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

Open banking may be a global trend, but its implementation is fragmented. Fintech startups that do the work necessary to make this a reality in smaller markets could become M&A targets for incumbents like Visa.

One of them is Fintoc, formerly of Y Combinator, a B2B fintech startup that raised $7 million in Series A funding to consolidate its presence in its home country of Chile and Mexico, where it was developed a year ago.

Fintoc’s product is an API that allows online businesses to accept instant payments directly from the customer’s bank account. Known as accounts-to-accounts, or A2A, this method offers an alternative to credit card transactions, with fewer middlemen.

For end users, A2A can be as seamless as an online credit card payment. Instead of entering their card details, they can simply choose their bank and securely access their banking credentials. But the biggest selling point is businesses, which pay a lower commission than typical credit card transaction fees.

Many countries are now facilitating 2A, which has created a tailwind for open banking companies such as Plaid, Visa-owned Tink, TrueLayer and Volt. More general fintech players like Adyen and Stripe have also entered into partnerships to offer A2A payments to their customers.

Latin America, however, is not particularly easy to access for global players, nor very attractive. This sector is very fragmented and many countries are still lagging behind in financial inclusion: less than half of Mexican adults have a bank account, according to the World Development Indicators.

Mexico’s low banking penetration is a problem, but also an opportunity for Fintoc, CEO Cristóbal Griffero told TechCrunch. He expects neobanks to tackle the problem, but it will take time. “If we are there just before this boom, we can grow with the market. »

Fintoc’s domestic market was less difficult in some respects. This has allowed it to gain quite a significant popularity: “In 2023, 1,807,000 people paid for products, services and invoices using Fintoc. This represents approximately 13% of the Chilean population,” content manager Pedro Casale wrote in an email. Fintoc claims it is used by more than 1.2 million people every month in Chile.

These figures are all the more impressive as Fintoc faces competition from other players such as ETpay and Khipu. But its large customers require it to be tied to frequent use cases such as topping up public transport cards, making online purchases, paying bills and paying credit installments.

The size of Chile’s population, however, limits Fintoc’s growth potential, Griffero said. “We are limited to 20 million people, 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 get out.

The need to grow applies to any Chilean fintech. But Fintoc’s roadmap also reflects that the market has changed significantly compared to 2021.

Attenuated extension

When Griffero and co-founder Lukas Zorich joined Y Combinator’s Winter 2021 group, their pitch was pretty simple: they were building “Plaid for LatAm.” This is no longer the case ; Plaid’s model was too advanced for the region and the idea of ​​launching it across the entire region was too ambitious.

Venture capital firms also came to the same conclusion, as Fintoc learned during its fundraising process, Griffero said.

“I believe the funds are still there, just that their thesis has changed a little. Now you have to explain very well why (you would go to) each country. Saying “I am be present in all countries. So maybe it’s Mexico, Chile and another country, not Brazil or Colombia; not “we are going to do all of Latin America because we are close”.

This more measured approach does not justify mega-tours. “In 2021, this cycle probably would have been five times larger,” Griffero said. But perhaps it’s for the best; TechCrunch has followed more than one unicorn that has had to scale back its pan-Latin America expansion and lay off staff as a result.

Fintoc has high expectations for its expansion in Mexico. “Mexico is the market we will be most interested in over the next two years and we expect it to represent the bulk of Fintoc’s revenue over the next two years,” Griffol said. But the startup is taking it step by step: out of its team of 48 employees, only five are based in Mexico. Zorich moved there last year, but Griffol may not do so until next year.

With more expensive projects, Fintoc’s Series A round might not have happened at all. In the first quarter of the year, fintech funding slowed to its lowest level since 2017, CB Insights reported. In Latin America, it is compared to the second quarter of 2021 that the drop is most obvious: Fintech startups in the region then collectively raised $6 billion in 94 transactions, compared to only $0.4 billion. last quarter.

Financing Latin American fintech is less popular than three years ago. But for investors willing to wait, the rise of open banking in the region could eventually lead to some interesting mergers and acquisitions. Not just in Brazil, where Visa paid $1 billion for Pismo, a payment infrastructure that will give it access to Pix, the country’s ubiquitous instant payment system. In Mexico too: in 2021, Mastercard acquired the fintech startup Arcus, whose co-founder Iñigo Rumayor participated in Fintoc’s Series A round.

Fintoc’s main investors also have ties to its target market. The Brazilian fund Monashees, which had already participated in Fintoc’s funding round and has now made a follow-on investment, has an office there. And its Series A leader, Propel, is based in the United States, but was able to facilitate introductions to Mexican banks, an important step for the startup’s expansion.

“The closer we get to payment rails, the better payment experience we can offer,” Griffero said in a statement.

On the customer side, Fintoc targets Mexican businesses that accept offline payment methods such as cash payments and post-payment methods, in which customers must visit a physical location to complete their transaction. This makes A2A a pretty clear 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 increased competition as instant payments become commonplace with systems such as Pix in Brazil, but also UPI, India and FedNow in the United States. A recent Bain & Company report estimates that 90% of current payments revenue could “migrate to software.” suppliers, large technology companies and other competitors. This explains some of their past acquisitions, and we wouldn’t be surprised if more followed.