Fintech and Innovative Models: Are They Really Useful for Innovation?

BANKING AND FINANCE / by Miguel Gallardo Guerra

Since the enactment of the Law Regulating Financial Technology Institutions, published in the Official Gazette of the Federation on March 9, 2018 (the “Fintech Law”) in Mexico, the so-called Innovative Model—through which financial services are provided using technological tools or means, in ways different from those existing in the Mexican market at the time temporary authorization is granted under the Fintech Law (also known asthe “Sandbox”)—has been presented as a tool to drive financial innovation within a controlled supervisory environment. However, how useful has it really been for the fintech ecosystem?

The purpose of the sandbox is clear: to allow innovative business models—which do not yet fully comply with current regulations—to operate on a temporary basis under the supervision of the National Banking and Securities Commission, provided they meet certain technical, legal, and risk management requirements.

Advantages:

• It allows you to test innovative models with real customers without immediately having to comply with the entire regulatory framework.

• It promotes dialogue with authorities, fostering legal certainty regarding new financial technologies.

• Accelerate the development of products and services that comply with future regulations.
  

Challenges:

• A heavy burden of technical and legal requirements, which many newly established companies are unable to meet without specialized guidance.

• The limited duration of the authorization may hinder medium-term growth strategies.

• Slow progress in practical implementation, which has resulted in a small number of participants.
  

Despite this, the Sandbox remains a valuable tool. Rather than an immediate solution, it should be viewed as a transitional phase toward more flexible regulation, built upon supervised experience and mutual learning between innovators and regulators.   It will be important for Mexican authorities to update the Fintech Law and secondary regulations to allow for the gradual and flexible development of innovative models in Mexico, implementing a regulatory framework that is proportional and gradual in relation to the size and characteristics of each model, thereby incentivizing innovation by new companies in Mexico.  

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