FIVE-STAR FINANCE

Mexico 2018 | FINANCE | INTERVIEW

TBY talks to Adolfo Babatz, CEO of Clip, on the company's ascent to top start-up, the cashless economy, and Mexico's potential as a fintech hub.

Adolfo Babatz
BIOGRAPHY
Adolfo Babatz founded Clip in 2014. He previously worked at PayPal, where he was responsible for launching the Mexican subsidiary. He holds an MBA from the Sloan School of Management at MIT.

Clip is among the top-six Mexican start-ups in terms of venture capital raised. What are the reasons behind the company's success?

It is to do with two main factors. First, we have an amazing product. Second, we provide an extraordinary service to merchants. These factors have allowed us to grow at a rapid pace to the point where we are now the second-largest provider to merchants in the country. And we are going to pass the number-one company, BBVA, in a matter of months. We have done this with minimal market investment or salespeople. Clip is by far the highest-ranked finance app in Mexico's app store. We have over 11,000 reviews now, and our rating is 4.8. When you provide the level of service and product that we do, the word gets out, and you start picking up a lot more customers. With that comes venture capital. We have also done a great job raising money. Our investors have unprecedented access to our data, including all our dashboards of real-time transactions

What is your view on how fast Mexico is becoming a cashless economy compared to other countries in the region?

Mexico is moving much slower than many other countries in Latin America. One of the obstacles is the duopoly in the payment system where a small group controls everything, from the rules of the system to the processing. This leads to anti-competitive behavior and practices and is the reason why 50 million Mexicans do not have access to a bank account

In terms of improving financial inclusion, can fintechs succeed where banks have failed?

The key is having competition. Instead of making a disproportionate amount of money on fees and interest rates, fintechs actually have to make money by providing a product or service that the customer needs and values. This is where the difference between banks and fintech comes into play. It comes from competition and talent. The most talented people in the world join start-ups, not banks. The ease of access to technology and its plunging costs will also help companies like us succeed where others cannot

Will banks embrace this business model anytime soon?

They have tried but have not been able to do it simply because banks are not built to work like this. This is why companies like Clip have been able to succeed in fields, such as digital payments, where banks have failed. Another factor is that the best young talent today does not want to work for big financial institutions. It is a problem that large institutions are facing all over the world, and start-ups provide people with more of a mission and purpose. Start-ups give people more freedom over how they work and create a life balance. Another factor is that large worldwide financial institutions have excluded 50% of the population from their management: women. At Clip, we are 50-50 men and women. This is a huge competitive advantage for us.

How can Mexico City become the fintech capital of Latin America?

To become a financial or economic hub one needs to have the right talent, big problems to solve, money, and a support network, such as lawyers, accountants, and consultants. Mexico City does a fairly great job on the talent side. The only issue is that talent is expensive. However, its advantage is that many foreigners want to live and work here. Second, Mexico has big problems to tackle, and lack of access to financial services is just one. Furthermore, the availability of capital has improved dramatically in recent years. Five years ago, there were few funds and now there are many, all the way from seed investing up to USD10 million. Beyond that, we likely need to go abroad for capital, though that is changing and will mature.