The open banking revolution is taking the world by storm, yet its adoption varies from region to region. Startups such as Fintoc, which are pioneering this movement in less-explored markets, may soon catch the eye of financial giants for potential mergers and acquisitions.
Fintoc, a flourishing B2B fintech firm and part of the Y Combinator alumni, recently garnered $7 million in a Series A funding round. This investment is aimed at strengthening its operations within Chile, its home base, and Mexico, where it ventured just a year prior.
At the heart of Fintoc’s offerings lies an API that enables online businesses to process instant payments straight from customers’ bank accounts. This accounts-to-accounts (A2A) payment method serves as an efficient alternative to credit card transactions, reducing intermediary involvement.
For consumers, A2A payment is as seamless as traditional online credit card payments. Users simply select their bank and securely input their banking details. The real benefit, however, is for businesses that enjoy reduced commission costs compared to standard credit card fees.
Open banking firms such as Plaid, Visa’s Tink, TrueLayer, and Volt, along with fintech giants Adyen and Stripe, have embraced A2A, integrating these payments into their services through strategic partnerships.
Despite the challenges of market fragmentation and low rates of financial inclusion—less than 50% of adults in Mexico possess a bank account—the CEO of Fintoc, Cristóbal Griffero, views these hurdles as opportunities. He anticipates that the emergence of neobanks will gradually close the financial inclusion gap, and positioning Fintoc ahead of this wave could foster substantial growth alongside the market.
In Chile, Fintoc’s influence is significant, with over 1.8 million individuals, approximately 13% of the Chilean populace, utilizing their service for payments, according to Pedro Casale, their content manager. Despite stiff competition, Fintoc has secured a strong user base, with more than 1.2 million monthly users in Chile, and counts numerous high-frequency use cases among its services.
However, given Chile’s limited population size, Griffero acknowledges that there is a cap to Fintoc’s potential domestic growth. As such, expansion beyond Chile is not just advantageous but necessary for fintechs aiming for substantial revenue growth.
Fintoc’s expansion strategy has evolved since its initial pitch at Y Combinator’s winter 2021 batch. The original plan to emulate Plaid’s model across Latin America was deemed too ambitious, and the startup has since recalibrated its focus to a select few markets, a sentiment echoed by venture capitalists.
The startup has high hopes for its Mexican expansion, with Griffero expecting it to form the majority of Fintoc’s revenue in the coming years. Although the team in Mexico is currently small, with only five out of 48 employees based there, they are taking deliberate steps to ensure sustainable growth.
Recent trends in fintech funding have shown a slowdown, with the first quarter of the year marking the lowest investment levels since 2017. In Latin America, the stark contrast is evident when comparing to the second quarter of 2021, highlighting a more cautious investment landscape.
While funding for LatAm fintechs has waned in popularity, the potential for significant mergers and acquisitions remains, as evidenced by Visa’s $1 billion acquisition of Pismo in Brazil and Mastercard’s purchase of Arcus in Mexico.
Fintoc’s primary investors, including Brazilian fund Monashees and Propel, based in the U.S., have strong ties to the startup’s target markets and have been instrumental in facilitating connections with Mexican banks, a crucial step for Fintoc’s ongoing expansion.
Fintoc is also targeting Mexican businesses that predominantly rely on offline payments, positioning A2A as a superior alternative. Looking ahead, Griffero envisions that A2A will not only replace debit cards but also become a strong contender against credit cards.
As instant payments gain traction globally, with systems like Pix in Brazil, UPI in India, and FedNow in the U.S., traditional payment giants like Mastercard and Visa may face heightened competition. A Bain & Company report suggests that a large portion of current payments revenue could shift towards software and technology firms, which may explain the flurry of acquisitions by established players, and signal more to come.
