Fintech Finerio untangles open banking in Mexico

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Contxto – There’s a fintech gold rush going on in Mexico. And while some see a “golden opportunity” to offer financial products directly to users, others are content with offering the “pickaxes” to those doing the mining. This is the case with startups that develop APIs (Application Programming Interfaces) for banks and other financial institutions like Finerio and Belvo.

Regulation sensation

Before diving into the matter of software development for open banking, let’s quickly recap what gave rise to it in the first place.

In 2018, Mexican regulators approved the country’s fintech law and it addressed three big issues:

Payment systems and crowdfunding businesses
Use of cryptocurrencies
Open banking through APIs

In a nutshell, it was quite the all-encompassing piece of legislation.

And unsurprisingly, it’s favored the ecosystem in various ways. For one, those fintechs that receive government approval, gain a more solid foothold among users to operate. After all, it’s comforting for people to know that the place where they’re putting their money was excruciatingly examined by authorities.

Likewise, this regulatory framework also contributes to the rise of new startups. According to Finnovista’s most recent Fintech Radar report, from 2018 to 2019, the number of fintech-related startups in Mexico grew 14 percent to reach a total of 441. This, of course, attracts more venture capital investors and the ecosystem becomes more robust.

As far as cryptocurrencies are concerned, while the Mexican government doesn’t straight up encourage their use. Nonetheless, the fintech law does outline the requirements for fintechs to handle them while mitigating money laundering and fraud.

Finerio and open banking

Some startups may have emerged in response to the approval of Mexico’s fintech law. But others that were consumer-oriented and were already operating, such as Finerio, pivoted towards open banking.

“We pivoted because a couple of events took place,” explained Nick Grassi, Co-founder at Finero, over our phone call. “For one, the Open Banking law was approved. So our interest on the B2B (business to business) side [of fintech] exploded. Then many banks and financial institutions reached out [to us].”

Grassi related that all sorts of companies were interested in harnessing the power of financial data for their own products and services. The only problem was they lacked the corresponding software to do so.

And because Mexico now allows for open banking, traditional banks, with the consent from their customers, can fork over their information to other financial institutions and players. And API-developing startups, like Finerio, work to create the software to make that connectivity possible.

The status of open banking

“In its current state [open banking regulation] is very ambitious,” observed Grassi. And he’s referring to the fact that, as is, open banking was defined by regulators in very broad terms. It’s within secondary regulations, that the nitty gritty details will be unveiled.

And it was only in early March of this year, that the Central Bank of Mexico announced the first series of secondary regulations. In them, the use of APIs was covered, but only for credit bureaus and clearing houses.

So the announcement was a bit of a letdown because it didn’t address the core topics of startups’ interest.

“The applicable regulations for banking, fintechs, and other financial institutions should be gradually issued by the National Banking and Securities Commission [CNBV] as of this month,” said Jonathan Garzón, Head of Digital Business and Innovation at Cecoban, a company specializing in fintech services.

I’d say there’s hope with these statements. However, they were made in early March prior to coronavirus coming in and spoiling all the fintech fun.

So there will likely be delays in the CNBV dishing out any secondary regulations.

Related articles: Tech and startups from Mexico!

-ML