Mexico begins to open up its financial system and strengthens open banking in Latin America

The so-called 'Fintech Law' is being implemented in a market in which BBVA API_Market has been a key player since before the regulation

Mexico continues to climb rungs in the new open financial market. On March 9, Banco de México (Banxico) published the first rules of the open banking model, laid down in the ‘Law regulating financial technology institutions‘, known as the ‘Fintech Law’. Mexico was a pioneer in launching this regulation back in March 2018. Its article 76 was especially innovative at an international level, which establishes the obligation for the different actors in the financial ecosystem to offer application programming interfaces (APIs) in order to share information with each other.

This progress in the law is now taking hold in a country that is already the fintech market leader in Latin America, with more than 394 companies offering financial services with the help of technology, according to the Fintech Radars, prepared by Finnovista. Brazil follows, with 380; and Colombia, with more than 180.

Two key points of the ‘Fintech Law’

Like any serious regulatory process on the financial market, this law is guided by the principles of protecting the user against fraud, fostering competition between actors, safeguarding savings and taking care of the stability of the financial system as a whole. But, in turn, these points stand out:

• It compels all actors. This is an important difference with respect to other open banking regulation projects, such as the United Kingdom’s pioneer, which this law reflects in many aspects, but not in this one: unlike the UK, Mexico requires in the aforementioned article 76 all financial institutions to share open financial data, aggregated data and transactional data, provided that the user agrees to give access to them. This affects a total of around 2,200 institutions, from banks to various financial companies.
•  It promotes ‘innovative models’. Just like Ricardo Beltrán details in SG, through the figure of ‘innovative models’ and their authorization, the Fintech Law “enables a kind of regulatory sandbox where those actors whose business models have not been regulated by law, “may have a temporary authorization, conditioning companies interested in providing financial services through said models.” The authorization may not exceed two years. The law also provides for the authorization of ‘innovative models’ for traditional financial institutions already regulated, but with a maximum authorization of one year. In this way, “small companies are exempt, at least for a time, from regulatory burdens while they are testing or adjusting their business models and creating products until they find a suitable market for them.”

From now on

With the initial operating rules of programming interfaces now established, we know the authentication mechanisms for access to data, the standards for the exchange of information and the way and terms to request such information.

According to the standard, the entities compelled to create the APIs will be able to share three types of data:

• Open data: such as information on products and services that entities offer to the general public, location of offices, branches, ATMs, and interest rates and fees.
• Aggregated data: Statistical information related to operations carried out by financial entities, including the average number of cash withdrawals per month in a given area; successful loan applications from companies within the same market; age or gender ranges of those who purchase products.
• Transactional data: These are the data on the customers, related to their activity within the products contracted in the financial entities, for example: balances, transactions, deposits, credits, investment, purchases, payments, withdrawals or insurance.

However, for the time being, the initial rules included in the Banxico Circular 2/20 only affect the first category, as the consulting firm Deloitte explains with some concern.

With these initial steps of defining the ‘Fintech Law’, Mexico begins to get on a path taken by previous initiatives such as that of open banking in the UK and the European Union’s Payment Service Directive PSD2. With these experiences in mind, we can get an idea of the form that the Mexican regulation could take and the possible benefits that could be generated by allowing users to share their financial information with whomever they deem appropriate.

However, there is still a long way to go. According to the aforementioned Deloitte article, the recent Banxico circular, in addition to being limited in scope in terms of data types, is also limited in terms of actors: it only affects credit reporting companies and clearing houses; therefore, the provisions for banks, popular finance companies and savings and loan cooperatives, among other institutions, are still pending. Further implementation of this regulation is expected from 2021.

BBVA has offered its APIs in the Mexican market since 2017, making it one of the pioneers in doing so, even before the first regulation on open banking in the country. The Accounts, Auto Loan and Locations APIs are currently available.

Accounts allows the customer to sign up for a digital account from their app through their user ID, with which they can operate on their platform and access the BBVA ATM network. Loans Auto connects the vehicle trade business with BBVA to simulate and obtain a car loan quote for the end customer, showing the monthly installment, the loan term, the interest rate and an amortization schedule. Locations facilitates searching for and locating BBVA branches and ATMs in a simple and precise way in any digital product or app.