The Fintech boom and its development in El Salvador
The growing technological development has had an impact on the structure and the form the financial sector operates, accelerating its evolution towards a more automated and accessible ecosystem with immediate responses for its users. The term FinTech, an acronym for the words “Financial Technology”, is defined by the Financial Stability Board as “financial innovation enabled by technology, that could give rise to new business models, applications, processes or products with an associated material effect on the financial markets”.
After the changes that the world has suffered because of the Covid-19 pandemic, interest in the Fintech sector has increased on the part of service providers, government entities, conventional financial institutions, private entities and the general public; the foregoing as a result of the benefits and opportunities that this sector offers. In Latin America, especially in countries such as Mexico and Brazil, there has been a significant development both in regulation (legal framework) and in the implementation of these new mechanisms, offering opportunities to increase financial inclusion in their jurisdictions.
Among the most common Fintech uses, we can mention payment systems, insurance, investment advice, clearing and settlement of securities and alternative financing platforms. Considering the nature of said activities/transactions and the fact that in some countries these activities are regulated, different positions have been established regarding the form of issuing the regulatory framework applicable to the Fintech sector. The foregoing has proven to be a key point to ensure the correct development, giving security to these operations and their participants.
In El Salvador, there has been an increase in the activity of the Fintech ecosystem, mainly since the entry into force of the Bitcoin Law and its respective regulations. The foregoing has put El Salvador in the eye of the Fintech world, profiling it as a friendly country for the establishment of operations of companies that develop in this sector.
Considering the above and in view of the experiences of other jurisdictions, it is of the utmost importance to continue progressing to achieve a good development of the Fintech ecosystem in our country, based mainly on:
- Education: We consider it essential to carry out educational and information work for the population in general regarding this type of service, its benefits and efficiencies, the opportunities to consider, form of operation, risks, among others; so that people can take advantage of their benefits, make informed decisions, mitigate risks, always maintaining care and protection if the consumers rights in these operations.
- Regulation: The Fintech operation, being mainly based on technology, differs substantially from the conventional financial sector, having the advantage that it can also coexist or go hand in hand; however, it would not be ideal to try to regulate this sector using the conventional regulatory framework. Furthermore, considering how avant-garde this topic is, it becomes important to establish clear and transparent rules that facilitate the development of these services, offering consumers a minimum standard of security in their operations. In simple terms, this regulation should: i. Provide Incentives, ii. Protect consumers and iii. Support competition among industry participants.
In conclusion, Fintech is a disruptive ecosystem that is accelerating the evolution of the financial system as we know it and offering opportunities thanks to current technological development, which previously did not exist.