Why Fintech Startups in Mexico Encounter Difficulties
Since the enactment of Mexico’s Fintech Law in 2018, the National Banking and Securities Commission (CNBV) has authorized nearly 72 fintech startups. However, reports from local media reveal that over 30 licenses have been rejected, with the possibility of more rejections going unreported. The challenging regulatory environment has posed significant obstacles for fintech companies seeking to operate in Mexico.
The Fintech Law was groundbreaking not only within Latin America but also globally. It aimed to establish a regulatory framework for companies operating in Mexico that lacked clear guidelines on permissible activities. The law distinguishes between two types of companies: Electronic Payment Fund Institutions (IFPE), which include digital wallets, and Collective Fund Institutions (IFC), such as investment funds.
Ernesto Calero, a financial analyst and former director of Fintech Mexico, explained that these specific institutions were targeted for regulation because they indirectly collected resources from the general public. However, the rigorous Mexican law, similar to that of traditional banking, has presented challenges for many companies.
Obtaining a license to operate as a financial institution has proved particularly demanding for fintech startups. Calero noted that the transition from being a startup to a financial institution has been the most costly and complex aspect for these companies. They have had to meet the stringent requirements expected in the financial industry to engage in major league operations.
Sebastián De Lara, the general director of the local union, stated that the CNBV prioritizes ensuring user certainty. Consequently, companies lacking appropriate conditions and failing to fulfill requirements are encouraged to withdraw their license applications. While the exact number of companies that have withdrawn remains unknown, De Lara suggested that it is not uncommon for companies to give up during the regularization process.
The CNBV’s approval process for licenses has been thorough to safeguard users and mitigate risk. Some rejected applications, including those of Ethos Pay and Accepted Digital, were found to have issues such as insufficient financial modeling, lack of information, and errors in financing amounts. Financial analysts acknowledge that these requirements are complex and expensive, but they support the authorities’ goal of conducting a comprehensive risk analysis.
Despite the challenges faced by fintech startups, both Calero and De Lara acknowledged the CNBV’s efforts in authorizing licenses. The commission has lengthened the processing time for certain applications to minimize rejections. Although budget constraints have led to reduced staffing levels, the commission continues to prioritize the approval of licenses, employing additional officials to manage the increasing number of requests.
Previously, the processing time for licenses exceeded three years, particularly for existing fintech companies required to regularize their operations. However, the timeframe has improved over the years, with current processes typically lasting around one year.
In conclusion, Mexico’s fintech startups have encountered difficulties in obtaining licenses to operate under the country’s pioneering Fintech Law. While the regulatory environment aims to ensure user protection and mitigate risks, the rigorous requirements have proven challenging for many companies. However, the CNBV remains committed to facilitating the approval process, striving to strike a balance between stringent regulations and supporting the growth of the fintech sector.
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