Digital Payment Transactions for Goods and Services in Mexico

With the publication of the Law to Regulate Financial Technology Institutions ("Fintech Law") and subsequently with the impossibility of leaving our homes as a result of the pandemic generated by COVID-19, we have seen the proliferation of several business schemes in the financial-technological field that has made it easier for the general public to pay for goods and services quickly and easily.  However,  as  happened at the time with  the companies that were regularized through the Fintech Law,  in the segment of digital payments of goods and services there are business models that have not been able to expand to their maximum capacity due to the lack of ad hoc regulation,  and  in certain models or operating schemes, regulated activities may be disrupted and for which authorization or registration by the Federal Government is required, even though in the background of these models they must not be regulated by the existing standard, because it will risk the benefits associated with these innovative models. This is the case for the payment for goods and services sector regarding electronic transfers and payment orders.

This article analyzes different regulated sectors and the possible legal gaps faced by those interested in operating such technological models for the payment of goods and services.  

By way of example are  the payment initiators, whose purpose is that, in a  professional and habitual manner, they carry out, among other activities, the payment of goods and services by means of transfer orders without the need to use credit or debit cards, since the  owner of the goods or the service provider ("Customer") enters into a contract for the provision of services with a certain company engaged in a regular and professional manner in the collection of payments ("Payment Initiator") in order for the latter to request from the financial institutions, upon acceptance of the applicant for the good or service ("User"),  the amount for such good or service is debited from the User account at the financial institution and transferred to the Client at the financial institution in their name.

From the foregoing, it is necessary to know that article 81-A Bis of the General Law of Auxiliary Credit Organizations and Activities ("LGOAAC"), defines the "money transmitter" as that corporation or limited liability company that habitually makes the reception in national territory of rights or resources  in national or foreign currency directly in its offices, electronic means, transfer of funds or any other with the intention that said resources are transferred to a third party, in a single exhibition abroad, and that in exchange said action the company receives a consideration or commission.

On the other hand, the  Networks of Means of Disposition (the "Networks") are defined by article 3 of  the Law for the Transparency and Regulation of Financial Services as the series of agreements, protocols,  instruments, interfaces, procedures, rules, among others, related to the Means of Disposal, i.e. credit or debit cards, bank check, funds transfer orders (including direct debit) or any other interface that allows payment to be made.

The Participants in Networks are the persons who habitually provide services related to the Networks of Means of Disposition in accordance with the general provisions issued for this purpose by the National Banking and Securities Commission ("CNBV") and the Bank of Mexico (“Central Bank”). These provisions are the Provisions applicable to the Redes  de Medio de Disposición,  which only include as participants in the Networks, the following: (i) Adquiriente (mostly common are the banks), (ii) collectors (Agregadores), (iii) Issuers (Emisores), (iv) specialized companies, (v) Brand owners.  

Article 22 of the Fintech Law defines Electronic Payment Fund Institutions ("IFPE") as those companies that can perform with the public in a habitual and professional manner, the services consisting of the issuance, administration, redemption and transmission of electronic payment funds, through the acts that are allowed, through computer applications, interfaces, internet pages or any other means of electronic or digital communication and may only be provided by legal entities authorized by the CNBV, with the prior agreement of the Interinstitutional Committee.

Article 25 of the Fintech Law establishes additional activities that IFPEs may carry out, among which the following stand out:

• Provide the money transmitter service, and

• Provide services related to the networks of means of disposal.

We consider that the IFPE is not a solution to the problem raised above, since there are still the same complications already explained for the money transmitters and the Networks. It would also be extremely costly to obtain the authorization as an IFPE only to carry out the activities of digital payment service providers.

Once the foundations of the different actors are established, we can analyze the compatibility between them and the payers of goods and services by electronic means. 

According to the regulations, the participants who are in the operations of the money transmitters are:

1. Originator: natural or legal person who delivers the money to a money transmitter and instructs the sending of the money.

2. Money transmitter: a legal entity that has a register to send or receive in the name and on behalf of a third party or resources in accordance with the instructions of the issuer and in return receives a commission.

3. Beneficiary: the natural or legal person who receives the resources in accordance with the instructions of the issuer.

However, from the definition of "money transmitter" established by article 81-A Bis of the LGOAAC, it is expressly and directly established that the purpose of the money transmitter is that in a habitual and professional manner it transfers resources to a third party. 

However, if we resort to a teleological and historical interpretation, we can point out that money transmitters act as a bridge between the originator and the beneficiary for the sending and delivery of resources, and not for the payment of goods and services. 

From the foregoing, we can conclude that in the operations for the payment of goods and services even when there are the same participants and in principle could be adapted to the definition and obligations of the "money transmitter" provided in the LGOAAC, the purpose and nature of the operation of both models are different, and to adapt the model of payment of goods and services to the obligations of the money transmitters implies operational and compliance difficulties that can make a business unviable.

If we analyze the payers of technological goods and services  based on the provisions of the regulations for the Networks, we consider that technological payers should be incorporated into this standard, since: (i) on the one hand they comply with the object that,  on a regular basis, they provide  services related to funds transfers, payment orders and/or direct debit, among others, which are processed by the Disposal Medium Networks; and,  (ii) on the other  hand, the definition of Means of Disposition, provided  for in  Article 3  of the Law for the Transparency and Regulation of Financial Services, allows the existence  of other participants provided that the CBNB and the Bank of Mexico  jointly   recognize as such by means of provisions of a general nature. 

It is considered that, by not including technological providers of payments for goods and services as one more participant in the Networks, the same rule makes the existence of these impossible for 2 reasons:

1. In the definition of Means of Disposal, it states that any person who issues or places Means of Disposal must have the authorization to capture resources from the public, or

2. With the legal exception of collection indicated in the Law on Credit Institutions:

"Article 2...

Banking and credit operations are not considered those that, in the exercise of their own activities, enter into financial intermediaries other than credit institutions that are duly authorized in accordance with the applicable legal systems. Such intermediaries may in no case receive irregular deposits of money in a checking account."

Therefore, and as long as the authorities do not issue a rule that enables the activities of payment of goods and services through electronic transfers and payment orders as a regulated sector, it is necessary to create special vehicles that allow the realization of these types of activities.  

If you have any questions or comments regarding this matter, please contact us.