New FaaS Regulation a “Death Sentence” Say Industry ExpertsBy MBN Staff | Wed, 12/23/2020 - 16:41
A regulation introduced by the National Banking and Securities Commission (CNBV) and published by the government on Dec. 4 is being called a “death sentence” for Fintech-as-a-Service companies (FaaS) by industry experts, BNamericas reports.
The regulation means only those banks or fintechs that already have authorization to operate, or those in the process of authorization by the CNBV, “may present themselves to the public as financial service providers.” This means that third party companies providing FaaS services, including software and APIs to authorized financial institutions, will no longer have legal status to operate, says BNamericas.
Carlos David Valderrama Narváéz and Diego Montes Serralde of consulting firm Fintech Legal Paradox told BNamericas that the regulation was a “death sentence for the FaaS model” in Mexico.
The ruling’s impact means that only the banks or fintechs themselves could provide all services to clients. At present, banking institutions and fintechs integrate third-party software and APIs into their digital banking service offerings. This means that banking institutions and fintechs can utilize purpose-built architecture to optimize the performance of their digital apps, accessing vital data like a user’s credit score, or connecting a user’s bank information to their app profile. Building these platforms from scratch is a costly and time-consuming activity, experts say.
The latest announcement from CNBV is another hurdle for fintech companies in Mexico, a true vanguard fintech market in the world.
Some fintech companies have been left waiting for authorization to operate by the CNBV, as COVID-19 caused delays to the authorization process and a backlog developed. In June, 80 fintechs were still awaiting their authorization, though 85 companies had originally applied.
As recently reported by MBN, NVIO will become the country’s first regulated fintech company and will begin operations as an authorized fintech in 2021.
Digital banking has boomed during the pandemic as branches of major banks closed and people looked to alternatives. Digital banking has grown by 61 percent, the equivalent to an extra 36 million users, during 2020.
Many companies, including gig-economy focused fintech Lana, chose to use the Eighth Transitory Article to expand its services with third-party inclusion. Now, however, that option has been revoked.
In a recent interview, Lana Co-Founder and Country Manager Juan Camilo Pineda, told MBN about his company’s authorization process and its decision to use third parties.
“We knew that we could not get the license very quickly, so we began to search for partners that we could work with. It was an interesting experience because it allowed us to be in a market that was not yet regulated but offered various possibilities, including the famous Eighth Transitory Article, which allowed a new company to explore the Fintech as a Service model. But being connected to a third party means that our movement is very restricted because the regulatory side is linked to that third party. Any additional service we wanted to add would depend on the third party,” he said.