QUITO — As in many countries, in Ecuador technology advances faster than laws, and that becomes a limitation for innovation and entrepreneurship. That happens to Ecuadorian fintech companies, which have plenty of creativity and talent, but lack support. Although they have grown rapidly (77% between 2017 and 2021) they need proper regulation -which is being drafted- and sufficient incentives.
ECUADOR, A RISING MARKET
Fintech companies have found a business opportunity by offering services such as digital payments and loans against the high rates of financial exclusion and the greater digitization of the population in Latin American countries. Your goal is incorporate those who currently carry out operations in cashthrough the use of technologies such as cell phones and the Internet.
According to the IMF, the financial inclusion carried out by fintech companies, through the use of mobile phones, can boost a country’s annual economic growth by up to 2.2 percentage points. But they are also strategic allies of traditional banking, to offer financial services (as a whole), especially for the vulnerable population.
In the region, Brazil, Uruguay, Mexico and Colombia They lead the market for companies that offer financial services focused on technology or with a high technological component. In accordance with a study by the Central Bank of Ecuadorof the 12 existing segments, the main services that fintech companies in Latin America are dedicated to are digital payments (28%), loans (21%) y business finance management (16%).
and although Ecuador has not been indifferent to this process, yet it is a nascent market. By 2021, according to BuenTrip Hub’s Radar Tech Startup 13.0, there are 55 fintechs in the country, 77% than in 2017, but relatively few compared to the countries mentioned above. Most are focused on business financial management services (38%), digital payments (15%) y crowdfunding the collaborative fund (11%).
WHAT DO YOU NEED TO EXPAND?
What do Ecuadorian fintechs need to expand? As pointed out by the Financial Stability Board (FSB) and the IMF itself, the rapid expansion of fintech companies requires adequate supervision and regulation by governments, “Otherwise, it could lead to various liquidity, operational, cyber and consumer data vulnerability risks.”
In addition, by not having control and registration of fintech companies by control entities and central banks, their activities could have an impact on financial stability, monetary policy, payment systems and statistics. Hence, it is important to have a regulation that allows know the number of fintech companies, transaction amounts, company activities, customers, among others.
THIS IS THE LAW IN ECUADOR
In Ecuador, the Organic Law Amending Various Laws for the Development, Regulation and Control of Financial and Technological Services (Fintech Law) is under preparation. At the moment, the project has the report for the first debate in the National Assembly.
The idea of the text is to give legal security to financial technology organizations operating in the country and to foreign companies seeking to establish and invest in Ecuador. In addition, it seeks that users access these services and that their data is protected.
Although the initiative is positive, It is unknown when the Legislature will deal with it and if it will be approved soon. For Juan Diego Vazquez, co-founder of PayPhonean Ecuadorian payment platform that allows you to collect and pay with credit and debit cards through a smartphone and that began its work in 2014, This is an important step to advance in the expansion of fintech in the country, but not the only one.
For Vazquez, the law must, in the first place, eliminate any void that generates fear around fintech. “If there is an unknown term, it will cause fear and this will cause them to put friction instead of controls,” he explains to Bloomberg Line.
THE USER, THE BIGGEST CHALLENGE FOR FINTECH
What do you mean by fear? To what the Ecuadorian still prefers cash, since 36.5% of the population uses it as their main means of payment, followed by credit cards. In other words, bankarization and even more digital banking are still in process.
That’s why the path of fintech in Ecuador has been made by hand. PayPhone, for example, has had to overcome many barriers to become sustainable. Since the law is still being worked out in the country, companies that are dedicated to technological financial services are currently registered as ancillary financial services to be able to work, but they must also comply with a number of processes that would be simpler if there were already regulations.
But they also have to fight with the distrust of the Ecuadorian who still do not feel safe in the face of technological innovations. “What all fintech companies want is for cash to be reduced and to create easy, safe and simple ecosystems… a simplification of money or of the payment experience for users,” explains Vazquez, for whom the main thing today is that “The user knows and truststhat people and businesses can experience this ease and financial simplicity”.
If fears collapse, fintech will have half the road mapped out, but they will also help solve a serious problem that persists in the country: the lack of financial inclusion. “Fintech should not be seen as a threat, but as a tool for the country, to motivate financial inclusion,” adds the PayPhone executive.
The fintech law would make the road even easier, but that is not all. Vazquez considers that, in general, startups and new companies that are trying to innovate need more support from the state. “Let’s focus today on the fintech law, but as a country we need to review all the regulations for startups and businesses that need to be promoted.”
THE ECUADORIAN LANDSCAPE
- In Ecuador, although there is no specific law for fintech, there are regulatory initiatives such as the Organic Law of Entrepreneurship and Innovation. This regulation establishes the regulatory framework for fintech companies that provide and enable technological financial services of crowdfunding or collaborative funds.
- By geographical distribution, it was identified that 56% (31) of Ecuadorian fintech companies are located in Quito24% (13) in Guayaquil, 7% (4) in Cuenca, 5% (3) of startups fintech are found in foreign cities founded by Ecuadorians and the rest of the cities represent 8%.
- exist 546 jobs generated by the startups fintech in Ecuador, three fintech startups have received investment, 13 have internationalized, and 8 startups fintech have women as founders.
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