Neobanks collaborate with established institutions to challenge fintechs

New Kid on the Block: The Rise of Neobanks in Mexico and their Advantages Over Traditional Banks

Neobanks, or digital banks, have emerged as a reality in Mexico. Unlike popular digital financial companies like Sofipos, these banks are backed by established banking institutions such as Santander, Banorte, Banregio, and Invex. This backing means that customers who choose to save their money in these digital institutions are also protected by higher deposit insurance offered by the Mexican authorities as compared to popular financial institutions.

Digital banks offer a range of services from opening accounts to obtaining loans, and must be licensed by the National Banking and Securities Commission (CNBV) in order to qualify as a bank. Banregio, for example, has been at the forefront of promoting 100% digital banking with its Hey Banco application that initially provided debit and credit cards. Similarly, Nu entered the Mexican market with credit cards and later acquired Sofipo to expand its product offerings.

The rapid growth of digital banks in Mexico has led other institutions to follow suit. Ualá, Invex, and Affirme are some of the financial companies that have launched or are planning to launch digital banking options. Even large international banks like Santander are gearing up to introduce their digital banking services through Open Bank, which already has its license.

One key difference between traditional banks and Sofipos is the level of deposit insurance they offer. A bank’s deposit insurance, backed by the Institute for the Protection of Bank Savings (IPAB), provides higher coverage as compared to Sofipos. While OTPs have the support of the Fund for the Protection of Popular Financial Companies and the Protection of their Savers (Prosofipo), the coverage they offer is lower.

Traditional banks like BBVA have chosen not to open separate digital banks but instead moved all their services to their existing application. This approach reduces the need for additional licenses and investments as most capital injections are directed towards technology.

As Mexico’s digital banking landscape continues to evolve

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