The Fintech Sector Sees Unfavorable Regulation in Latin America

One of the main barriers for fintech companies is the regulatory environment, according to data from the “State of LatAm Fintech 2022” survey, the perception increased 61% this year, compared to 54.2% in 2021.

In the case of Mexico, the Law to Regulate Financial Technology Institutions, also known as the Fintech Law, was a pioneer in the region; however, recent surveys reveal that the legislation may limit the sector.

Data from the “State of LatAm Fintech 2022” survey conducted by Fintech Nexus and LatAm Intersect PR reveal that one of the main barriers for fintech companies to reach their potential in Latin America is the lack of a favorable regulatory environment, this perception has grown.

Sixty-one percent of the fintech companies surveyed perceive limitations in their local legislation, compared to 54.2% of the respondents who pointed out the barriers in 2021. However, the benefits of a legal framework are also highlighted, with 31.6% indicating that government regulation is essential to achieve a greater positive impact in the region.

“This year we observed that there is greater weight on the regulatory issue, respondents consider it paramount to have a favorable regulatory system to encourage and support the fintech sector, in that sense, it is perceived that governments and policies have an obligation to route and help the sector through various incentives that are considered paramount,” said Roger Darashah, co-founder of LatAm Intersect PR.

The survey results also showed that 30.4% of respondents believe that tax and business incentives increase online transactions and play a crucial role in financial inclusion.

Read more about the fintech law in Latin America and find the most important financial news of the day with the Born2Invest mobile app.

Barriers and opportunities for fintech companies in Latin America

On the other hand, Darashah indicated that among the perceived barriers within the fintech sector is a negative perception of the financial sector in general, so indicated 40% and related difficulties in not having physical entities for the public.

“Lack of trust in the banking system represents a major barrier to fintech, and that is when you combine that figure with the fact that more than half consider their friends and family as the most important source of information when checking a financial instrument, from those conditions, you can see the challenge that fintech companies have,” Darashah explained.

Another of the conditions that fintech companies will have to deal with will be a lower volume of financing, although 46.4% seemed indifferent to an economic recession at the time of the survey in October 2022, when they agreed that the situation is a “natural and expected part of the economic cycle.”

In terms of opportunities, Roger said that the adoption of new technologies such as blockchain will allow fintech companies to innovate in under-explored segments and address trends such as the growing use for sending remittances, although at the moment only 11% indicated that they are working with this new technology.

However, 10% of companies and professionals with consumer-oriented roles are betting on these new technologies and are investing in their development and implementation.

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(Featured image by Leon Overweel via Unsplash)

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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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