The digital transformation: the FinTech case

On Monday of last week I went to work in Uber, after a few hours I used the app Kambista from my cell phone to change my dollars to soles, at lunch I went to the app Rappi to order my food to the office and at the end of my day when I was at home I went to Netflix to see my favorite series. I kept thinking about how different my day would have been a few years ago.

The question that arose was: are we in a process of digital transformation? Everything seems to indicate that it is. We live it daily with the use of applications on the cell phone to get a taxi (Uber, Cabify or Beat), or when we travel and we can choose to rent a room or a whole house through Airbnb. The contracting of services of all kinds is becoming more agile. This, in addition, is based on the collaborative economy by which assets are maximized and expenses are shared. This is how Netflix or Spotify users can purchase group memberships or split expenses.

Today, financial services are within reach of our cell phone and it is becoming easier to request a loan, send and receive money, as well as exchange currency. Therefore, financial service providers are needed to provide a better user experience in which, through an agile, safe and simple service, they optimize the provision of financial services.

A few years ago we have been hearing that FinTech will revolutionize traditional banking, but What is FinTech? The name FinTech comes from two Anglo-Saxon words <<finance>> and <<technology>>. The International Organization of Securities Commissions (IOSCO) describes FinTech as innovative business models and emerging technologies that have the potential to transform the financial industry[1]. In that sense, it could be said that FinTech are business models that allow offering services and / or financial products based on the technology for this.

The financial component of these business models is important to ensure adequate risk management according to the size and activity carried out by the FinTech, as well as to ensure that those who manage the FinTech are qualified and experienced people. On the other hand, the technological component has special relevance to optimize the provision of the service, that is, to have the technology that makes it possible to offer a service and / or financial product at low cost, safely and in a short time.

In addition, applied to finance, every traditional financial service currently has its FinTech alternative. In this way, it can be evidenced that digital transformation is present in the various industries and that it has special relevance in the financial sector, since a series of legal challenges are presented that must be addressed by the authority in charge, maintaining a proportionality approach and technological neutrality.

However, as shown in the previous graph, FinTech can serve as an alternative for practically all types of financial products and / or services. Finnovista and the IDB conducted a study of the growth and consolidation of the FinTech industry in Latin America, at the end of the 2018, in which they provide a panoramic view of the growth of FinTech in the different business segments[2]. The document mentions that in Latin America there is at least 1,166 FinTech, which are distributed in eleven business segments[3]. The three most representative business segments in the region are: payments and remittances, loans and business finance management.

Some examples of the FinTech that are advancing by leaps and bounds are revolutionizing the financial industry in Latin America:

  • Afluenta is one of the largest FinTech in Latin America. Its business consists in the administration of a virtual platform to provide participative financing services (specifically under the modality of crowdlending). It seeks to create a collaborative finance network through a simple and secure loan system. The support of the IFC (International Financial Corporation, member of the World Bank Group) has been crucial for its exponential growth, since it has been receiving investments to position itself in the region.
  • Nubank is the largest digital bank in the world after existing models in Asia. The 2013 was founded in Brazil by David Vélez. In a context in which the Brazilian financial industry was dominated by five national banks, which controlled almost all loans and offered very high interest rates, Nubank broke through providing the Brazilian public with a safe and cheaper option to access financial services. Today, Nubank is considered a "unicorn" of technology businesses, which means that it is valued at more than US $ 1,000 million. In fact, a few months ago Nubank received a US $ 180 million investment from the Chinese technology firm Tencent to boost its growth and reach a larger audience.
  • Hello Zum is an InsurTech[4] Peruvian company that offers an integrated information platform for insurance agents. InsurTech is the application of technology in the insurance sector for optimal marketing of these. Its platform is supported by application programming interfaces (APIs) to integrate all processes of insurance companies so that they are streamlined and efficient. Currently it allows the issuance of digital insurance policies 100% digital. Handles the entire stage of sales and post sales in an integrated manner with insurance companies.

Finally, what are the challenges and trends for the 2019?

Regarding the challenges to the growth of the FinTech, there are two that are key to its takeoff. The first is the fact that the FinTechs in many cases focus more on developing innovative technologies than on providing a quality financial service, taking into account all the risks that are inherent (credit risk and operational risk, mainly).. In this way, suitability and experience in the sector is required by the financial service providers.

The second challenge is the lack of a clear and flexible regulatory framework to promote the FinTech industry. In Latin America, Mexico is the only country that has a general law in this regard (Financial Technology Law). While the other countries are analyzing and elaborating normative proposals, the uncertainty among the FinTech persists, since some activities that they carry out can be understood as reserved activities. Therefore, an interesting option is the regulatory sandbox that allows to count (for a time) with controlled spaces in which an innovative product and / or service can be developed while the supervisors evaluate which are the most relevant aspects to regulate so that the regulation is proportional to the risk and the activity that is carried out .

On the trends, the payments with QR code are coming strongly to Latin America, after having had great success in China, so much so that Mercado Pago (FinTech Argentina) is betting to generalize the use of QR code as a payment method in Argentina[5]. This allows you to make payments contacless more agile without needing to have the money in cash or your credit or debit cards physically. In fact, it should be noted that Argentina has adopted in January of 2018 the standard "EMV QRCPS" to promote that businesses accept payments with QR code and unify the systems of different mobile wallets or electronic payment applications. This trend will be expanded by Latin American countries.

Also, a takeoff for the RegTech is forecast[6] every time the Compliance It is indispensable for the sustained growth of a company and because authorities around the world are maintaining an active supervisory role. Taking into account that the reputation of a company is its most valuable asset, the interest of the companies to maintain optimal levels of compliance is a daily concern that must be addressed.

Finally, the Open Banking This year will open the way, allowing greater competitiveness in the provision of services through free access to information. He Open Banking, is a trend that seeks to open the data of banks to third-party financial service providers. It relies on the use of APIs, which are application programming interfaces, which allow software to be connected to each other for the exchange of information. In an increasingly collaborative environment, this option undoubtedly has great potential.


[1] IOSCO "Research Report on Financial Technologies (Fintech)". 2017. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf

[2] IDB and Finnovista. "Finnech Report in Latin America 2018: growth and consolidation". 2018. https://www.finnovista.com/informe-fintech-2018/

[3] The eleven Fintech business segments according to the IDB and Finnovista Report: (i) payments and remittances, (ii) loans, (iii) business finance management, (iv) personal finance management, (v) collective financing, (vi) business technologies for financial institutions, (vii) negotiation of financial assets and capital markets, (viii) asset management, (ix) insurance, (x) credit scoring, identity and fraud, and (xi) digital banking.

[4] According to the International Association of Insurance Supervisors (IAIS), the full range of emerging technologies and innovative business models that have the potential to transform the insurance business are included in InsurTech's definition.

[5] View: http://www.ebankingnews.com/noticias/supermercados-chinos-sellan-alianza-con-mercado-libre-para-masificar-el-pago-con-codigo-qr-0044737

[6] It is about the application of technology for the optimization of compliance work and risk management of companies.

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Alejandra Huachaca
Bachelor of Law from the Universidad del Pacífico (UP). He currently works in the Vodanovic Legal study, expert in financial law issues. He has studied abroad at the Institut d'études politiques de Paris (Sciences Po). Former member of the Journal of Law FORSETI. He specializes in Financial Regulation and Fintech.

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