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FinTech Business Guide 2021/2022

07 minute read 30 mar. 2022

EY Law presents the FinTech Business Guide 2021/2022, prepared to provide information on the industry, the views of regulators, the main legal, financial and accounting aspects to develop FinTech businesses in Peru.

EY Law presents the FinTech Business Guide 2021/2022, prepared to provide information on the industry, the views of regulators, the main legal, financial and accounting aspects to develop FinTech businesses in Peru, as well as a general overview of the FinTech ecosystem in the region.

In light of the COVID-19 pandemic, the demand for digital services has increased. Various contracting channels have evolved from face-to-face processes to the adoption of digital media. Thus, by the first quarter of 2021, internet access reached 66.8 % among the Peruvian population aged 6 and over, which represents an increase of 6.5 percentage points compared to the same period in 2020.

Financial services are not immune to this change, which has led to the promotion of FinTechs. According to data from Universidad del Pacífico’s Entrepreneurship and Innovation Center (“Emprende UP”), as of September 2021, there were 171 FinTechs nationwide. Traditional financial players have also got on board. A clear indicator of FinTech industry’s great progress are new regulatory initiatives used by governments independently that can be observed throughout the region.

The COVID-19 pandemic has highlighted the great potential of FinTechs: the provision of more efficient, faster and more accessible services from anywhere at any time. The challenges have not been minor, but the results show that technological innovation in financial services is irreversible. Nowadays, 7 out of 10 people in Lima prefer 100 % digital banking products because they are easy to acquire and easy to use.

Dario Bregante

Associate Partner, EY Law

Technological and digital infrastructure

Digital transformation in financial services has come to stay. The growth of internet access in Peru, which is vital for FinTechs, is evident. In 2011, 16.4 % of Peruvian households had internet service, while in 2021, specifically in the first quarter of the year, 47.1 % of Peruvian households were connected to the Internet. On the other hand, mobile internet has increased by 4.5 % between the first quarter of 2021 and the first quarter of 2020 and is consolidated as the most used internet service in Peru, reaching 27,123,340 users in the first quarter of 2021.

According to the National Statistics and Information Institute (INEI), in 2020,

of Peruvian households had at least one family member with a cell phone.

of the Peruvian population searches the web using a cell phone, while 18.3% does it using a computer.

of the Peruvian population uses the Internet to communicate, 86.1 % uses it to look up information, and 79.2% use it for entertainment.

FinTech Peru Radar

The FinTech industry in Peru has been developing consistently.

As of September 2021, there were 171 FinTechs nationwide, which represents an approximate growth of 16 % compared to the previous year. It should be noted that, in the last 7 years, the average annual growth of the Peruvian FinTech sector has been 20 %

Dario Bregante

Associate Partner, EY Law

An important fact to highlight is the presence of women in FinTech. 45.2 % (inline figure strip) of FinTechs in Peru are led by women, thus ranking second in Latin America, according to BID and Finnovista.

Traditional actors of financial markets have not been oblivious to the development of FinTech businesses. As part of their digital transformation route, companies in the Peruvian financial system have incorporated FinTech models into their service portfolio in order to provide digital financial services in an agile and flexible manner.

As pointed out by the Superintendency of Banking, Insurance and Pension Fund Administrators (SBS), as of August 2021, companies in the financial system reported 204 new products and major changes, of which 41 % were related to the development of digital services; in 2020, the number of new products was 315, and 37 % of them were associated with the development of digital services.

The FinTech industry will continue to grow and generate complementary opportunities. Traditional financial players, for their part, will keep on driving the digital transformation process by proposing new services to their clients in digital channels and generating new opportunities to include more people.

Financial inclusion and FinTech

Financial inclusion, defined by the Central Reserve Bank of Peru (BCRP) as “the access to and use of quality financial services by all segments of the population”, is understood as a process that not only contemplates the possibility of accessing this type of services, but also the objective that all segments of the population make constant and prudent use of them, thus generating various benefits to society.

The number of virtual banking operations is a clear indicator of the growing adoption of technologies by the population. Between December 2019 and December 2020, the number of operations in virtual banking increased by more than 88 %.

No. of operations in Virtual Banking (in thousands)

For its part, the State has been promoting an articulated regulatory agenda whose objective is to facilitate the digital transformation of financial services, remove barriers, and monitor changes and trends in the market in its commitment to reduce the financial inclusion gap.

State initiatives regarding digital transformation

The government, together with the Digital Transformation and Governance Secretary’s Office, has launched the Digital Agenda for the Bicentennial, which sets out the objectives to be achieved through strategies and concrete actions in digital matters in order to implement technologies that promote competitiveness and social and economic development to improve the lives of the citizens.

Likewise, as part of the priority objectives and guidelines of the National Financial Inclusion Policy, the Congress of the Republic of Peru issued Act No. 31120, which regulates ID Accounts. These accounts are automatically and mandatorily opened at Banco de la Nación and are mainly used for savings, payments, refunds and transfers that the State may make to citizens, among others.

Views of regulators

From the point of view of the SBS, the FinTech ecosystem is wide and varied, made up of a diversity of solutions and models with great potential to transform the provision of financial services, and it must be understood considering variables such as market development, business practices and the legal and regulatory environment. In this sense, many of the FinTech-related activities already have a legal framework for their development in our country.

In the interview with the SBS for the FinTech Business Guide 2021/2022, we were told how it is that, within the framework of its mandate and attributions, it seeks to keep its regulations updated in order to contribute to the best development of digital financial services through updates of authorizations of new companies, updates of information security regulations, issuance of new regulations for the temporary performance of activities in models (Sandbox), as well as new regulatory initiatives that are being explored, and the inclusion of studies in their work agenda, such as the possibilities associated with Open Banking.
The development of new technologies applied to financial services has allowed for innovative financing and investment mechanisms to emerge, such as crowdfunding platforms. As pointed out by the SMV, these platforms especially contribute to the financing of small and micro businesses and to the implementation of ventures, and also provide an investment alternative with returns for various risk profiles.

According to the interview with the SMV, although it is true that the crowdfunding activity brings along important advantages, there are also associated risks, which are mitigated through adequate regulation and supervision schemes, without this limiting its development. In this context, the regulatory framework for the crowdfunding activity has been drawn up under the best international regulation standards, including, among others, obligations of conduct and prudential parameters applicable to its controlling companies.

The FinTech industry in the region

According to the Latam FinTech Hub, Brazil, Mexico and Colombia occupy 95 % of all investments in FinTech in Latin America for the first quarter of 2021.

Regarding the growth of the sector, Brazil, Uruguay and Mexico occupy the first 3 positions.

FinTechs are increasingly regional: The main FinTechs in Latin America are committed to expanding and consolidating their services in the region.

In Mexico, various schemes have been developed in a significant number of new and existing companies that develop innovative activities related to technology but that do not strictly fall into any of the assumptions corresponding to Financial Technology institutions and, therefore, are not regulated. They are found in various commercial fields. It becomes evident that, in the face of technological development and commercial and financial creativity, several hybrid models will emerge.
In Brazil, the number of FinTechs has increased from 474 in 2015 to 1,174 in 2021. However, there are almost 60 million unbanked people, out of a total of 210 million inhabitants, so there is still a great challenge to financially include the population.

A noteworthy role of FinTechs during the pandemic has been the support they have provided to allow people to access the grants provided by the government. In Brazil, Mercado Pago of Mercado Libre took on great relevance as it gained more than 3.5 million users since the start of the “emergency aid” granted during the pandemic. On the other hand, the Central Reserve Bank of Brazil has provided great support to the ecosystem by updating its national payment system, as FinTech companies and banks are currently using PIX (National Instant Payment System) as a tool to integrate transactions and improve competitive dynamics among Brazilian banks.
In Argentina, there is an increasing FinTech growth, with important opportunities, but also warnings and new regulations issued by the Central Reserve Bank of Argentina.

Although the digitization of payments has been increasingly implemented in Argentina, there is still a lot of room for further growth. Nowadays, about 70 % of payments are made in cash due to several factors: financial education and habits, tax burden, channel costs (with a downward trend due to the opening of the payment and transfer market 3.0), among others. In addition, there is still a large unbanked market and an unsatisfied demand for these services related to digital wallets, cards, as well as other less exploited verticals with a lot of potential, such as financial management, InsurTech, loans for both individuals and SMEs.
Colombia is among the main countries with the greatest development in the FinTech ecosystem. The country closed the first quarter of 2021 with a growth of 26 %, more than 320 companies generating around 9,300 jobs. The pandemic gave an exponential boost to this growth, mainly boosting the Credits and Digital Payments segments, with a share of 35 % and 30 %, respectively. The rise of these two segments has positively contributed to reducing the impact of the labor crisis generated by the pandemic. However, an update of the legal regulations is still necessary to support the legal processes that come along with digital contracts and services.
Chile is the country with the highest level of bank penetration in Latin America, with 74 % of population active in banking and a total of 12.4 million valid credit cards. Card payments increased by 38.4 % in volume and 9.6 % in amount in 2020. Moreover, it should be noted that during 2019 and 2020, the number of FinTech clients more than doubled and, in line with this, the country has been evaluating a Fintech bill. In terms of growth, 93 % of FinTechs intend to expand to other regions, mainly in Latin America, with Mexico being the first option for 45 % of FinTech ventures.
Panama and Central America have not escaped the health crisis, but progress in financial inclusion has accelerated thanks to simplified account processing laws in various Central American countries, where customers can open an account through online or mobile banking channels. Another regulation to highlight is the approval of the Bitcoin Act in El Salvador, which seeks to attract foreign investment committed to the growth of the Central American country through the use of bitcoins.
The digital transformation occurred in Ecuador has accelerated processes that could have taken 3 to 5 years under other circumstances. Digital payment services have gained relevance, along with the implementation of the Wallet for the interoperability of banks and commercial groups in Colombia, Peru and Argentina, as well as accounting services. However, it is still a slow transformation compared to other countries, as there are lazy negotiation processes, dependence on interactions with third parties and a poor response to cyberattacks. Notwithstanding this, the outlook may change, since a FinTech bill is currently being evaluated to incorporate important regulatory provisions, such as the definitions of technological financial entities, technological stock market services, and technological insurance services.
Uruguay is no stranger to global trends. The exponential technological development that has occurred in recent years, together with the appearance of new technologies and business models, is generating challenges and opportunities in the country's financial services industry. Currently, Uruguay is at a very good level of development in terms of FinTech industry in Latin America. The greatest milestone in the country's economic and business history occurred in June 2021 with the arrival of d-local, the first Uruguayan unicorn to be listed on the New York Stock Exchange (NYSE).

Regulación de mercados financieros y FinTech

Con la evolución de la industria financiera, también crece la necesidad de contar con una asesoría legal que entienda al sector y facilite el desarrollo de los negocios financieros.
Leer más

Technological progress and its positive consequences allow us to get ever closer to financial inclusion across the region. It is important for regulators to move at the speed of the industry to achieve more successful, reliable and faster operations. Learn in detail about the situation in Peru and other Latin American countries, as well as public policies, regulations, trends and services related to the sector, by downloading the full version of the Peru FinTech Guide 2021/2022, prepared by the Financial Regulation and FinTech team of EY Law Peru.