LatinFinance - November/December 2017 - 33

FINTECH
REGULATIONS

The radical evolution of the financial system is catching supervisors on the back foot.
How they respond will determine whether technology becomes a force for development or a source of stress and economic destabilization. By Katie Llanos-Small

Striking the right
balance
When it comes to running a business,
bringing in client payments is fundamental. In Brazil, the options for getting
that cash are flourishing. If you have a
subscription-based business, you might
look to a service like Vindi, which will take
repeating payments on your behalf. If you
are in e-commerce, you could use Ebanx,
allowing customers to make cash payments
for online purchases. Want customers to
pay with their smartphones in your store?
PicPay has the solution.
All three have been set up in the past five
years. They are just a few of the dozens of
payments companies that have recently
launched in the Brazilian market, upsetting what was once a highly-consolidated
industry.
New technological capabilities have
spurred the rapid expansion. But there has
been another critical factor: new regulations.
"These fintechs are easing access for
stores to accept credit and debit cards,"
says Mathias Fischer, director for regulatory issues at Brazil's FinTech Association.
"Consumers who previously didn't have access to a credit card or a prepaid card now
have access to that technology. The recent
regulation stimulated this."
Brazil's Central Bank introduced regulations for payments institutions in 2013. As a
result, today a quarter of Brazil's 230-plus
fintech start-ups focus on payments, making it the most competitive such sector in
the country according to data released

earlier this year by the Inter-American
Development Bank and Finnovista.
It was a case of Brazil's regulators striking a careful balance between keeping the
system safe while fostering competition and
innovation.
"We had basically two or three players in
the whole [payments] market," says Fischer. "Aiming for competition and efficiency,
[the Central Bank] saw this opportunity and
took it."
Now, Brazil's Central Bank is looking
to address the other parts of the financial
system that are being upended by technological advances. Like other regulators
throughout the region, they are struggling
to replicate the balance between innovation
and security.
New technology promises to open up
financial services to millions of unbanked
people across Latin America, making transactions faster and cheaper. But the rapid
pace of digital change also brings new risks,
which many people, including authorities,
struggle to understand.
"Prudential supervision is what regulators are normally trained for and staffed up
for," says Andres Wolberg-Stok, global head
of policy for Citi FinTech.
"But they are realizing now that it's a
matter of national interest to encourage
innovation, safely and within limits. If
they don't, their societies miss out on the
potential benefits of fintech - from financial
inclusion, to greater efficiencies, to people
being able to lead more productive, data-

enriched financial lives."
The question of how to balance financial
stability and stimulate innovation is global,
says Wolberg-Stock. "That's the tension you
see for regulators all over the world. We're
seeing the same concerns from Washington
DC to Hanoi, Vietnam."
A gray zone
In Latin America, new technology has the
potential to open financial services to the region's vast numbers of people without bank
accounts. In Brazil and Mexico, regulators
are working on new rules for fintechs. The
aim in both countries is to help new technologies gain traction, but limit the risks.
Yet in other parts of the region, regulators
are struggling to catch up with the quicklyevolving reality. Supervisors in many cases
have no rules covering non-banks that
provide some digital financial services.
"There is a kind of gray zone, because of
a lack of regulation," says Fermin Bueno,
managing partner at Finnovista, a fintech
promotion and development organization
focusing on Spain and Latin America.
Peru is one example. The Andean market
has been ahead of the game in some aspects
of financial technology, rolling out a digital
payment system for Peruvians without a
bank account several years ago. But the
virtual wallet has failed to take off as hoped.
And today, the country still lacks regulation
for fintech companies, says Luis Barragan,
chief executive and founder of tech consultancy Maximixe TIC in Lima.

November/December 2017 - L ATINFINA NCE.COM 33

http://www.LATINFINANCE.COM

Table of Contents for the Digital Edition of LatinFinance - November/December 2017