Credijusto buys a bank - the implications for fintechs

These days it seems like the fintech market is moving at a mile a minute. Financings are announced every day, funding records continue to be made, new unicorns emerge weekly, and investors remain bullish (yours truly included!). But sometimes an announcement comes along that requires a bit more reflection to really understand the implications.

One such announcement happened when Credijusto announced it was buying a bank in Mexico.

Here at QED we spend a lot of time thinking about the banking ecosystem and the implications from the rise of fintech. Check outFrank’s classic – The Copernican Revolution in Banking – where he discusses how banks need to evolve to either serve their customer’s needs or serve the ecosystem as a transaction layer. Or Amias recently talking about what banks need to do to adapt to the API revolution. Or Yusuf dissecting a bank.

I could go on…

The point is something profound is happening to banking and the implications will continue to create major opportunities for fintech companies. Fintech as a category has still hardly scratched the surface of banking market cap.

Credijusto, a Mexican fintech (and QED portfolio company) focusing on SMB lending, recently announced the acquisition of Banco Finterra.This is the first transaction of its kind in Mexico and a sign of the progress fintech is making in the region. Lending companies continue to seek lower costs of capital as they grow. A some point, it is only natural to see them asking the question, “Do I need to become a bank?”

Following the likes of Lending Club and SoFi, Credijusto has now become a bank. Not only is this a huge milestone for fintech enthusiasts everywhere, but this transaction also marks a major milestone for the company, putting it on a path of new growth opportunities and the ability to meet more needs of SMBs.

First let’s talk about what this means for the ecosystem.The combination of banks and fintech has been talked about for years – and mostly through the lens of banks buying fintech companies. Before this, the path to becoming a bank in Mexico has been rarely travelled.

There are only about 35 local banking charters regulated by the CNBV. Thirty five is not a big number, and if you include the 20 or so foreign banks with charters, we’re still talking about a fairly small number of banking institutions in Mexico. Compare this to the thousands we have in the U.S. for example. Standing out from the pack as a Mexican bank is exactly what Credijusto is looking to do.

The company was able to make this acquisition happen because of its track record in the market and its strong capital position. The approval of the regulator is a clear signal that innovation from fintech is welcome inMexico. First there was the fintech law and now there is a transaction that has transformed a fintech into a bank. Hopefully this is a sign of more to come.

Credijusto of course is not a traditional bank given the focus on technology and the ability to innovate into new products. The company should continue to grow with the scale and efficiency of a fintech, while having the regulatory clarity of a bank. From here, the company will be able to lower its cost of capital and offer more products to its customers, now offering a full financial suite. This allows the company to go after a broader section of the market and removes the need to find customers only when they need capital.

Moving beyond lending also gives the company the ability to interact with customers on daily needs like payments and treasury services. TheSMB segment is still extremely underserved, and I think the company is uniquely positioned to meet the demand. Although the integration of two companies is never easy, the synergies in this case are very strong. Credijusto brings the tech and efficient underwriting experience and Banco Finterra brings customers from new segments and experience with other banking products.

Until now, becoming a bank in Mexico was no sure thing, but Credijusto leads the way. Congrats to the company on an amazing milestone.We’re happy to be onboard for the next phase of the journey.