Mexico braces for Fintech law changes
Mexico is preparing for the secondary provisions of the Fintech law and one of the closest changes is the regulation of open banking, according to the National Banking and Securities Commission (CNBV).
David Lopez, technical vice president of the CNBV, explained that when the current law was born, there was a certain environment and there was no knowledge of the entire ecosystem. "We are already on the changes it should have. There are secondary provisions that do detail, but in the law itself there are modifications ahead".
The official pointed out at the Finance Disrupted forum, organized by The Economist, that towards the end of September, 85 fintech filed their official request and the regulatory body is already analyzing which ones will be given the respective endorsement, in addition to the fact that there is a space for the sandbox. "We have an environment of experimentation for companies to start working".
Juan Laresgoiti, leader of fintech in Deloitte for Latin America, assured that there will be a consolidation of the sector of these financial companies where the winners will be those that offer their clients diverse products.
"What fintech lacks is scale. The one that manages to have enough scale to serve the market will be the winner," he said.
Despite the fact that the banking system has the capital to provide credit to small and medium enterprises, the demand for financing among these economic sectors is low, said Tuesday Manuel Romo, general director of Citibanamex.
"When you compare the deposits with the credit of all banks, there is an offer of $600 billion pesos in the banking financial system, there is a greater supply of resources to lend than demand. The big challenge we are seeing now is the demand for credit, there is little demand for credit," said the banker to participate in the forum Finance Disrupted 2019 organized by The Economist.
However, for Nicolás Shea, founder of Fintech Cumplo, the banking industry considers SMEs unreliable and this becomes a field of opportunity for Fintech companies. "There is a skepticism that SMEs are not so reliable," he said.
For Shea, there is also a significant change in the behavior of loans, since, with fintechs, SMEs could access loans with a CAT equivalent to half the current value.
Manuel Romo acknowledged that if banks want to increase credit levels to small and medium enterprises (SMEs), they must change their processes so that this segment can have access to financing.
FIVE KEY ASPECTS TO UNDERSTAND THE FINTECH LAW IN MEXICO
The Fintech Law in Mexico was created to accompany the innovation process that generated the application of disruptive technologies and the development of products and services more focused on the public.
This September 25 is the deadline for financial technology companies (fintech) operating and operating in Mexico to be registered with the National Banking and Securities Commission (CNBV), in order to have the powers, guarantees, and regularization of a financial institution, similar to traditional banking.
The Law to Regulate Financial Technology Institutions (Fintech Law) was created to accompany the innovation process that generated the application of disruptive technologies and the development of products and services more focused on the public, in addition to promoting more efficient, economical and attractive processes in the industry.
One of the most positive aspects of having legislation for new technology companies is that it emphasizes the transparency and security of the entire Mexican financial system, but also that the user can directly supervise, denounce and demand better digital financial services.
Mexico is the leading market in Latin America, with more than 394 companies offering financial services with the help of technology, according to Fintech Radars, developed by Finnovista. It is followed by Brazil, with 380; and Colombia, with more than 180.
The Fintech Law had its antecedent in 2018, when President Peña Nieto enacted the first law to regulate Financial Technology Institutions, with the idea of regulating the organization, operation and functioning of these companies to provide protection to users who request their services by establishing entry requirements, to operate, for consumer protection, as well as supervisory parameters.
A few months ago, the National Banking and Securities Commission (CNBV) presented the secondary laws of the Fintech Law described above, in order that, starting in September, interested companies present their application to demonstrate that they have the characteristics to continue operating; the deadline for requesting authorization to operate as a Financial Technology Institution is September 25, 2019.
The purpose of the Fintech Law is to provide confidence and certainty to users of financial services. Among other things, it will supervise that all Fintech transactions, whether through apps, websites or social networks, are made in local currency and/or digital currencies authorized by the Bank of Mexico. On the other hand, these companies will be required to analyze their risk profile or credit bureau before granting credit to users, to avoid over-indebtedness.
Technological financial institutions see a potential in the Mexican market, due to factors such as the regulatory framework and low banking penetration, especially in small and medium enterprises (SMEs).
The fine for non-compliance with security and/or business continuity requirements is set at 30,000 to 150,000 UMA units.
What happens to the Fintechs that are already operating
The law authorizes companies that have been offering crowdfunding services or electronic payment funds to continue doing so, as long as they publish on their website a notification that they are in the process of authorization. Until they get it, the service they provide will not be supervised by any government institution. On the other hand, in theory, fintech companies that do not yet operate will be able to do so until they obtain authorization from the corresponding authority.
FEW WILL PARTICIPATE IN FINTECH LAW
A few days before the deadline for technological financial institutions to register with the National Banking and Securities Commission (CNBV) to operate under the so-called fintech law, the expectation remains low, with few companies interested in sticking to the regulation and will seek other forms of operation in the Mexican market.
The law, considered vanguard and model to be followed by other Latin American countries with high growth of the fintech sector, will supervise companies of collective financing or crowdfunding, electronic purses and will have a restrictive scheme for the use of crypto coins in Mexico.
From the registration process, fintech companies considered excessive and costly the requirements to adhere to the law, so it is expected that of about 500 firms operating in Mexico and must comply with the regulation, not even 50% will be reached.
The most recent signal was given by PayPal, which from September 25th will stop operating as an electronic purse in Mexico, considering that it is too soon to know the scope of the fintech law, so its users in the country will only be able to make payments through its platform without maintaining balances in their account.
In the opinion of Moody's financial sector analyst Felipe Carvallo, the Fintech law will inhibit companies by forcing them to apply stricter controls and ensure good service to their users.
"In the short term, this may happen, forcing fintech to become professional, to establish processes, to have corporate governance, data and consumer protection, which will make it more difficult to be a startup. It is also positive because it forces them to become professional, which makes them more attractive not only for consumers but also for investors," explained the specialist. He said that the result will be in the medium term when many customers will be more comfortable working with fintech and will have confidence in leaving them their money.
They keep coming. In the opinion of the president of the CNBV, Adalberto Palma will be considered by firms the benefits of operating under the law or remain without the benefits of being regulated.
"If you don't need the law to do your business and you do it well, it's not closed. It's not that it failed. The law was not generated for things to happen but what already exists would happen in an orderly fashion," he said.
He said it cannot be concluded that the fintech law will not work or inhibit entrepreneurship and novel, business models.
"I don't know how you came to the conclusion that the fintech law didn't work. It works for whoever wants to use it. There are things that can be improved, but I am surprised by the people who have come to see me about fintech. Creativity, emotion, the desire to contribute. I've met a lot of people. None of them told me 'I'm not going to do it by law'. They come, they ask, they register and here we go", commented the president of the CNBV.