LATAM’s Fintech Boom: Mexico

Our LATAM Fintech series aims to provide information on the specific regulatory and tax issues affecting Fintechs in Latin America. In this issue, we turn our focus to Mexico.

Mexico is one of the biggest consumer markets in the world, and Fintech is jumping on board. Though bank account penetration is historically low, Statista reports that, as at November 2021, 440 Fintech startups had registered in Mexico, with the majority focused on payments and remittances.

Indeed, number of Fintech startups in Mexico has grown by an annual average of 23% since 2016, innovating digital banking and payment services, providing peer-to-peer lending and crowdfunding.

Mexico has a specific Law To Regulate Financial Technology Institutions. Known as The Fintech Law and passed in 2018, one of the first such laws in LATAM, it intends to encourage innovation and offer regulatory guidance for new Fintech banking, peer-to-peer financial services and even cryptocurrencies. It also includes a ‘sandbox’ provision. There are reports of lengthy waiting times for license authorisation, however, and some specifics are still to be covered – like open finance, net capital and funding/investment limits.

One of the biggest factors affecting Fintech use is smartphone/mobile internet usage among the population. Looking at figures for Mexico, the GSMA (Global System for Mobile communications Association) reported in 2021 that 67% (79 million) of Mexico’s 129 million people used smartphones with 57% mobile internet usage. The GSMA predicts this number will rise to 74% by 2025 (94 million users), with mobile internet adoption hitting 66% at the same time. 5G networks started rolling out in Mexican cities in February 2022, and there are hopes it will extend to 120 of Mexico’s cities by year end.

And what about the standard? Well, though Mexico placed 32^nd in the world in Findexable’s Global Fintech Rankings Report 2021, it is actually placed third in Latin America (after Brazil and Uruguay), and Mexico City is ranked 49^th in the top city rankings – again, the third Latin American city on the list. (Sao Palo, Brazil ranked 3^rd, Montevideo, Uruguay ranked 44^th) The cities of Guadalajara and Monterrey also achieve rankings.

Fintech has also dominated incoming foreign investment into Mexico. As ECLAC states in its 2021 FDI report, the country received US$831 million incoming FDI in 2021, 40% of which was focused on Fintech and 12% on e-commerce. KoreFusion’s 2020 LATAM Fintech report noted, though, that the market could sustain more funding.

While Fintech Mexico offers an ‘open and transparent collaboration space’ to enhance Fintech innovation in Mexico, the National Institute of the Entrepreneur (INADEM) aims to bring together and foster ideas, providing a perfect breeding ground for Fintech development, connecting entrepreneurs with private incubators.

Regulatory

There are three federal bodies with jurisdiction over Fintech; Mexico’s Central Bank (Banxico), The Ministry of Finance and Public Credit, and The National Banking and Securities Commission (CNBV).

While regulators are keen to promote and encourage Fintechs, this multi-jurisdiction does create overlap issues. Financial regulation is specified by type of entity, which can cause regulatory confusion when multiple bodies get involved. While regulators are working to deliniate and solve these issues, arbitrage does remain.

Mexico has laws governing consumer protection, AML/KYC/due diligence, data protection, competition, and telecommunications. There is no national cybersecurity framework at this time, but there are plans for one, and some points are covered within other legislation.

Tax

A VAT rate of 16% (2022) is applicable to individuals and legal entities that: dispose of assets, provide independent services, grant temporary use or enjoyment of goods, or import goods or services.

As of 1 June 2020, foreign companies providing digital services through digital applications to users in Mexico are required to charge VAT.

Mexico’s federal corporate income tax is 30%. Fintechs are subject to tax rules applicable to Mexican corporations, and only certain matters are subject to municipal or state level taxes (real estate acquisitions, property taxes, payroll taxes, etc.).

The fiscal year aligns with the calendar year.

Auxadi’s Team in Mexico City are here to help with all aspects of Mexican company formation, ongoing accounting, tax and payroll. Get in touch to find out exactly how Auxadi can help make your life easier.