Banks in Mexico Ask for a Level Playing Field Against Fintechs

As a result of the rapid growing fintech industry in Mexico, traditional banking institutions have asked authorities through the Association of Banks of Mexico’s President (ABM), Daniel Becker, to apply more regulations to financial technology companies and “level the playing field”. 

Bankers are asking for more transparency with fintechs’ Total Annual Cost (CAT) since it is one of the most important and frequently used indicators in the financing sector and facilitates decision-making within potential users. 

By having more transparency, fintechs’ costs of financial products, which integrates the total interest, commissions, expenses, taxes and the interest rate, would be of easy to access by the general public. 

"In the fintech world we are not clear on what the Total Annual Cost is, despite having the CONDUSEF permanently force us to put out to the public our CATs so they can make the best decision […] if there is one thing we have worked on it is transparency and non-opaqueness of user costs. What we want is for fintechs to have the same elements and requirements,” said Becker.

To formalize the demands, the ABM presented a request to the authorities explaining their concerns to what they have defined to be “unequal conditions of the competition.”

“What the ABM has been doing in recent months is working on a document that will be soon presented to the authorities so that they can see the points of improvement and opportunity that we as banks see in this direct competition," explained Julio Carranza, Vice-president, Association of Banks of Mexico.

While recognizing the advantages these fintech financial solutions provide to the Mexican population, the banker’s representatives argued that the demands are mainly to avoid regulatory opacity that could place the financial system at risk, turning it prone to fraud.

They also mentioned that fintechs are a complementary element of traditional banking, not a substitution, especially through their technological development. For instance, the ABM considers fintechs’ blockchain technology to be a fundamental element that will reduce the costs for users when sending remittances.

“We are extremely satisfied with what fintechs have brought to our country as they have solved problems that traditional banking has not been able to solve,” said ABM’s president. 

The demands come at a time when the National Banking and Securities Commission (CNBV) has authorized operations for several fintechs in the country, such as Trafalgar, BRX Payments, NVIO Pagos, Doopla and Fundary. 

These are regulated by the CNBV and the Bank of Mexico (Banxico) under the Fintech Law and have been registered as electronic payment fund institutions that can make payments, transfer and manage funds, market or issue cards, among other services, in a digital modality. 

As a result, the ABM has determined that traditional banks need to “step it up” to be at par with an entirely friendly and transparent user experience in a fast-growing demanding digital world. 

"We were already immersed in this digital world and the COVID-19 accelerated the intention and obligation to generate more products and services through digital devices, tablets and cell phones. Adding to that, now you have fintechs, which has been a very important revolution," said Becker.

On the other hand, fintechs have been open to dialogue about their processes and contributions to the Mexican financial market. In an MBN interview with Eduardo Chávez, Country Head, Geopagos, he discussed the regulatory changes needed to turn the Mexican fintech industry into a more dynamic one as “regulation is essential and has allowed technologies to further penetrate the market”, while also addressing their benefits and reach.

“We rely heavily on the needs of our clients and the sector they want to enter to develop the appropriate technology for payments [which has] gained significant acceptance during the past five years, especially in cities where people are not used to paying with a debit or credit card […] for example, regulated aggregators came to Mexico five years ago and they have now surpassed banks in affiliated businesses by almost 65 percent. There are almost 1.4 million businesses affiliated with banks and 2.6 million affiliated with regulated aggregators,” said Chávez to MBN.

Geopagos’ expert agrees that the Fintech Law will help users feel more secure when using technological tools serviced by these companies. In addition, Geopagos’ strategy has also been focused on Mexico’s informal sector, something that traditional banking has not been able to manage completely. 

“Working with informal businesses is difficult but we are doing so because we want to gradually eliminate financial barriers. Most clients of payment aggregators are informal businesses and giving them a legitimate point of sale that has been a big step forward. Fintech and other similar companies must now focus on regulation that helps that segment have greater access to banking. Financial education is also important to remove the fear of taxation since handling cash is expensive and can bring many problems,” said Geopagos’ country head.