The Fintech Sector in Argentina Now in the Spotlight: New Security Standards for e-Wallets

This Monday, August 2nd, was the first working day of August and this implied the entry into force of the new security measures to be taken by the PSPs to prevent deception of the users of financial services established by the BCRA through Communication “A” 7328 and the rules set by Decree 301/2021.

Among other measures, Decree 301/2021 established that legal entities will pay, as from August 1st, the 1.2% rate corresponding to the tax on debits and credits for the transactions made in their virtual accounts and, at the same time, extended the exemptions to single taxpayers from the aforementioned tax.

Both regulations are in line with the Government’s objective of moving towards a more equitable regulation for the fintech sector that “straightens the playing field” for competition with banks. And, although they were expected, both have generated criticism in the sector.

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A distorting tax according to the sector

The purpose of the aforementioned decree, according to its grounds, is that non-bank accounts have the same tax treatment as bank accounts in order to achieve “greater progressiveness and equity since there were specific tax asymmetries in this segment.”

It was not very welcome in the fintech industry and the main criticism they make is to the nature of the tax itself. “The tax on debits and credits is clearly distorting. And I believe that this is the main debate: the question of whether Argentina should have a tax like this or not,” warned Fernando Quiroga Lafargue, Tax Partner at KPMG Argentina.

In the same vein, a businessman from the fintech sector complains that “any tax that discourages the use of digital payments encourages the use of cash and that is synonymous with informality and less revenue, so it is not positive for the development of the Argentine economy”.

Thus, he indicates that “electronic means of payment are more efficient for the consumer and help the formalization of the economy” and, although he considers that it is fair that PSPs are equated in some tax conditions with banks, he says that “the timing does not seem to be the best because informality is still high”.

It happens that, initially, the exemption of this tax for the fintech industry was implemented from 2018 in order to encourage greater financial inclusion. Now, the measure is coming to an end and the rules of the game are different and, although there are claims, the rule is accepted, but with criticism about the “timing”.

New security measures brought controversy

In the case of Central’s new regulations, it is worth remembering that the measures that reinforce the anti-fraud protection of users were motivated by some frauds that occurred in the last time, which served as an alert about the need to work to improve digital security. Also, recently, the Specialized Cybercrime Prosecution Unit of the Public Prosecutor’s Office reported that complaints for bank frauds grew by 3,000% in Argentina during 2020.

In light of this background, the Central Bank established that, as of this month, applications offering virtual wallet services must comply with the following:

Verify the identity of the persons requiring the opening of a payment account, observing the provisions for financial entities.

Only allow associating to digital wallets those payment instruments or accounts that belong to the account holder.
They will have to arbitrate “strong” user identification and authentication mechanisms to access the wallet. Compliance with these requirements must be traceable and auditable.

As Marcos Blanco, an associate in the Information Technology and Privacy (TIP) area of the law firm MHR Abogados, told iProfesional, “as regards the provisions referring to the verification and authentication of the user for opening and accessing the account, the regulation only confirms to a large extent the standards adopted by the main players in the market”.

However, one point that brings headaches to some players in the fintech sector is the prohibition for customers to use a card or bank account that does not match their account data in the company can generate rispidity. It happens that some PSPs, including MercadoPago, allow associating a card or account belonging to another cardholder to a user.

Blanco explains that “the measure was devised to prevent the use of third-party data that can be obtained through fraud or deception”, however, a source from the Fintech sector warns that “it seems an excess of security” and assures that, from the industry, companies can refute the need for this requirement with knowledge of cause and more than enough evidence.

More regulation and tension in the future

It should also be recalled that 15 days ago the AFIP decided to incorporate virtual wallets to the information regime foreseen for asset transactions carried out by means of tools and/or computer applications through General Resolution 5029.

This is another measure that seeks to equalize the tax treatment of bank and non-bank accounts, which will come into force at the end of August.

Although these rules do not come as a surprise to the sector, since the equalization of tax treatment for traditional banking and digital means of payment provided by PSPs has been discussed for years and the new security measures were announced months ago, the sector is watching with attention the future moves to be made by the financial regulator.

“Equalization as such does not exist, but rather the two sectors are complementary for me. In this case, what is being equalized are the conditions of the payment systems, but not other business areas”, comments Quiroga Lafargue.

And he believes that “it would be unfair to give the fintech industry the same regulatory burden as banks, because we are talking about mega-structures versus other small ones in which, sometimes they are entrepreneurs who have a hard time complying with all the national and provincial regulations in force”.

Moreover, the rules come into force just at a time when the relationship between banks and fintech companies is especially tense after, “in order to strengthen the prevention of fraud and scams carried out through electronic channels”, ABA and Adeba, two chambers of private banks, asked the Central Bank for greater controls and regulations for fintech companies and their accounts, as well as the elimination of the existing ceilings for transfers between bank and virtual accounts and the power to decide how much money they can transfer to each client. The fintech companies raised their voices to the skies and demanded that banks dare to compete.

The truth is that the conflict then cooled down a bit, but the saga promises not to stay there and is expected to bring new episodes in the coming months.

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(Featured image by Clay Banks via Unsplash)

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

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