BBVA, a Spanish banking giant, just surprised analysts with a stellar Q1 2024, achieving a record net attributable profit of €2.2 billion. While Spain's double-digit NII growth and Turkey's cautious return to orthodoxy grab headlines, a closer look at the Mexican market reveals a perplexing tale that challenges the prevailing narrative about fintech disruption.

The prevailing wisdom suggests that digital-first neobanks, armed with sleek apps and attractive deposit offers, are steadily eroding the market share of traditional banking institutions. However, BBVA's Mexican experience seems to contradict this assumption, hinting that the neobank threat might be more hype than reality.

Concerns about BBVA's declining demand deposits in Mexico arose in Q4 2023. This sparked speculation that customers were migrating to neobank alternatives, particularly Nubank, which was gaining traction following its success in Brazil. While this quarter's results show a continued 5% quarter-on-quarter decrease in demand deposits, this figure doesn't tell the whole story. The decline is primarily concentrated in wholesale deposits, not the retail segment where neobanks primarily operate.

In fact, BBVA's market share in retail demand deposits actually increased by 17 basis points year-on-year. CEO Onur Genç asserted that BBVA could effortlessly acquire more wholesale deposits if needed, suggesting that the shift towards market funding is a strategic optimization move rather than a reaction to competitive pressure.

Is BBVA Outmaneuvering Fintech Rivals in Mexico?

This raises a compelling question: Is BBVA quietly outperforming its fintech rivals in the Mexican market? The data indicates this might be the case. With an impressive 44% share of the Mexican payroll market and over 5 million new customer acquisitions in 2023, BBVA enjoys an unparalleled advantage in terms of customer data and transaction insights.

This data advantage empowers BBVA to not only retain existing customers but also actively acquire new ones through its own digital channels. In Q1 2024 alone, BBVA added 1.2 million new customers in Mexico, with a remarkable 85% acquired digitally. This suggests that BBVA, often perceived as a traditional banking behemoth, is successfully employing a neobank-like strategy, leveraging its digital capabilities and extensive scale to counter the very disruption it's accused of succumbing to.

The Untapped Potential of the Mexican Banking Market

The situation becomes even more intriguing when considering the broader landscape of the Mexican banking sector. The country's banking debt-to-GDP ratio, a key indicator of financial penetration, is a mere 36%, half that of Brazil and one-third of Chile. This indicates a significant untapped market for loan growth. BBVA, with its dominant market share and established ability to maintain high customer spreads, is uniquely positioned to capitalize on this opportunity.

Put simply, the market is expanding faster than neobanks can penetrate it. While neobanks may be attracting new customers, their overall impact on the market is still limited compared to BBVA's robust growth driven by both retail and commercial lending.

BBVA's Net Attributable Profit Growth

The following table showcases BBVA's net attributable profit growth from Q1 2023 to Q1 2024, illustrating its consistent financial performance.

The Future of BBVA in Mexico

While neobanks should not be disregarded, their agility and customer-centric approach should serve as motivation for BBVA to remain competitive and innovative. However, the assertion that neobanks are destined to triumph in a digital banking showdown is, at least in the case of BBVA's Mexican journey, premature.

The true narrative here is one of a banking giant confidently embracing digital transformation, utilizing its data advantage and scale to not only withstand the fintech wave but potentially emerge even more robust. It's a story that might challenge the conventional assumptions about banking disruption and serve as a reminder that size, when combined with strategic agility, can be a potent force in the digital age.

"Fun Fact: Mexico has a long and rich history of banking, with the first bank established in 1784. However, the country's modern banking system is relatively young, having undergone significant reforms in the 1990s. This created an environment ripe for growth and innovation, paving the way for both traditional institutions like BBVA and the emergence of neobanks."