A Gallup poll of 2017 showed 3 in 4 customers in Mexico were either indifferent or unhappy with their bank. Addressing this gap, fintech firms are creating solutions to provide a more satisfactory banking experience, while facilitating financial inclusion opportunities for people who have not previously had access to banking.
Finnovista.com reports that the last 12 months have seen the emergence of 125 new Fintech startups in Mexico. This increasing number strengthens the country’s position as one of the main fintech ecosystems in Latin America, mainly by the growth in the following segments: Enterprise Technologies for Financial Institutions, Trading & Capital Markets, Wealth Management and Alternative Scoring, Identity and Fraud.
In fact, as reported in the Financial Times, fintech startup accelerator Finnovista predicted that new financial companies has the potential of taking over 30 percent of Mexico’s banking market in the next ten years.
According to Reuters, this has been underpinned by the Mexican government’s new Fintech Law which ushers in regulations and transparency into the sector. The new Fintech Law, approved by Mexico’s lower house of Congress in March this year aims to promote financial stability and in turn, put a stop to money laundering. The bill was approved by the Mexican Senate at the end of 2017, but is awaiting President Enrique Pena Nieto’s signature.
The law will provide assurance and better awareness when it comes to crowdfunding and the rules around cryptocurrencies, like bitcoin. It also permits open banks and sharing of data by financial institutions through public application programming interfaces, more commonly known as APIs.
We take a look at the impact of the new Fintech Law
Cryptocurrency Transactions
Transactions involving virtual currencies (cryptocurrencies) now fall under the new Fintech Law. Additionally, FTIs may only operate with virtual assets authorized by the Mexican Central Bank (Banco de México), according to conditions and regulations specified by the bank.
Through prior authorization of the Mexican Central Bank, banking institutions can transact using virtual assets, controlled by enabling regulation determined by the Mexican Central Bank.
Regulatory Sandbox
The Fintech Law allows for the establishment of a framework where fintechs can offer financial services through technological tools or media which can be implemented by using existing infrastructures (typically known as regulatory sandbox) and operating within parameters of specified terms and conditions.
Application Programming Interfaces (APIs)
The Fintech Law requires Financial Entities and FTIs, among others, to establish application programming interfaces (“APIs”) to create an integrated network of connectivity, enabling access to interfaces developed or managed by other Financial Entities and FTIs (with the prior consent of users). According to Finnovista.com, their purpose is to share users’ open financial, aggregate and transactional data, which would not constitute a violation of financial secrecy obligations. Corresponding supervisory commissions will regulate this by authorizing access and fees to be charged by Financial Entities and FTIs for the exchange of such information through APIs, preventing these fees from becoming entry barriers.
Automated Investment Advice (Robo Advisors)
Advice, based on mathematical rules and algorithms, will be a part of the financial technology reform, the Mexican Securities Market Law was amended to allow automated investment and asset management advice which will be regulated by special rules.
Conclusion
The result is increased transparency through regulations while opening up opportunities of financial inclusion through new fintech offerings. As the Mexican fintech market continues to mature and expand, playing an increasingly significant role in LatAm financial sector, Mexico’s Fintech law can form an important part of the overall financial ecosystem, changing the playground of Mexico’s finance industry, while using technology and innovation as the starting point in providing financial inclusion as a means of eradicating poverty in the country.
