Mexico became the first LatAm state to begin developing fintech-specific
legislation. 2018 law defines which organizations are considered as fintech
companies, regardless of the type of credit they lend – short or long-term. If a
company uses digital platforms and e-walleting in their activities, it should comply
with the fintech law. In case the firm does not use these methods and provides
financial services the traditional way – e.g. via ATMs or offices – its activities are
regulated by banking law.
A significant limitation, which is not a matter of finance or technology, is the
problem of money laundering, which the government is now actively fighting.
Projects related to innovations in identification technologies, blockchain and
biometrics will grow in the near future due to high levels of distrust of online
transactions and fear of fraud amongst Mexicans. A lot of fintech companies have
already implemented new anti-fraud methods, such as a behavioral biometrics
system, that recognizes users by their keyboard writing habits.
Primitive financial system and the lack of modern technologies in the payments
industry of Mexico keep creating new obstacles for merchants. According to
payment gateway provider Allpago, many basic functions such as reconciliation and
chargeback notifications have not yet been fully developed. Not even all credit
cards can process foreign currency. The Mexican government is constantly
monitoring the payment system to detect money laundering schemes.
Specifics of regulatory policies
The state took the British open banking law as a basis and obliged the banks to
open their APIs. One of the basic concepts used by the above-mentioned law is an
“institution using financial technologies.”
In order to obtain institutional status, a legal entity or the founders of a newly
created legal entity must receive a permit from the National Commission on Banks
and Securities (CNBV). The Mexican government is hoping that the implementation
of this law will greatly increase financial stability, reduce the amount of cash in
circulation and attract more investments in the “white” economy by cutting the
spread of corruption and money laundering.
Mexico is one the most advanced countries in terms of promotion of financial
technologies amid South and Central American countries. In 2018, the Mexican
government passed a new law on regulation of institutions that use fintech. This
document, which was named “the fintech-law,” controls online-crowdfunding,
activities of electronic payment operators, various aspects of digital asset
circulation and introduces the “regulatory sandbox” for fintech companies.
In order to obtain institutional status, a legal entity or the founders of a newly
created legal entity must receive a permit from the National Commission on Banks
and Securities (CNBV). The Mexican government is hoping that the implementation
of this law will greatly increase financial stability, reduce the amount of cash in
circulation and attract more investments in the “white” economy by cutting the
spread of corruption and money laundering.
Status quo
86% of commercial activities are in cash – this is the largest percentage in South America.
In payments up to $24 (500 pesos) 95% of Mexicans use cash as a means of
payment. More than 50% of Mexican people never made an online transaction in their life –
although they widely use Facebook, YouTube and the free version of Spotify [2].
Installment payments by credit cards are very popular. A payment plan is preferred
by 60% of cardholders over immediate discounts. Dealing with a local acquirer
provides potential consumers of fintech products with the possibilities locals seek.
Unbanked – what can break the resistance?
The fastest and the most simple adoption of fintech is by the introduction and
implementation of face recognition systems and digital document flow;
Curated and targeted user journey that adds value;
Client support service which is highly accessible and helpful;
Progressive urban youth.
Conclusion
Perspectives of doing fintech business in Mexico is looking somewhat mixed. On
one hand, the Mexican government strongly tends to obtain control over all
financial transactions in the country in order to more efficiently combat crime, fraud
and money laundering. Therefore, companies may have trouble entering the market
due to the high amount of necessary licensing and documentation. Mexican law
seriously differs from common American and European laws, so businesses need to
consider legislation differences which may be an obstacle when entering the
market.
On the other hand, the Mexican fintech market is almost entirely untapped and
therefore possesses great potential – mobile internet coverage is only 71%; credit
cards – only 12%. When entering the market companies should take into
consideration high amounts of informal employment and cash-based character of
the Mexican economy.
