Fintech: Mexico leads as Fintech Hub, with Nubank expansion and Clip's $100MM

Is Clip's recent $100MM raise an early indicator of rebound for Mexico's fintech sector?

Hi Fintech Futurists — 

Today’s agenda below.

1. FINTECH: Clip's New Funding and the Future of Fintech in Mexico

2. LONG TAKE: The Fed freezes Evolve Bank and BaaS; SEC clears way for Ethereum (link here)

3. CURATED UPDATES: Paytech, Neobanks, Lending, Digital Investing

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Digital Investment & Banking Short Takes

Clip's New Funding and the Future of Fintech in Mexico

Clip, a leading fintech company based in Mexico City and often compared to Square for its wide range of payment, financial, and commerce software and hardware solutions, announced a new $100 million investment at a $2 billion valuation. The funding will be used for product expansion and comes from Morgan Stanley Tactical Value and another unnamed fund.

Source

The size of this investment is significant, and highlights the adoption of digital financial tools within retail commerce. Software tooling to support for SMBs is combined with payment processing and connectivity to various payment rails. In addition to focusing on Clip, we think there are also broader implications for the fintech and venture capital landscape in Mexico.

In the early 2010s, the venture ecosystem in Latin America was in its infancy, characterized by limited investment activity primarily driven by local investors. However, by the latter part of the decade, the macroeconomic and demographic trends — such as the region's large, young, and increasingly tech-savvy population — created a fertile environment for tech startups targeting the substantial unbanked population. Despite the economic disruptions of the COVID-19 pandemic, digital adoption across Latin America surged, with record-breaking funding rounds for startups in digital payments, e-commerce, and other sectors.

However, the VC funding landscape underwent significant changes in 2022 and 2023. The global economic slowdown and tightening monetary policies led to a decline in venture capital investments worldwide, particularly affecting the LatAm regions.

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There are several reasons to believe that 2024 is a turn-around year for Mexican fintechs, with Clip's recent fundraising as an early indicator. The fact is, Mexico remains an attractive market —

• 10th most populous country, with approximately 130 million people;

• Second-largest economy in Latin America and a top 15 global economy;

• Young and digitally native population, with a median age of 29 years;

• Smartphone penetration exceeds 66%;

• Over 50% of the population remains unbanked

Moreover, despite increased competition, these factors, coupled with Bloomberg's report of nearly $4 billion in undeployed VC capital in the region, indicate substantial growth potential in Fintech, which has been a consistently popular vertical.

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Mexico's commercial potential can also be seen through the recent success of other companies in the region. A prime example is Nubank, the Brazilian giant that expanded into Mexico in 2020. Their recent earnings call underscored Mexico's significance, with CEO David Velez stating:

In Q1 2024, we initiated the year with numerous ambitious goals designed to elevate our platform. As we mentioned last quarter, our 2024 focus is on four key priorities aligned with our mission to combat complexity and empower people. Our first priority is to Establish Strong Momentum in Mexico, laying the foundation for sustainable and profitable growth in the country [...]

Their earnings presentation showed that major milestones in Mexico were achieved faster than in Brazil during the same period.

Data Sourced from Nubank “Q1 Results Spreadsheet”

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Nubank is also aggressively pursuing a full Mexican banking license. Currently, it operates under a SOFIPO license, which allows a limited range of products and creates a growth bottleneck. Nubank's acquisition of a full banking license would enable it to offer higher-insured savings accounts and a full spectrum of mortgage and investment services, which would grow both share of wallet and profitability.

And it's not just Nubank doing this. UK-based fintech Revolut recently received their full Mexican banking license and Mercado Libre, the LatAm ecommerce and fintech giant, is reportedly in talks to kick off their own application.

However, significant challenges remain. Economic uncertainty remains a concern. While Mexico introduced forward-thinking regulations in 2018 to foster innovation and create a clear legal framework for the fintech sector — establishing the country as a leader at the time — these regulations have now become outdated and cumbersome. Moreover, crucial elements of the original legislation, such as open-banking standards that are vital for future growth, have not been implemented yet.

Still, with a large unbanked population and increasing smartphone penetration, Mexico remains a prime market for fintech innovation. Additionally, although political promises are never a given to be delivered, Mexico’s new president-elect has made it a point to prioritize public internet access for all, something she has experience delivering previously. This will increase the addressable market.

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As the country continues its digital financial transformation, we expect to see more success stories like Clip's emerge. For investors and entrepreneurs alike, Mexico's fintech scene will be interesting in its ability to leapfrog other jurisdictions and follow the path of Brazil. For Nubank and Revolut, that could be $50B in marketcap.

👑 Related Coverage 👑

Blueprint: $4.5B valuation for insurtech broker platform wefox; Mexican paytech unicorn Stori 100% credit approvals and 100%+ APRs; Cred Protocols' machine learning Aave default scores

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Blueprint Deep Dive

Long Take: The Fed freezes Evolve Bank and BaaS; SEC clears way for Ethereum (link here)

We highlight a massive win for the crypto industry where the SEC decided not to enforce action against Ethereum, reinforcing its status as a commodity. This contrasts sharply with the Fed sending an enforcement letter against Evolve Bank & Trust for its challenges in open banking.

We also discuss the current state of the Synapse bankruptcy and the $85MM missing deposits between the various ledgers. This underscores the importance of real-time validation in financial systems and questions whether the future lies in patching existing banking systems or fully transitioning to blockchain-based solutions.

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Curated Updates

Here are the rest of the updates hitting our radar.

Paytech

• ⭐Plaid’s new tech makes it easier to sign up for financial accounts - Fast Company

  

  

  We are fans of Plaid’s new product announcement, allowing for a quick and secure onboarding experience for consumers. This builds on the company’s core functionality of integrating into as many financial institutions as possible and helping Fintechs get up and running. We are also reminded of prior telephone-based financial identity plays, like Payfone, but think that Plaid has the scale to deploy this as a value added service and an expansion of its auth product. For a full conversation around these topics, see our prior Podcast below.
  

  Podcast: Value of digital identity in fintech and crypto, with Plaid Head of Identity Alain Meier

• Apple’s Tap to Cash Lets Users Pay By Touching iPhones - PYMNTS

• Australia moves to rein in buy-now-pay-later with credit check law - Reuters

• Apple is shutting down Apple Pay Later just months after launch - The Verge

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Neobanks

• Unit Finance cuts 15% of staff - Banking Dive

• Revolut adds bond trading - Finextra

• Spain’s BBVA Considering Opening Digital Consumer Bank in Germany - PYMNTS

• Dutch neobank Bunq enters partnerships with Mastercard and Nvidia - Fintech Futures

• Atom Bank posts first pre-tax profit - Finextra

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Lending

• ⭐Fed hits Synapse partner Evolve with enforcement action - Banking Dive

• Biden admin moves to keep medical debt off credit reports - Axios

• Laybuy Issues Receivership Notice - Fintech Finance News

• Walmart, Capital One settle lawsuit over credit card partnership - Reuters

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Digital Investing

• Revolut seeks valuation of more than $40bn in employee share sale - Financial Times

• Zilch weighs London IPO as it secures £100 million debt financing - Yahoo Finance

• French wealth management startup Ramify raises €11m - Finextra

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• Contributors: Lex, Michael, Laurence, Matt, Farhad, Daniel, Michiel