Mexican fintechs struggle amid legal red tape


In 2018, Mexico stood out as a pioneer in Latin America when its financial technology law came into effect.

It was a first in the region, and many expected that it would foster the rising industry and attract investments.

Four years in, the outcome is mixed.

On the one hand, experts and fintech leaders agree that it has effectively contributed to a rise in Mexican startups.

Ernesto Calero.

On the other hand, more diligence is needed to expedite licenses and update regulation on growing verticals such as cryptocurrencies continuously. It has not been a smooth sail for smaller fintechs either, who have struggled to meet requirements.

On March 9, 2018, the government formally published the Financial Technology law. Its goal was to provide clarity both to firms operating in the industry and customers.

Since then, the number of fintechs in the country has doubled in size, according to Fintech Mexico. More than 500 fintechs are currently active in the country, the association told LendIt Fintech, twice as many as the number reported in 2017, the year before the law was published.

“Such an accelerated growth is a clear sign of how attractive the market is,” Ernesto Calero, general manager with Fintech Mexico, said.

According to Calero, the fintech law added “legal certainty” to investors and entrepreneurs, who made “significant investments” over the past few years to develop the sector.

Only 24 approved

To comply with the law, the financial regulator in Mexico received more than 100 applications from fintech firms looking to operate legally.

However, only 24 have been approved so far, while 23 were rejected and 18 in the process. Thirty-four companies can operate, but only if they meet certain specific requirements.

“The fintech law promised Mexico would be a great environment for tech companies,” Chloé Novène, an investment associate at Mexican venture capital firm ALLVP, said. 

“In general, it took a lot more than expected for licenses to be granted, probably due also to COVID, which slowed down processes. Only a happy few have received them, while many fines were sent to fintech companies.”

To get a license, fintechs undergo an arduous process to comply with requirements that range from legal matters to operational, technical, financial, and cybersecurity capabilities. 

“The result of the fintech law implementation is positive, but it is important that authorization processes continue to move forward to foster the sector’s development,” Calero said.

In particular, he said ongoing adjustments in regulatory aspects are due to avoid confusion and provide the industry flexibility in the face of structures like open finance or banking as a service.

Reputation, trust worth it

However, many experts agree that such a rigorous licensing process is worth it to safeguard the industry’s reputation and provide trust among Mexicans.

“The first advantage of the law has to do with reputational issues and trust. It generates a great reputation in the face of competition and customers,” said Rodrigo Mora, a founding partner with RMS Abogados, a law firm in Mexico.

“When obtaining the authorization, it is understood that the client contracts with a serious and stable financial institution and not with a “garage” fintech as there are in many social networks,” Mora said. 

However, he acknowledged that some refinements are due for the fintech law to continue current and provide further clarity for new sectors.

“I believe that the law fell short around ??innovative models (sandbox) and in the regulation of virtual assets. Technology advances and develops every second,” he said.

He claims that assets that should be included soon in the regulation are Non-Fungible Tokens or Non-Fungible Assets.

“It is necessary for the authority to carry out a thorough investigation of the implications that both types of assets may have in financial services and to update not only the Fintech Law but also the financial and stock market legislation to adapt it to our reality.”



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