Chile fintech law expected to trigger substantial market changes

After approval of the fintech law in late October, crypto assets will surge and Chile’s financial market will become more dynamic, according to experts.

"The initial impact is greater competition in the financial system, which will automatically translate into better service and lower rates for people and companies, so it will deepen because it is already happening in the industry," Ángel Sierra, the head of fintech association FinteChile, told BNamericas.

The law lowers entry barriers for technology companies, while creating an open finance system along with a framework to regulate technology-based financial services, such as intermediation and custody operations, provision of transaction platforms and advice on financial instruments. It also regulates providers of payment initiation services.

“Obviously, this law will bring greater dynamism and competition in the financial market, mainly with open banking, which generates the incorporation of new players, new technologies and a flow of customer information that will allow them to make better financial decisions and provide more options of access to financial products,” Francisco Barreda, a partner at Barreda Legal Tech, told BNamericas.

In particular, the incorporation of new actors such as information providers, data-based service providers and payment initiation service companies is expected.

More investments and rising exports are also expected. "The opportunity is very big," Sierra said, adding that about 400 fintechs could operate in the country in two years. Currently, about 260 operate in Latin America.

"Today we already see a very important dynamic of expansion of companies toward the Pacific Alliance, specifically, Mexico, Colombia, Peru, so we envision that this is going to deepen," said Sierra.

Financial inclusion will also advance as new players will need to identify segments to serve. "Banks and fintechs are forced to go to underserved segments, and this automatically begins to turn into financial inclusion," Sierra added.

IMPACT

“Users will be able to observe a decrease in prices in financial products and services, the creation of customized products according to their needs, the attraction of new technological players, optional transaction methods, among others,” Mauricio Fernández, director of operations for the Americas at banking software provider BPC, told BNamericas.

Barreda, meanwhile, mentioned that the regulation by the financial market commission "is a guarantee for end customers and for the market in general."

OPEN BANKING

Chile has experience with unregulated open finance, but the new legislation will provide greater confidence and further push the adoption of open banking.

"Although some banks have been preparing for the arrival of open banking, the truth is that in general the response capacity of conventional banking is slower and more responsive to the development of new technologies," said Barreda, who predicts a substantial change of the financial market.

"Financial institutions have made investments in technology, but there are still great challenges, especially for banks that have legacy and siloed payment infrastructures," Fernández added.

He said banks have the opportunity to invest in technology to innovate and offer better services. “We cannot forget that open finance requires a much more rigorous use of people’s data. Strengthening security in transactions, preventing fraud and identity theft is extremely important so that there is trust and less friction with end customers.”

CRYPTO ASSETS

“The recognition of certain crypto assets as a means of payment, added to the technology behind the transactional channels of this asset class, will mean that payment companies linked to cryptos can compete on an equal footing with the big players behind online payments,” Barreda said.

This impact could be felt even before enactment. BCI, one of Chile’s largest financial institutions, announced that the main cryptocurrency exchange Buda could open a current account with the bank.