Authorizations Between Digital Banks and Fintech, a Difference of 277 Days in Spain

Given the urgency for multiple banks to respond to the new options of financial services leveraged on technology, regulatory authorities have accelerated response times in the requests of these entities to start their digital divisions (digital banks)

According to an analysis by this media, based on information requests, published documents, confidential documents, and statistics from the authorities, the average time for an application to approve the incorporation of a digital bank is approximately 458 days. However, in the case of a Financial Technology Institution (fintech company), protected under the Fintech Law, the time to grant the endorsement is 735 days on average, a difference of 277 days between both processes.

The first digital bank authorized was Grupo Financiero Banorte’s Bineo, which began its authorization process on June 30th, 2021, and ended 454 days later, that is, on September 27th, 2022, when the governing board of the National Banking and Securities Commission (CNBV) granted the requested authorization.

Recently, it was reported that two digital banks -Open Bank of Grupo Financiero Santander and Hey Banco of Grupo Financiero Banregio- obtained the authorization to incorporate after the CNBV’s most recent governing board, on July 12, gave them the green light.

OpenBank’s process to obtain the banking license began on April 6th, 2022, and last July 12th the CNBV’s governing board granted its authorization, that is to say, 462 days had to pass to achieve it.

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With the processes of Bineo and Openbank -not counting Hey Banco- an average of 458 days was registered for the authorization of digital banks

Although few banks have obtained authorization to set up their digital subsidiary under the multiple banking model, the time it took to resolve their application contrasts with the time taken by the 61 fintech companies that have been approved so far by the authority.

According to records, the average authorization time for these 61 fintechs -39 electronic payment fund institutions (IFPE) and 22 crowdfunding institutions (IFC)- is 735.5 days. For the IFPEs this average time is 726.9 days and for the IFCs it is 750.8 days.

In this context, more than 30 firms have withdrawn from the process of obtaining their license under the Fintech Law, while 23 others have already had their rejection to obtain it confirmed.

Requirements for digital banks

According to a transparency request made to the CNBV, during 2022 the CNBV received four requests to become a Multiple Banking Institution, while this year, as of May 12th, it had received only one such request.

Up to the date of the response to the request for transparency, only one application had been resolved, and if the two endorsements of a few days ago are considered, it could be said that there are three authorized entities out of a total of five applications submitted from 2022 to last May.

According to the response, regardless of the operating format they intend to implement, entities seeking to become multiple banking institutions must comply with the guidelines set forth in the Law of Credit Institutions (LIC) and general provisions.

“It is up to each of the multiple banking institutions to decide the operating format that, based on their business model, they decide to implement with the user public, which must at all times strictly adhere to the regulations set forth in the LIC, the provisions and any other applicable provisions,” the CNBV responded to the questioning about the differences in the requirements for the incorporation of a digital bank with respect to that of a traditional institution.

One of the essential requirements to obtain authorization as a multiple banking institution is to comply with the minimum capital established in the regulations. In the case of Bineo and Open Bank, the corporate purpose of both institutions will include the performance of the activities set forth in Article 46 of the LIC, so their minimum capital stock must be the equivalent in local currency of 90 million UDIS, i.e. over 699 million pesos.

According to the documents, Bineo will start with a capital stock of 1,675 million pesos and Openbank’s capital stock will be 699 million 420,220 pesos.

With this, both institutions (fintech companies and digital banks) will be able to carry out operations such as:

Receive bank demand deposits; withdrawable on pre-established days; savings and time deposits with prior notice.
Accept loans and credits.
Issue bank bonds.
Issue subordinated debentures.
Make discounts and grant loans or credits.
Issue credit cards based on current account credit opening contracts.

Changing forms for fintech companies and digital banks’ authorization

In its 2022 annual report, published a few days ago, the CNBV detailed some administrative improvement actions it carried out last year in its authorization and registration work.

According to the document, one of the significant changes in this area was the elimination of the review of files prior to the entry of an application for authorization, which, according to the authority, consumed human, material, and technological resources in projects that, in most cases, did not prosper or were modified when the application was submitted.

According to the document, the prior review is no longer carried out; however, in order to maintain a closer relationship with the interested parties, a process was implemented whereby interested parties may present, on a single occasion and before the areas involved, their business, and operating model.

Under this new approach, according to the CNBV, the CNBV has prevented the entry of applications for authorization and registrations that do not correspond to the provisions of the applicable regulations.

“Improvements were implemented in the authorization process for new entities, through the use of technological tools that streamline and facilitate the exchange of information between the administrative units involved, which reduces inter-area response times and, as a consequence, the time it takes to attend to authorization requests,” reads the document.

Of the 61 fintech companies currently authorized, 54 entered their application between 2019 and 2021, so they were left out of the new authorization model applied by the CNBV. It is expected that the digital banks that have been authorized will obtain the official start of operations in the coming months in order to begin operations.

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(Featured image by manolofranco via Pixabay)

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

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