Rappi card
Rappi food and goods delivery app debit card partnered with VISA. Photo: Shutterstock/Sebastian Barros

Regulation and new market players pave the way for financial digitization in Colombia and Mexico

From newly financially included users to new fintechs and services seeking financial institution licenses, the pandemic led to unprecedented digitization in countries such as Colombia and Mexico. Colombians Rappi and Davivienda and Mexico's Oxxo have their eyes set on the prize

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With the COVID-19 pandemic forcing the digitization of an unprecedented number of activities in Latin America, financial services also gained an extra pace, as consumers sought new ways of paying, transacting – or even receiving emergency funds. In Colombia, over 5 million new savings accounts were opened from March to September 2020, according to Superintendencia Financiera, the Colombian government agency in charge of overseeing financial regulation.

According to Banca de las Oportunidades, a Colombian national policy, the latest data from September shows that 31.6 million Colombians – or 87.1% of the country’s adult population – have access to a banking product or service. “The path towards digitizing financial activities requires the encouragement of innovators in the financial sector and fintechs, but also of public policies that enable their development. Regulations and guidelines that allow the existence of activities such as digital payments turn out to be fundamental,” Diego Herrera, financial markets lead specialist at the Inter-American Development Bank (IDB), tells LABS.

Diego Herrera, financial markets lead specialist at the Inter-American Development Bank (IDB). Photo: IDB/Courtesy

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On the one hand, regulation opens room for new innovative financial products to arise. On the other, it is a natural path for companies seeking consolidation. That is the case of a 2-year partnership between Colombian super app Rappi and Davivienda, one of the largest banks in the country: the companies announced in March they are moving forward with an alliance that has led, in 2020 alone, to 730,000 customers on RappiPay digital wallet and over 20 million transactions. Now, the Rappi-Davivienda partnership seeks a financial institution license, requested to Superfinanciera, to create a brand new digital bank – each partner will have 50% of the new institution.

For Davivienda’s CEO Efraín Forero, this next step, following the launch of the credit card RappiCard, is a “big step to keep on transforming the path towards opening payment ecosystems between fintechs and banks, enhancing digital and secure payments in Colombia, lowering transactional and access costs, and reducing the use of cash.” 

According to Juan Felipe D’luyz, an equity analyst following the matter at investment management firm Casa de Bolsa, from Colombian holding financial firm Grupo Aval, the new institution will allow Rappi to expand its digital ecosystem in Colombia, as it grows its alliance with Davivienda, whose market share by gross portfolio is 16.4% and whose customer base is at 17.5 million. Davivienda’s digital channels share grew to 52% at the end of 2020. 

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“Some of the new services that this new credit institution will offer, which has nearly the same offers as a bank, will be, for instance, a new credit card, access to credit for Rappitenderos [Rappi‘s partner couriers] and credit support for partner restaurants,” D’luyz explains. “These would join the RappiPay’s service.”

According to Rappi, its credit card will offer users a virtual and physical version, 1% cashback on all purchases, in addition to a personal banker in the app and zero handling fee. On Rappi‘s app, users will also be able to see a map where purchases were made.  

For IDB’s expert, there is a trend, not only in Colombia but in Latin America as a whole, towards collaboration among financial institutions and digital platforms. “This allows the first to offer products on markets they did not reach before, but also to use the benefits of the latter: data on the consumption of goods and services, information on payments and cash management, geographic location of consumption,” Herrera points out.

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“On the other hand, digital platforms benefit from agreements with financial institutions by having access to the services they provide, including benefits in the management of resources and credit. Not only financial institutions and platforms win, but also the financial consumer (…) with the possibility of having one more door to be financially included.” 

Although further details, such as the name of the new neobank setting foot in the Colombian market, are yet to be known, Rappi and Davivienda expect operations to kick off by December, after receiving the regulator’s green light. With over 7 million users and a presence across over 220 cities in 9 Latin American countries, Rappi hit a $3.5 billion valuation after raising a $300 million Series F round led by the American investment firm T. Rowe Price back in September.

Mexico’s sweetheart OXXO enters the fintech world with Spin

Oxxo’s convenience store. Photo: Shutterstock

Financial digitization seems to be a common ground for new players like Rappi – but also for traditional ones. OXXO, the largest chain of convenience stores in Latin America, with over 17 thousand stores spread across Mexico announced in March its entry into the fintech ecosystem by launching Spin, an app for financial services such as sending and receiving money, making deposits and checking balance account.

“Spin allows you to do the same things you would have done in stores: pay for services, top up your cellphone (…) but you can do it from your smartphone and load your Spin card through OXXO stores, withdraw money from them,” said Eugenio Garza y Garza, CFO at OXXO’s parent company, FEMSA.

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According to the company, the account doesn’t charge fees such as minimum amount commissions or annuities, and users are able to request a physical Spin card, as it is supported by Visa.

For Ignacio Carballo, economist, professor, director of Fintech Ecosystem at the Universidad Católica de Buenos Aires and AMI‘s Southern Cone Affiliate, OXXO’s new venture is a significant announcement. “Not only because it is one more player joining the Mexican fintech ecosystem, but also because OXXO is, among other things, a well-known brand in Mexico and part of their culture.”

Ignacio Carballo, economist, professor and director of Fintech Ecosystem at the Universidad Católica de Buenos Aires. Photo: Courtesy

The economist explains that, while for users, the biggest edge is having a digital offer merged with wide access to physical stores, due to OXXO’s vast geographical footprint; for the company, entering the fintech world will allow new financial products and business models to increase the operation’s profitability. For the ecosystem, he points out that there are expectations for the new service to reduce cash circulation.

“Let’s remember that Mexico, besides having big players such as PayPal and Mercado Pago, and also public initiatives such as Spei and CoDi, is still one of the economies with the largest share of cash circulation. For those who have some kind of access to an account and end up lasting a very short time in the financial system, we expect [with the new launch] they can stay longer in the financial system without needing to go to an OXXO store to pay or charge in cash,” he says.

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Spin by OXXO waits for a regulatory green light, as the accounts will be opened at Compropago, a company in process of approval by CNBV, the independent agency linked to the Secretary of Finance and Public Credit in Mexico. For now, features linked to the OXXO store in the app are only available in the state of San Luis Potosí, while Spin’s app is enabled to operate nationwide and available in app stores since March.

According to OXXO, Spin aims to bring financial services to all Mexicans through innovation and technology on their mobile devices. ” The advantages are financial inclusion, cash reduction, financial digitization for consumers and I would add: this is a strong market player that could promote even more competition in Mexico, boosting innovation in the entire ecosystem,” adds Carballo.