Chilean instant payments API startup Fintoc raises $7 million to turn Mexico into its main market | TechCrunch

Open banking may be a global trend, but implementation is fragmented. Fintech startups trying to make it a reality in smaller markets could become M&A targets for incumbents like Visa.

One of these is a Y Combinator alum fintokA B2B fintech startup that has raised a $7 million Series A round of funding to strengthen its presence in its home country, Chile, and Mexico, where it expanded a year ago.

Fintok’s product is an API that lets online businesses accept instant payments that come directly from a customer’s bank account. Known as accounts-to-accounts or A2A, this approach provides an alternative to credit card transactions with fewer intermediaries.

For end users, A2A can be as frictionless as online credit card payments. Instead of entering card details, they can simply choose their bank and enter their bank credentials securely and conveniently. But the main selling point is for businesses, which pay lower commissions than typical credit card transaction fees.

Many countries now provide A2A facilities, which has created headwinds for open banking companies plaidVisa-owned tink, truelayer And vault, More generalist fintech players prefer Adyen And strip The partnership has also kicked off to offer A2A payments to its customers.

However, entering Latin America is not particularly easy, nor very attractive, for global players. It is highly fragmented, and many countries still lag behind in financial inclusion: less than half of Mexican adults have a bank accountAccording to world development indicators.

CEO Cristóbal Grifero told TechCrunch that Mexico’s low banking penetration is a problem, but also an opportunity for fintechs. He hopes neobanks will solve the issue, but it will take time. “If we are there right before this surge, we will be able to move with the market.”

Fintok’s home market was in some ways less challenging. This helped it gain significant traction: “In 2023, 1,807,000 people paid for products, services, and bills using fintech. This is about 13% of Chile’s population,” content manager Pedro Casale wrote in an email. Fintok says it is used by more than 1.2 million people monthly in Chile.

These numbers are even more impressive considering the competition that fintok faces from other players. e.t.pay And khipu, But its large clientele means it is tied to frequent use cases like topping up public transport cards, making e-commerce purchases, covering bills and paying credit instalments.

However, the size of Chile’s population puts a limit on Fintok’s potential growth, Grifero said. “You have the limitation that we are 20 million residents, so after a certain amount of revenue, it is very difficult to reach $100 million in ARR. It becomes very complicated and you have to go out.”

The expansion requirement applies to any Chilean fintech. But Fintok’s roadmap also shows that the market has changed a lot compared to 2021.

slow expansion

When Griffero and co-founder Lucas Zorich joined Y Combinator’s Winter 2021 batch, their pitch was very straightforward: They were building “Plaid for LatAm.” Now that’s not the case; plaid’s model was too advanced for the region, and the idea of ​​launching across the region was too ambitious.

VCs have come to the same conclusion as Fintok learned during its fundraising process, Griffero said.

“I believe the funds are still here, only their thesis has changed a bit. Now you have to explain well why? [you’d go into] each country. Saying “I’m So maybe it’s Mexico, Chile and one other country, not Brazil or Colombia; No. “We’re going to do all of Latin America because we’re close.”

This more measured approach does not guarantee mega-rounds. “This round will probably be five times larger in 2021,” Griffero said. But maybe it’s for the best; More than TechCrunch followed a unicorn must retreat on its pan-Latam expansion and resulted in layoffs of employees.

Fintok has high expectations for its Mexican expansion. “Mexico is the market we will care about most over the next two years and we expect it to represent a large portion of Fintok’s revenues within the next two years,” Grifol said. But the startup is taking it step by step: Only five of its team of 48 employees are based in Mexico. Zorich moved there last year, but Grifol won’t be able to do so until next year.

With more drastic plans, Fintok’s Series A round might not have happened at all. Fintech funding slowed in the first quarter of the year At its lowest level since 2017CB Insights informed of, In Latin America, the decline is steepest compared to the second quarter of 2021: The region’s fintech startups collectively raised $6 billion across 94 deals, compared to just $0.4 billion in the previous quarter.

Funding LatAm Fintech less common Compared to three years ago. But for VCs willing to wait, the rise of open banking across the region could eventually result in interesting M&A. Not only in Brazil, where money has to be paid for visa $1 billion for PismoA payment infrastructure that will give it access to country picks Ubiquitous Instant Payment System, Also in Mexico: in 2021, Mastercard acquired fintech startup ArcusWhose co-founder Iñigo Rumayor participated in Fintok’s Series A round.

The fintech’s main investors also have ties to its target market. Brazilian fund Monashis, which previously participated in fintech seed round And now he’s made a follow-on investment, he has an office there. and its Series A lead, propelBased in the US, but was able to facilitate introduction into Mexican banks, which was an important step for the startup’s expansion.

“The closer we get to the payments rail, the better we can provide a payments experience,” Griffero said in a statement.

On the customer side, Fintok is targeting Mexican businesses that accept offline payment methods such as cash payments and post-pay methods, where customers would have to visit a physical location to complete their transactions. This makes the A2A a very obvious upgrade; But eventually, Griffero hopes it will also replace debit cards, and later, offer a solid alternative to credit cards.

Mastercard and Visa will clearly face more competition as instant payments become common with systems like Pix in Brazil, but with UPI and Fed Now in India and a recent one in the US. Bain & Company report Estimates suggest that 90% of today’s payment revenues “may shift to software vendors, major technology firms, and other contenders.” This explains some of them previous acquisitionsAnd we wouldn’t be surprised if others follow suit.