Latin America is the center of investment and growth of Fintech companies, that is, companies that provide a new way of doing business through social networks
Brazil, Mexico and Colombia are located respectively in the first three places in terms of innovation of start-ups Fintech, that is, companies that have entered the financial market providing a new way of doing business through social networks. These companies are presented, in turn, as an alternative to traditional banks, because they democratize and make even more efficient the transactions that historically had been related to banking entities. Loans, credits or economic transactions are some of the bets that Fintech have taken.
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However, lately it is also common to see more traditional banks relate to these initiatives, as is the case of organizations such as BBVA, Scotiabank or Santander. BBVA, for example, has been concerned to provide its clients with basic knowledge about Fintech and related topics, such as regtech (technology regulation companies) or cryptocurrencies, through articles that can be found in it web pages.
The growth of the Fintech in Latin America
According to figures provided by Finnovista, by June 2018, the Fintech in Latin America has experienced a growth close to 50% in the different regions, with Brazil being the leader in this process. While Mexico was emerging as the largest industry in the region, which from 2017 to 2018 has had a growth of 40% represented in 125 new Fintech companies, Brazil has managed to achieve this first position. One of the causes, although not the only one, may be the existence of Nubank.
The Nubank is a Brazilian payment service provider that can only be accessed in a virtual way and that is positioned as a "unicorn" company, since it has already achieved a valuation of one billion dollars after having raised more than 330 million in investment, Reuters reports. It is interesting, regardless of who leads the number of Fintech companies in operation, that the region has such a high growth, which indicates a broad business opportunity and foreign investment in local initiatives.
The challenges of the Fintech
Despite all the possibilities offered by Fintech to its customers and the alternatives they bring in terms of security, both financial and information, these companies still have great challenges to overcome, especially in Latin America. On the one hand, the Fintech are legally unprotected, since in most States there is no specific regulation, except for Mexico, which recently passed a law on the matter. On the other hand, there is the issue of inclusion in the financial system and access to the Internet.
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The Mexican Fintech law is presented as the first law of its kind, which seeks to protect its customers and the patrimony its users deposit, according to CNN in Spanish. This law, which was promulgated in the midst of controversies because some experts said it was too early to legislate a field in full development, is a measure that sets fixed parameters for both companies and customers.
Global regulatory entities, such as the FATF, have been emphatic in the need to create legal reference frameworks for Fintech, since there is a serious risk that users will be involved in crimes of which they have no knowledge. Money laundering, fraudulent transactions or identity theft are some of the potential risks identified by this entity, creating a difficult picture. So, are Fintechs an inevitable risk due to their high growth and lack of knowledge on the part of their users?
In addition to the need for legal regulation, Latin American countries must make a broad effort to guarantee greater access for their communities to the financial system and the network. These are two fundamental characteristics for Fintech to prosper and be a real alternative to democratize the most common financial channels, such as credit and financial transactions.
Undoubtedly, this field, which is still growing, will have a relevant role over the next few years, even greater than what it now plays. It is possible that even the financial landscape will be totally determined by Fintech and its new business alternatives.
LatinAmerican Post | Jorge Ovalle
Translated from "Ser usuario en empresas Fintech: ¿un riesgo inevitable?"