The buy now, pay later market in Mexico is evolving beyond the realm of digital commerce, also emerging as a viable alternative to cash for in-store transactions at physical establishments.

In recent years, several BNPL providers have appeared in the country to target those with less access to banks, a segment of the population that represents nearly half of adult Mexicans. The country is Latin America’s second largest market, but also an extremely cash-dependent society, where digitalization is growing rapidly but is still far from developed markets or even other Latin American competitors.

BNPL fintechs, typically associated with online commerce, have made a name for themselves in recent years. But they are also recognizing a slower pace of digital adoption, particularly among the underbanked. To address this, they are significantly expanding their presence in physical stores, recognizing the enduring relevance of in-person transactions in Mexico’s retail landscape.

Persistence of cash in Mexico

“It’s anybody’s guess how quickly the persistence of cash in Mexico will change,” said Andrew Seiz, SVP, Finance at Kueski, in an interview with Fintech Nexus. “It is changing, but the pace is uncertain and you need to embrace this reality within your fintech business model.”

Founded in 2012, Kueski is one of larger than these companies in Mexico. The company offers two distinct short-term products: a low-cost personal loan and a buy now, pay later feature. To date, it has issued more than 16 million loans, and the company estimates that 1 in 4 of the major e-commerce merchants in Mexico offer its BNPL service.

Earlier this year, the company made headlines by partnering with Amazon, introducing BNPL services to the e-commerce giant’s Mexican market. Recently, they announced an in-store payment feature that allows users to make offline purchases using QR codes in an effort to increase physical store presence.

Andrew Seiz, Senior Vice President, Finance at Kueski.

Fintech Nexus had a conversation with Seiz about the opportunities in the Mexican market. It has been edited for length and clarity.

What does the market sentiment towards startups look like right now?

We are emerging from the depths. The cycle is changing based on what we see in the US stock market environment. A little gradually, but the situation is changing. Last year and the year before there was a lot of uncertainty about the extent of interest rate increases. The difference today is that there is less uncertainty about where rates will peak, and that excitement that some parts of the ecosystem have benefited from in the past wasn’t really as evident 12 months ago as it is today. So that definitely helps.

Does this improving outlook encourage Kueski to lend more?

Our risk appetite is solid. The duration of the portfolio is very short, both on the Buy, Pay Now or Cash Loans side. The maturity of our loan can vary from 30 days to six months. This allows us to be agile and have a constant risk appetite regardless of the cycle. Even during COVID, even though there was a very significant macroeconomic shock, we were able to adjust very quickly as we don’t really need to take a three-year perspective when it comes to underwriting, but rather it would be much shorter.

How does Kueski address the risk of loan defaults in Latin America?

The company was founded almost 12 years ago and in that time we have issued over 16 million loans. Thanks to this volume, we have a lot of data to help us in our credit decisions. So our data sets are quite extensive and comprehensive, and given the market segment we focus on, it’s very important to draw on that to make decisions. And, you know, that’s the key to about 20 companies in the industry doing what we’re doing. Our portfolio is very granular, made up of a large number of very small loans, and what we’ve seen is that our credit is generally very stable through cycles.

What is the rationale behind the strategy to focus on in-store payments?

We see a great opportunity in offering payments at physical stores, which reflects the persistence of cash in Mexico. E-commerce penetration has improved significantly over the past two years, but purchases are still made (mostly) in physical stores. Internet connectivity is also often inconsistent and so being able to facilitate payments without it only makes people more likely to use our product. We are seeing a very rapid increase in digital adoption simply because of its convenience. But the persistence of cash in transactions in Mexico must be taken into account. Nobody knows how quickly the situation will change. It is changing, but the pace is uncertain. So regardless of your vision, you need to accommodate that reality and type of coverage within your fintech business model.

What are Kueski’s expectations for 2024 in Mexico?

We are very constructive about the outlook for Mexico in 2024. Both for the cash lending business, where we believe demand will be strong, and for the BNPL business through our online and in-store channels. There is greater interest in Mexico both from a direct investment perspective and from what we have seen with the strength of the peso. In the context of global economic uncertainty, Mexico enjoys broad macroeconomic stability.

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  David is a Latin American journalist. He regularly reports on the region for global news organizations such as The Washington Post, The New York Times, The Financial Times and Americas Quarterly.

  He worked for S&P Global Market Intelligence as a Latin America financial reporter and gained experience on fintech and market trends in the region.

  He lives in Buenos Aires.

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