Mexico is now the largest Fintech ecosystem in LATAM with over 240 Fintech startups, a YoY growth of about 50%. In the last year it has overtaken Brazil in Fintech growth as per Finnovista’s Fintech Radar (July 2017). But more importantly, Mexico is soon to become the first LATAM nation to have a regulatory framework for Fintechs – a key milestone very few nations have managed to achieve.
Mexico has always been a huge Fintech opportunity with about 60% of the 127 Million unbanked as per World Bank. With the country’s growth forecasts being revised upwards for 2017 and 2018 the momentum has always been there. A high Internet and smart phone penetration, a strong ecosystem of entrepreneurship and e-commerce, and a low banking penetration, are a few of the features of the Mexican market that make the country one of the most fertile areas for the development of the Fintech industry. It is currently the fastest growing Fintech nation in LATAM.
However, setting up a Fintech regulatory framework is stepping into a whole new league. The Mexican financial regulatory set up has the following stakeholders:
- Comisión Nacional Bancaria y de Valores (CNBV)—National Banking and Securities Commission
- Secretaría de Hacienda y Crédito Público (SHCP)—Secretariat of Finance and Public Credit and
- The Bank of Mexico (Banxico)
The regulatory framework for Fintech being proposed covers the following aspects,
- A Financial Technology Institutions Committee will be set up and will consist of two representatives each from SHCP, the CNBV and Banxico.
- This committee will be responsible for granting Financial Technology Institutions permissions to operate in Mexico.
- A standard definition of who would be considered Payments, PFMs, Crowdfunding, Robo-advisory firms would be published.
- Bitcoins and Crypto currencies would also be addressed as part of the regulation, however its being proposed that Banxico would act as a referee for operations of these firms.
The framework is aimed at providing clarity on rules, and thereby creating efficiencies and cost savings for Fintechs and consumers. The proposed regulation will be reviewed by an external commission, and then be submitted to the Senate to be voted on. If the bill is approved by the Senate, finer details then would be put into secondary laws.
The sentiment around Fintechs in Mexico about this development remains positive. The Mexican regulators can take inspiration from the likes of FCA and their initiatives such as the Sandbox to help Fintechs within the country.
If implemented right, a light touch regulatory framework would go a long way in capitalising on Fintech within Mexico which has already seen 400% growth (highest in LATAM) in the sector in the last couple of years. And they may be the first to do so not just within LATAM but across the developing world.
Arunkumar Krishnakumar is a Fintech thought leader and an investor.
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