Mexico, once a pioneering force with its Fintech law back in 2018, now faces the risk of lagging behind its Latin American peers. Five years after the country made waves with its tailor-made regulation, other nations in the region have surged ahead with their initiatives, notably in Open Finance frameworks, a development deemed crucial by fintech leaders for fostering the next wave of financial innovation.
Recently, the Mexican regulatory body has assured the sector that open banking regulations will be officially released by year-end. Nevertheless, the industry is fervently urging the government to expedite the procedure, contending that the current legal framework is impeding the growth potential of open banking, lagging behind other countries’ progress in this regard.
“The financial sector in Mexico has expressed clear support for Open Banking,” says Daniel Castillo, a fintech regulation consultant in Mexico and Open Banking Specialist at TESOBE. “The formulation of specific secondary regulations should be a priority.”
The fintech specialist argues that Open Finance is a “strategic opportunity”. It would diversify the range of financial services offered, as well as remain competitive in the face of stronger competition.
While fintechs have gained notable ground in the market, banking millions of financially excluded Mexicans, competition has heated up intensely with big-sized players stepping into the digital space.
Mexico Open Finance still faces hurdles
“Mexico has the opportunity to become one of the world’s most important financial hubs. The Fintech sector can be a great ally,” Gabriel Yorio, Deputy Finance Minister of Mexico, said recently. He acknowledged, however, that there was “missing regulation” about open finance that would allow the sector to grow further.
Although the current regulation envisions Open Finance, definitions as to how to share financial data securely remain vacant.
“There is a delay of more than two years in this regulation,” said Ernesto Calero, general director of the Mexican fintech association, in an interview earlier in the year. “The law as it is does not prohibit Open Banking, and institutions financial institutions could do so if they wanted. However, the authorities must define the standards when sharing transactional data to reap all the benefits that open banking can offer.”
Mexican market garners attention
There are, of course, legitimate concerns around data security. “One of the biggest challenges of Open Banking in Mexico is protecting personal data. Both for who can access it and for the use that will be given to this information,” Alfonso Gura González, Chief Economist at BBVA México, wrote in a report. Clients are required to grant explicit authorization for the use of their transactional data. They can withdraw this authorization at any time, with an immediate suspension of data flow as a result.
With a population of 130 million, Mexico is one of the most coveted markets in Latin America. It has one of the worst financial inclusion metrics among major regional economies. This represents an opportunity for digital-only initiatives seeking to bridge the gap.
The market has drawn the attention of several neobanks in Latin America, such as Nubank and Ualá, among others. Approximately half of Mexican adults do not have a formal savings account. The problem of underbanking is “very tangible”, according to Iván Canales, who leads the Mexican unit of Nubank.
Open Finance Finerio taps $6.5 million
Despite the lack of secondary regulation, fintechs that help create Open Finance infrastructure are already increasing. Recently, Mexico City-based fintech Finerio Connect secured $6.5 million in new funding to develop further its open finance platform. Founded in 2018, Finerio aims to facilitate the compliant sharing and consumption of financial data. The company partnered with more than 120 financial institutions and fintech firms.
Third Prime led its recent equity financing round. Strategic investors like Visa, Bancolombia Ventures, and Krealo (Credicorp’s venture capital arm) also participated.
The potential that the industry sees in Open Finance is significant. Fintech associations from Mexico, Colombia, Peru, and Chile jointly proposed standards for Open Finance earlier in the year. This collaborative effort holds the potential to lay the foundation for comprehensive frameworks across Latin America. These could facilitate more seamless cross-border transactions and implementation.
While many countries have made swift progress in recent years in terms of regulation, these efforts have primarily been conducted within their frameworks. Brazil, for instance, has been a leader in this regard, with numerous traditional and fintech institutions already engaged in data sharing. Chile has also made significant strides with its recent fintech law, while Colombia is gradually exploring the concept of Open Finance.