Fintech startup Fintoc has raised $7 million in a Series A funding round to expand its presence in Chile and Mexico. Fintoc offers an API that allows online businesses to accept instant payments directly from customers’ bank accounts, known as accounts to accounts (A2A) payments. This method provides an alternative to credit card transactions with lower fees for businesses. The popularity of A2A payments has grown globally, benefiting companies like Plaid, Tink, TrueLayer, and Volt. Even generalist fintech players like Adyen and Stripe have formed partnerships to offer A2A payments to their customers.
However, Latin America presents unique challenges for global players due to its fragmentation and low banking penetration. For example, less than half of Mexican adults have a bank account. Fintoc sees this as an opportunity, as neobanks are expected to address the issue over time. Fintoc aims to grow with the market by establishing a presence before the boom.
In its home market of Chile, Fintoc has gained significant traction, with over 1.2 million monthly users. Despite facing competition from other players, Fintoc’s large clients and frequent use cases have contributed to its success. However, Chile’s population size limits its potential for further growth.
Fintoc initially planned to replicate Plaid’s model and expand across Latin America, but later realized that such an approach was too ambitious due to the region’s fragmentation. Investors also changed their preferences and required startups to explain their expansion plans for each country individually. Fintoc believes that focusing on Mexico, Chile, and one other country is more feasible than attempting to cover the entire region.
Fintech funding in Latin America has slowed compared to previous years, but Fintoc remains optimistic about its Mexican expansion. The startup expects Mexico to represent the bulk of its revenue within the next two years. Fintoc is gradually expanding its team in Mexico and believes that getting closer to payment rails will enhance the payment experience it offers.
Fintoc targets Mexican businesses that currently accept offline payment methods like cash payments and post-pay methods. A2A payments provide a clear upgrade for these businesses. CEO Cristóbal Griffero hopes that A2A payments will eventually replace debit cards and provide a viable alternative to credit cards.
As open banking becomes more prevalent, Mastercard and Visa are likely to face increased competition. A recent report estimates that a significant portion of payments revenue could shift to software vendors and major technology firms. This explains why companies like Mastercard and Visa have made acquisitions in the past, and more acquisitions are expected in the future.
Overall, Fintoc’s funding round and expansion plans demonstrate the growing demand for A2A payments in Latin America. By targeting specific markets and adapting to local challenges, Fintoc aims to capitalize on the region’s potential while providing businesses and consumers with a frictionless payment experience.