After 18 months of development, Mexican bank is close to launching an embedded banking business with potential to onboard millions of new retail clients
Sabadell is poised to launch a Banking as a Service operation to reach potentially millions of Mexicans entirely through other companies’ digital interfaces.
The bank has spent over 18 months working with partners and developing integrations to offer financial products to the retail market – a new business area for the bank which has exclusively targeted business clients since its launch in Mexico in 2016.
Sabadell is working with a major Mexican telco and is soon expected to go live with the white-label product.
“For BaaS to work, it takes a while,” Francesc Noguera, CEO of Banco Sabadell Mexico told iupana. “You have to make adaptations and developments both in the partners and in the bank. … Being a much younger bank, we have decided this will be a core business and that means that we have invested resources, equipment and more.”
Going to where the clients are
Mexico has a bank penetration of 36.9%, one of the lowest in the region, which is why Sabadell looked beyond the traditional banking channels to find retail banking clients. They saw that the potential users they wanted to engage did interact continuously, and sometimes multiple times a day, with the retail industry, both traditional and digital: in their clothing or food purchases, when calling friends, or finding a ride home.
From there, the bank, which has no physical branches in Mexico, saw an opportunity to launch a retail business under the Banking as a Service model.
“Banking in Mexico is not going to come through the banks,” said Noguera.
“The traditional banking model has failed to financially include Mexicans; It has only reached 30% of the population. Also, branches don’t scale either. We firmly believe that greater banking penetration will come through digital means and through partners,” he said.
Banking as a Service has had little concrete progress in Latin America, although the trend has been growing strongly worldwide, linking banks, Big Tech companies and fintech companies to generate solutions focused on the user experience.
Sabadell considered a more traditional approach into retail banking and explored marketing a new brand or generating demand through customer referrals from partners. Marketing spend would have been huge and referrals are high-friction and have low conversion rates. So, Sabadell forged a new path using their own channels, with a much lower investment.
“We decided to go another way: to offer products through the front end of these players, be it an app or portal. We had no appetite for brand building, like other banks, we just wanted our products to be sold massively,” he explained.
Currently, Sabadell is working with a telecommunications company to start granting digital credits very soon. Its objective, said the executive, is to onboard millions of users. He expects the bank can convert around 10% the partner’s client base.
Sabadell is also working with Spanish company Fintonic, a financial education and credit app. The bank forecasts it could gain around 100,000 clients through this channel, where it offers a digital bank account and a debit card. The fintech, which has 450,000 users in Mexico, has already managed to bring together almost 1 million customers in its native country, in part, by venturing into the offer of financial products such as virtual wallets, accounts and cards: a hint of what that await later.
“It is one thing to have business clients, which is a finite relationship, and another thing is to achieve a partnership that represents 5 million users,” said Noguera.
The visible face
Sabadell’s commitment to its search for new clients is different from that of the rest of the traditional banking ecosystem. In the BaaS strategy, the technological partner occupies the visible face of the relationship with the client, so the bank loses an opportunity to position its brand, colors and history.
For Sabadell, without an existing retail base, it’s not a loss, but a huge opportunity to enter a new market.
“We have launched an account that opens in 21 clicks,” said Noguera. “The advantage is that as partners are very customer centric, they are obsessed with making everything very easy for the client, without complications, easy to buy and operate. Onboarding is 100% digital.”
But technological fluency is not automatic. Noguera explains that, although retailers welcome the new business model, their internal infrastructure is not up to date enough for the new context.
In addition to technological adaptation, cybersecurity, anti-money laundering and anti-fraud measures were other issues that the bank had to work closely on with retail partners, to guarantee service and customer protection, he said.
“As we are a regulated institution, our partners must comply with regulations and they also have to adapt, since the client enters through them and not through us.”
The benefits in the BasS model are distributed evenly among the partners. The business partners can benefit from greater engagement with their customers through banking products, and they can also monetize customer bases and generate data: a digital treasure.
Getting there has not been easy. Sabadell’s transformation process that took a year and a half and encompassed an operation that required going from a completely closed architecture to an open one; in addition to assimilating the change in the business line.
Sabadell created an API layer to connect third-party services and introduced a sandbox so that partners could test the bank’s products.
They also invested in building a new team to develop the business, which came from sectors such as technology and commerce, and not from traditional banking.
“Six years ago, we did not have development capabilities, but since 2018 we are completely autonomous,” Noguera recalled. “We are a bank with a business profile, but also a very different animal from the Spanish bank,” he concluded.
This article was updated on October 5 to correct details about the project’s launch. A pilot project has not yet been launched.
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