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Fintech Advisory for Market, Operational Success

By Sofía Hanna | Mon, 01/17/2022 - 09:53

Q: What benefit does the user gain from the banking-as-a-service model?

A: Despite banking-as-a-service (BaaS) being an international trend, it is still not properly recognized in the regulatory framework of Mexico. However, this model can be adopted using other regulatory figures such as technological providers or digital agents, in which clients open accounts with one financial entity that offers a co-branded product with them. The advantage of this model is that a fintech company that acts as a technological provider or digital agent does not need to be licensed as a financial entity. Some fintech may explore a BaaS scheme but the clients will not be theirs and this would be very clear to them.

If a fintech has models in which it collects money from clients and wants autonomy, licenses are essential. Many of these companies fail to understand this.

 

 

Q: What is the status of regulations for electronic payment institutions?

A: Enabling electronic payments is not an activity that requires a special license in Mexico, however, some incumbents may be subject to certain regulations, like Payment Aggregators. They help merchants, including e-commerce companies, to receive debit and credit card payments. They need to follow certain rules that are specified in the regulation jointly issued by the CNBV and Banxico and regulations imposed by international trademarks, such as VISA and Mastercard. If the activity implies collecting resources from the public, then a license is required. The Electronic Payment Funds Institutions are in this category and they were regulated by Mexican Fintech Law. Almost all of them are waiting to get a license from CNBV.

 

 

Q: What has been the impact of the Fintech Law so far?

A: Very positive. The Fintech Law has imposed regulatory costs to those companies that need a license to operate; it would be unfair to say that the Fintech Law was a step back for the industry because it allowed national and foreign companies to dabble in the market with more certainty. Tenet focuses on financial entities, including fintech, so we have seen numerous foreign companies willing to enter the Mexican market. Also, investment in Mexican fintech companies has increased since the law was enacted and some of them have been cataloged as “unicorns.”

The law was a positive step for Mexico and the country was the first in the region to implement this type of law, which makes the country a benchmark.

 

 

Q: What short-term strategies should a new fintech entering the market adopt?

A: The first would be to create a smart strategy around an attractive product to get enough clients to enter the market. When companies have a strong client base, they can focus on improving the clients’ experience and adding more services that respond to their requests. As the company grows, it may also need funding to grow. Good advisory is also fundamental, not only to successfully get a license but also to avoid future fines for activities taken without the special licenses or authorizations required by regulatory framework.  

 

 

Q: What is the main challenge fintech companies face?

A: Regulated fintech companies know their product and have strong technological bases but they lack the institutional organization to develop their activities like a larger financial institution would. However, they are required to create such institutional infrastructure. Another challenge is that several fintech companies have institutional investors or venture capital funds, which makes it difficult to provide the kind of information that the CNBV requires.

 

 

Q: What can be expected from the company in the short term?

A: Tenet has experienced accelerated growth as a result of the growth in the fintech sector. In 2022, we will continue to support our clients as successfully as we have. Aside from fintech, we also support brokers, investment funds and digital onboarding companies, so we have a strong client base that can help Tenet keep its growth pace.

 

Tenet Consultores offers comprehensive advisory in regulatory and financial matters. It has extensive experience in the Mexican financial system.

Sofía Hanna Sofía Hanna Journalist and Industry Analyst