The Colombian Financial Sector Facing Challenges Due to the Rise of Fintech Companies

The Colombian financial sector is facing some challenges and it will have to adapt to the new realities. Fintech, neobanks, and the digital financial sector as a whole have arrived to make life easier for people who use their cell phones or PCs to make payments for services, food, travel, and taxes; or make investments, take out loans, or manage and protect their savings.

According to the Colombia Fintech report, as of May 2022, companies that offer digital credit services have a 33.11% share, followed by digital payments (26.42%), corporate finance (10.37%), Regtech (9.36%), PFM & Wealthtech (8.63%), Crypto & Blockchain (4.01%), Crowdfunding (4.01%), Insurtech (3.01%) and Neobanks(1.34%).

In the country, in addition, more than 300 fintech companies have been created in recent years and only between 2020 and 2021 the installations and downloads in the fintech sector registered an increase of up to 80 %.

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According to the aforementioned organization, the fintech sector has disbursed 8 million loans in recent years, and total assets already exceed $6.4 trillion

Moreover, hand in hand with this growth, the Colombian financial sector is registering a significant increase in terms of democratization.

In fact, in 2021, of the 36.4 million adults in the country, 87.8% already had a financial product. And of that 87.8 %, 76 % of the population is active in the financial sector through fintech solutions.

Even though the growth of digital banking is a fact in the country, said Diego Gómez, country manager of Celeri in Colombia, 35% of financial institutions are not fully aware of their compliance obligations. In addition, 43 % of fintech companies in Colombia do not know whether they are under the scope of the Financial Superintendency or the Superintendency of Companies.

“In 2022, the Financial Superintendency imposed sanctions for more than 5 billion pesos for non-compliance with compliance obligations or for failure to implement compliance processes and practices,” explained Gómez.

In view of this, the Colombian financial sector, both traditional banking and the disruptive entities that have emerged in the last two years, has several challenges to strengthen and consolidate over time

The first challenge is to work to reduce financial risks, including fraud and identity theft, which affect the image and reputation.

The second challenge is to guarantee transparent and agile transactions, by having platforms and applications available 24 hours a day, easy to understand and use, which are a channel that facilitates people’s transactions, reducing lines at banks.

The Colombian financial sector, said the expert, must guarantee the integrity of users’ financial assets. Undoubtedly, it is about working on improving its web platforms, and cybersecurity to preserve and maintain a reputation in line with what Colombians require.

“Good KYC and information security policies prevent theft, third-party access to financial products, unauthorized transactions, and access to people’s financial information. All this is achieved if fintech companies have a structural regulation; that is, an automated accomplice,” noted Gómez.

Meanwhile, the third challenge is the work for the reduction of operational risks from the use of advanced technologies so that the base structure of digital banking is not done manually to the demand of more users.

“Increase efficiency in internal processes, improve the coercion of internal teams, save time, improve service to users, reduce the risks of sanctions, investigations, and fines, save money,” said Gomez.

The fourth challenge is to work on the knowledge and needs of financial users so that they feel they have chosen the bank that fits their needs.

To do this, it is essential to have optimized KYC (know your customer) and KWB (know your business) processes. “A user who feels that he is not treated appropriately (especially in terms of waiting times when it comes to money) will have no qualms about switching servers, and thus lose the possibility of building loyalty with a user who has switched to the competition, which was always just a click away,” the expert said.

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(Featured image by AhmadArdity via Pixabay)

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First published in La Opinion, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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