Update: No e-wallets, no Fintech Law, Conekta remains a payment aggregrator

Contxto – It seems like Paypal wasn’t the only rebel on the block. In fact, out of the 400 fintech startups in Mexico, and the 120 eligible to be regulated under the Fintech Law, only 60 requested the authorization.

While at first we thought that Conekta scrapped its e-wallet to ricochet strict requirements from Mexico’s Fintech Law, this wasn’t exactly the case. Earlier today we talked to Conekta’s team, we found out that the new legislation didn’t even apply to them as a payment aggregator. Oh, and it never had an e-wallet from the start.

That’s to say, Conekta didn’t simply opt-out and take the easy route out. Its main function is to facilitate transactions rather than actually hold on to anybody’s funds. If that were the case, it should’ve been regulated under the famous Law.

With that said, the obviously obviously didn’t submit a request to legally operate like a fintech. Despite its decision to remain as a payment aggregator, it still plans to fully comply with the new regulation.

“Although this September 25 we will not submit a request to obtain permission to operate as a financial technology institution, we will continue to put all efforts to align with this regulation,” said the company in a recent report.

With that said, Conekta plans to adhere to the new fintech ruling when the time comes. In other words, it doesn’t have the relevant financial products to obtain such regulation, so it’s a little irrelevant at this time.

All the while, some may assume that Conekta would have constituted itself as an ITF (Financial Technology Institution according to the Spanish acronym) regulated by the Fintech Law.

Maybe next time

Theoretically, Conekta would have needed to prepare several products and service changes to function as an official electronic payments institution. Since it doesn’t plan to retain anybody’s money (at least for the time being), though, it was content doing what it has been doing – being a payment aggregator.

Even though Conekta never had an e-wallet to begin with, other exchanges and fintech companies are starting to scrap their own, and with much reason.

The reality is that the Fintech Law has some severe capital requirements as well as tight protocols. So many regulations intended to reduce risks for consumers and the financial system as a whole.

Certain requirements include anti-money laundering standards, frequent audits and specific corporate governance roles, as well as at least US$150,000 in reserves.

“At this time we are still an aggregator,” said Héctor Cárdenas, Conekta’s CEO, in an interview with El Economista. “We are supervised as an aggregator by the CNBV (National Banking and Securities Commission). As of right now, we won’t be applying to the Fintech Law.” 

The company seriously pondered the effects of signing up as an ITF since March of last year. For companies operating before that date, their request submission deadline is September 25 of this year.

“A lot of startups haven’t been able to keep up with the requisites,” added Cárdenas. “We’re very attentive to seeing what happens in the ecosystem and looking forward beyond September 25.”

Cárdenas also said that the secondary provisions of the Fintech Law are seriously inhibiting entrepreneurship. Something I agree with. 

Certainly, the ecosystem is going to see massive positive changes regarding market consolidation, trustworthiness, not to mention the formalization of previously cute little startups. 

Nonetheless, I believe that Mexican authorities could’ve implemented the Fintech Law way too soon. Now, ideas that could potentially be industry game-changers are going to have a harder time (more so than before) in terms of challenging big banks and big tech.

Something is true, though. There are already enough market participants that fit the mold and the next big thing might not even fit the current legislation.

Big kids, punk kids

So far, Conekta is one of the go-to choices for millions of SMEs and eCommerce companies looking to expand their product offerings online. Moreover, corporations such as Google Play, Didi, Netflix and Amazon started working with Conekta as their main regional payment aggregator. 

In 2018, the company billed over US$250 million with this service alone. For 2019, though, it plans to increase this number five-fold. Hoping to reach US$700 million in transactions, the founder says this milestone is well on its way.

Nevertheless, Paypal or Conekta aren’t the only ones resigning to be classified as an ITF. Volabit, a Mexican crypto-exchange, also spoke up and announced several product changes to outflank the regulation. 

“At the end of 2018 and throughout 2019, there were important changes in the Mexican regulation regarding the operation of cryptocurrencies, which is why virtual asset platforms have seen us in the need to modify processes in our operation,” Volabit explained in its blog.

Other fintechs are scrapping their e-wallet to avoid complications, such as Volabit. Instead, every deposit on the platform will go through an immediate conversion to a stable coin named USD Coin. This will fundamentally replicate the dollar’s volatility. At least for now.

This will include both Volabit and its sister company, Vexbi.

Up until now, everything was mere speculation, but now we’re going to start seeing the true results of the Fintech Law. Do you think the industry desperately needed such regulation or was it too soon to implement?

-VC