The need for regulation in the FinTech market is increasingly evident as these financial institutions combined with technology continue to proliferate. Nubank, KLAR, Plata Card, Ualá, and other neobanks and applications have opened the doors of the financial system to millions of people in Mexico, providing credits quickly and easily. The use of credit cards in the country has experienced significant growth in recent years, consolidating the Mexican banking sector as one of the most attractive emerging markets globally.
The convergence of increased internet penetration, widespread use of mobile devices, and a young population has paved the way for FinTech innovation both in Mexico and in countries like Turkey. Despite the benefits that FinTech have brought by expanding access to credit, the lack of regulation and financial education poses risks of over-indebtedness that could trigger financial crises.
In this sense, it is imperative to implement regulations that protect consumers and avoid systemic risks. Financial education becomes essential for users to understand the costs associated with the credits they acquire. Some digital financial platforms have prioritized expansion over sustainability, which has led to difficulties in managing long-term credit risk.
Although FinTech have contributed to financial inclusion, it is necessary to find a balance between fostering innovation and ensuring financial stability. In Latin American countries like Mexico, immediate consumption is high, and saving is a less ingrained practice, which, along with the lack of financial education, can lead to unsustainable indebtedness.
The rise in credit card delinquency and the lack of protection for deposit products in financial technology entities highlight the risks for users amid a dynamic of rate wars and significant growth in credit card operations. Despite companies like KLAR, Stori, and Ualá experiencing strong customer growth, most financial institutions with digital models face losses, which poses challenges regarding long-term sustainability.
