Why the usury rate would be a limitation that ‘reduces appetite’ in the financial sector

While waiting for the Banco de la República’s official commitment to promote open finance and interoperability between financial entities in Colombia to be announced in the coming months, the leaders of the fintech market continue to put proposals on the table to improve the user experience and access to digital services, with the aim of winning over those who currently rely on informality.

In an interview with Portafolio, David Ballesteros, country manager of Belvo, warned that if we want to reach ordinary people, it is necessary to implement disruptive measures and understand that today there are many limitations, such as the usury rate or access to data, which must be reviewed, leaving behind misgivings and accepting that the information belongs to the citizens and not to banks or institutions.

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How is the fintech race going?

I think that, as David Vélez (CEO of Nubank) said in Barranquilla a few weeks ago, we are in the first minute of this game and we are seeing a constant evolution and transformation of traditional banking by the hand of fintechs, which are asking to deploy their success stories, their technology and impact the average citizen. We are talking about a very special situation within the great revolution that we have started to generate great changes, which depend a lot on regulation.

Colombia is experiencing a very special situation in which, if we look at the region, the penetration that wallets have had here stands out. We are the third Latin American country with the highest penetration of wallets such as Nequi, Daviplata or Movii. It is a reality that is being lived with passion and in which we get up every day and work on this, excited about what will happen.

Is the party for or against?

Rather than good or bad, we think that this is a time when the regulator has to take a position to be able to provide opportunities to fintechs, to be able to level the playing field and so that we can deploy those use cases. There are three regulatory issues, which are part of the triad that we are promoting in Colombia Fintech, that are very important and that currently depend on the regulator.

One case, for example, is what is happening with Bre-B and the review of interoperable payments in real time, although it also involves open finance, which is currently in the hands of the Financial Regulation Unit and the Financial Superintendence and what we have called the liberation of the usury rate, which is also a project that is being worked on with the regulatory body.

What are they aiming for with this triad?

Let’s start with access to information. When we talk about payments, I think we are overdiagnosed and it is clear that more than 75% of transactions are made in cash and that is a scandalous number that we must reduce together, as fintech, as a financial sector, as financial entities, as a Government and as a country, but for that to happen, it is necessary to end the limitations and one of them is the management of data.

When we think about a system like the one in Brazil, which is the PIX system, which is a great reference worldwide, there they managed to reduce the use of cash from 70% to less than 20%. They achieved this thanks to a digital transformation that helped with immediacy, cost reduction and making the management of the system as simple as possible for the user. If this is not done in this way, we will continue to see barriers.

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What to do with the drip?

We must improve the user experience and be attractive so that people do not save under the mattress and instead take a chance on an ecosystem articulated between fintech and financial institutions. To this we must add financial education, explaining to citizens how to manage their resources and generate wealth through the alternatives that are being created.

If we do not welcome these people into the financial system, they will have to resort to abusive credit, which is what we know in Colombia as gota a gota. For that we need open finances, to know the states, the movement and the way in which we can help people improve their situation, of course, with solid regulation and in accordance with the needs of the market.

Why free rates?
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In the triad that we have already been mentioning, we have the release of usury rates, that is, that percentage that can be charged as maximum interest to users who access formal credit, because in Colombia Fintech we believe that this becomes a limitation, since credit will always imply a risk.

David Ballesteros, Country Manager of Belvo in Colombia.

Courtesy – API

By releasing the usury rate, credit companies, Fintech companies or financial institutions can set the interest rate on credit according to the risk of the person. In this way, the system may see the person as a risky client to whom the Fintech can open the door, assuming what that entails and with loans that show mutual trust. Rates greatly limit appetite.

Have you seen any interest from the market?

I think so, and proof of this is in the support of public opinion, the welcome from various sectors and the interest of the regulatory body in listening to the sector on these three issues, in particular with the issue of the usury rate and its release, as well as with the management of open data. We see a Banco de la República committed to making Bre-B, this new interoperable payment system, work.

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This cannot stand another government, another year, or another superintendent. This has to be done immediately and that is why we have so much energy on these issues and when it comes to communicating these types of needs that the sector has. The conversations that are taking place are also proof that we are doing well and that is something that fills us with great optimism for the future.