Fintechs are not going to survive, it is a fad, some say; and others, on the contrary, defend tooth and nail the importance and, above all, transcendence of these figures and of the nascent financial subsector.
In this regard, I share some ideas, based on the fact that the fintech universe is made up of fintechs regulated by Law, which are the Financial Technology Institutions or ITFs, and the other fintech companies, which we will call fintechs.
We can consider fintech companies to be those that provide some financial service (for example, giving credit) or serve to provide such services, but always through technological means; without a doubt, they respond to market demand and keep pace with technological innovation. In other words, it is seen as an irreversible trend with great speed of change and a growing market.
As for the ITFs, if you think that precisely because they are figures that are born from a Law, that require a governmental authorization process to be able to operate, and that motivate the issuance of various secondary regulations, it is a figure that already it, came to stay; I remind you, dear reader, of another financial subsector that was born in the same way, and they are the Limited Purpose Financial Institutions or sofols, at that time due to the conclusion of NAFTA, equating them with American figures (Non Bank Banks), first based on in some General Rules in 1993, and later it was formalized with the modification of the Credit Institutions Law (Art. 103 F. IV) in November 2005, and its subsequent related administrative provisions.
In July 2006, there were more than 60 sofoles authorized and operating, and paradoxically in that same month, with the financial reform of that time, the Multiple Purpose Financial Companies or sofomes were born, condemning the sofoles to lose in July 2013 their status as Regulated Financial Entity; leaving by then 16.
In conclusion, the financial subsector of the sofoles was born in 1993, boomed between 1999 and 2005, and lost presence since 2006, until it disappeared completely in 2013. Not because they are regulated Financial Entities, did they guarantee their permanence as a financial subsector. The direct cause, the deregulation of financing and credit granting activities; other causes, financial weakness of several of the Entities, poor regulatory compliance of some of them and convenience of continuing with the same business model but migrating to the unregulated world.
Today the ITFs add up to 35 authorized and published in the Official Gazette of the Federation, plus another similar number that is about to achieve said license in the coming months; With this, the fintech financial subsector consolidates its existence, without prejudice to the new applications that continue to be submitted to the CNBV.
This being the case, I believe that unlike the Sofoles, the ITFs provide the services that were authorized to them but hand in hand with technological development and responding to the demands of national and international markets, so that in the medium term they are not perceived rudder turns that can eliminate them from the regulatory map; unless, in its ordinary operation, a generalized and repeated breach of the regulation is observed by the financial authorities, which puts its viability at risk and may impact customers and, of course, the payment system. What would be expected is that certain aspects of the current regulatory framework are adapted to the new realities that differ from what was expected in 2018, with the enactment of what is known as the Fintech Law.
Finally, as in any new economic sector, it is likely that there will be natural adjustments after 2023 that primarily imply sales, mergers and some closure or liquidation, as the market becomes larger and the participants stabilize. Therefore, it is a good time to ride the wave and take advantage of belonging to the leading groups in the sector.
Twitter: @LBartolini
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