mechanisms and systems in the economy.
Financial systems provide vital services: they evaluate, screen and allocate
capital, monitor the use of that capital, and facilitate transactions and risk
management. If financial systems provide these services well, capital will flow to
the most promising and deserving firms, promoting and sustaining economic
growth. Financial innovation, which is the creation of new securities, markets and
institutions, can improve the financial services sector and thereby accelerate
economic
growth.
These advances include innovations in technology, risk transfer and credit and
equity generation. A number of innovations have taken place over time among
them; the development of Automated Teller Machines (ATMs); the expansion of
credit card usage; Debit cards; Money market funds; Basic forms of securitization;
Venture capital funds and interest rate and currency swaps amongst many
others.
The financial innovations have served as integral solutions that allow to expand
the markets, since they arise to cover the need that appears as a result of
changes in the economy, in the financial systems or in the regulations. It involves
the introduction of new financial products or modifications in the processes, as
well as reforms and changes in the instruments or institutions. This kind of
innovation is classified in three ways:
•
Products or services. It consists in the creation of new investment, financing
and risk transfer instruments.
•
Processes. Implementation of new risk management techniques, for
example.
•
Markets. Through changes in the structure and organization of existing
markets or the emergence of new organized markets.
What are the financial innovations that prevail in Latin America?
The digital landscape of the companies is modified and is currently being
generated from the incorporation of innovation in the corporate culture,
investments in high technology and solid collaborations.
Consumers are demanding faster, more fluid and convenient shopping
experiences, along with new forms of payment. Innovative companies are
offering them these experiences, and this study gives us a solid orientation as to
how we can continue working with our partners in the region to accelerate
payment innovation.
To examine this reality, the Visa Innovation Center published the study "The State
of Innovation in Latin America", conducted by Americas Market Intelligence
(AMI), which examines the indicators, trends and benchmarks of the most
innovative companies in Latin America and the Caribbean from the perspective
of payments and financial services.
The study says that the Mexican market is number one in terms of business
model innovation by expanding access to banking, developing omnichannel
solutions and alternative payment methods for consumers who do not have
access to financial services. Mexico is also home to more than 300 newly created
fintech.
Recent Mexican legislation is serving to strengthen the fintech
environment, while omnichannel solutions for financial services and prepaid
credit cards are expanding access to banking with new ways that will help ensure
a prosperous future for the country's digital economy, innovation adoption and
financial inclusion.
Mexico ready to adopt digital payments?
33 financial institutions across Mexico are ready to implement CoDi, the first
digital payments platform launched by the country's central bank, and the biggest
challenge of financial innovation will not be implementation, but cybersecurity, as
it is consider the impact in different areas. In addition, private and public
institutions need to develop strategies with cybersecurity depositors to prevent
potential attacks by CoDi.
Any technological innovation has many benefits, but it also generates new
vulnerabilities that can become targets for cyber criminals. In this regard, Laura
Jiménez, Darktrace's regional director for Latin America, points out that banks
and the Mexican government must take into account and consider Artificial
Intelligence (AI) technology that, when making use of their machine learning,
does not Supervised, you can learn behavior patterns for infinite numbers of
appliances and users and detect threatening anomalies in real time.
According to the National Survey on Financial Inclusion 2018, conducted by the
Institute of Statistics and Geography, of the 62.2 million people who use a mobile
phone, 51% have a bank account, and of that 51%, 78% of them do not have a
mobile banking application. Since the Mexican government is beginning to
incentivize the use of such applications, it is essential that mexican people are
also provided with financial and digital education. Sharing knowledge of CoDi's
capacity as a catalyst for local trade by facilitating payments from small and
medium-sized enterprises will help facilitate its adoption across the country. As
part of this national campaign to educate about CoDi's benefits, the Mexican
government should focus on teaching small businesses about cybersecurity.
While the government works hand in hand with Mexican banks to detect threats
at an early stage, citizens can and should get involved in disclosing this
transformational element in the country, and above all contribute to the enabling
of the remaining 78% of to approach the new era of the Mexican banking system
safely.
FINTECH
Financial innovation is a natural result of human creativity and has favored
families, corporations and the economy. New products contribute to the
deepening of financial markets, financial innovation has promoted economic
development. Mexico has had a constructive experience in terms of innovation
FinTech companies offer various types of financial services and operate within
varied markets. Some provide their services directly to users of the financial
system and others design solutions for other companies.
Mexican fintech leads the Latin American market in terms of the amount they are
operating.
The truth is that fintech in Latin America has enormous potential for two simple
reasons:

Large population is not banked.

In Latin America there are more cell phones than in the entire United
States and Canada.
For these reasons, more and more fintech is being created in Latin America, and
that is why we have different types of fintech.
Country financial distribution
◦
Payments and remittances.
◦
Loans.
◦
Business finance management.
◦
Personal Finance Management.
◦
Collective financing.
◦
Business technologies for financial institutions.
◦
Digital Banks.
◦
Credit score, identity and fraud.
◦
Insurance.
◦
Asset Management.
◦
Negotiation of financial assets and capital markets.
In Mexico, the expectation is that Fintech will promote the banking of a large part
of the economically active population, which currently does not carry out its
economic activities within the Mexican financial system.
According to data from the World Bank, 37% of the adult population in the country
has access to an official bank account, which implies the rate of de-banking in
Mexico is 63%, a figure higher than the average for the region (51%). Even so,
the m arket for consumers and under-banked and unbanked SMEs remains the
main target segment of fintech startups in Mexico.
In the latest update of the Fintech Radar report, Mexico has regained leadership
in Latin America by owning the largest Fintech ecosystem in Latin America, which
is composed of 394 startups.
The growth of Fintech startups is 29.3% percent, if this number is subtracted from
the mortality rate recorded in the same period, valued at 11.3% percent, the net
growth is 18 percent and involves the creation of 98 new startups.
Since the officialization of the so-called Fintech Law in Mexico, which took place
on March 9, 2018, as well as the implementation of secondary standards in
September of the same year, Mexican financial technology companies have
registered a notable boom that has translated in the reconquest of leadership in
the Latin American market.

Loans 81 startups (20.6%)

Payments and Remittances 79 startups (20.1%)

Business Finance Management (EFM) 52 startups (13.2%)

Personal Finance Management (PFM) 39 startups (9.9%)

Business Technologies for Financial Institutions (ETFI) 36 startups (9.1%)

Crowdfunding 29 startups (7.4%)

Insurance 26 startups (6.6%)

Score, Identity and Fraud 16 startups (4.1%)

Digital Banks 15 startups (3.8%)

Trading and Capital Markets 13 startups (3.3%)

Asset Management 8 startups (2.0%)
CONCLUSION.
The constant change of technology encourages the development of new financial
instruments and the internet has made it possible to create products and services
online. Likewise, the advance in the knowledge of the financial area stimulates
the development of models that allow the introduction of goods such as
investment funds or structured notes. Its purpose is to meet the needs that arise
from changes in the economic and financial environment. In Mexico, more and
more companies are joining this type of innovation, so the Mexican government
should focus on teaching small businesses about cybersecurity. We are not
aware in companies, nor in government and, of course, less the open population,
of the implications, risks and dangers of cyberspace.
These are the conclusions we reached in Cybersecurity (a) the big problem is the
lack of culture and understanding of the risks in the use of technology at all levels
of users; (b) part of the lack of culture implies that it is thought that it will not be
violated and the damage and loss escant that an attack can cause both
individually and businesses is not measured; c) In the face of this, cybersecurity
has unfortunately focused primarily on simply trading in technological prevention
tools. Also: (d) in Mexico we do not have adequate public policies; (e) there is a
great lack of knowledge on the subject to design, create and implement policies,
laws and judicial processes to help deal with crimes; (f) there is no approval of
cybercrime in the Federal and State Penal Codes; (g) There is no cooperation
between the actors.
It is true that there are still many deficiencies in which the country must work for
the development of these technologies, but Mexico has the support of many
international companies and the government itself, so there is more in citizen
participation to get involved in these activities and ensure for a better future.
REFERENCES.
Banco de México (2007), Reporte sobre el sistema financiero, 2006,
www.banxico.org • Eatwell, J. and L. Taylor (2000), “Global Finance at Risk” The
New Press. New York, US.
Toporowski, J. (2000), The end of finance, capital market inflation, financial
derivatives and pension fund capitalism, Routledge Frontiers of Political
Economy