Fintech thriving in CentAm but legislative support needed

With a proof of concept blockchain transfer between the US and a recipient in the Dominican Republic, the opportunity to build resilient banking systems is one some Central American countries are looking to seize.

El Salvador recently saw the launch of its first fintech product, Teip, and Bitcoin’s Lightning Network-powered Venmo, Strike, is now available too. However, not every country has been so keen and legislation is lacking.

Guatemala

There are no specific regulations for fintech companies in Guatemala. Hopes for digital legislation are increasing with Enrique Cossich, commissioner for open and electronic government appearing on local television calling for a digital government.

However, with congress focused on a battle for the constitutional court, the passing of laws has been sidelined.

Banking regulator SIB created an innovation hub to link to the local fintech community. However, the central bank ruled in 2017 that Bitcoin was not legal tender and has not moved its position.

El Salvador

According to Erick Chacón, president of the El Salvador association of fintech companies (Asafintech) there are about 35 such entities in the country. However, there is a lack of specialized incubators and accelerators, making growth chaotic.

“Mastercard and AWS have joined Asafintech as allied companies supporting the ventures. We expect the arrival of Microsoft in the next few days,” Chacón told BNamericas.

Representatives of the El Salvador legislature’s economy committee gave favorable opinions on the creation of a national digital authority. This would seek to centralize personal data protection, e-commerce, e-signatures and cybersecurity issues. 

Regulation exists on technology and electronic trade but the 2020-30 digital agenda is a roadmap for future legislation as data protection and payment systems are yet to be finalized and there are no crypto asset laws.

“The regulator is developing with the support of the IDB and the World Bank a fintech regulation, which mainly covers crowdfunding and mobile payments. They are about to share their first draft for comments from the industry,” Chacón said.

Honduras

In January, a USAID report called Regulatory Barriers in the Techno-Finance Industry in Honduras was published.

“Diverse dimensions have been identified like: legal void, regulation uncertainty, governance issues, among others,” José Rolando Vega, regulatory, research and development officer at banking and insurance watchdog CNBS told BNamericas.

The central bank’s map of fintech companies identified 24 as of January. 

Nicaragua

Nicaragua developed legislation via the central bank. Regulations for fintechs were published last September. 

How legislation passed in February that allows people on US government sanctions lists to keep using banking services affects the fintech market remains to be seen.

Costa Rica

In March, Brazilian firm EBANX started operations in Costa Rica with plans to move into El Salvador, Panama, Guatemala and the Dominican Republic.

Specifically, EBANX pointed to huge opportunities in online shopping and digital payments. The company estimates that moving into Central America could be worth US$12bn in future ecommerce sales. Costa Rica's internet penetration is above 80%, with room to grow.

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Another startup, Muscle Points wants to use artificial intelligence on customer loyalty cards with applications in the retail and banking sectors.

Although there’s not one specific law covering fintechs, there is legislation on data protection, narcotics trading and regulation of non-banking financial companies.

Panama

Panama has borrowed US$350mn from Latin American development bank CAF to finance a broad ICT expansion program.

Part of this is down to Panama’s reputation as a financial hub. Critics suggest this has been lost in recent years but a proposal from October 2020 is the basis for regulation of fintechs.

The electronic payment system law will be used by the banking regulator with a secondary proposal to cover virtual money and cryptocurrencies.

Dominican Republic

News that IDB Labs and Citibank had completed a transfer from the US to a recipient in the Dominican Republic will surely give a boost to the fintech community in the Caribbean country.

As a proof of concept this could see quicker transfers in the future, and opportunities for safer distribution to projects by aid programs or multilaterals. 

According to the association of commercial banks (ABA), there were more than 820,000 mobile transactions involving 799mn Dominican pesos (US$14mn) in February, a 16.6% year-on-year increase by value.