29 de Septiembre del 2020
New Regulation by CBCR opens Window for fintechs Alliances
San Salvador, 09-29-2020
Author: M.Sc. Willy Carvajal
Specialist in Law & Technology
This past September 24th, the Central Bank of Costa Rica (CBCR) published the Regulation for the payment card system. It may be said that this regulation is a result of Legislation No. 9831: “Legislation for Maximum Commissions of the Card System”. However, a series of technical aspects and regulations for market payments, which go beyond fixing maximum commissions in acquisitions or exchanges, have been included.
In the first place, a good part of the new regulation revolves around the concept of interoperability, known as “the capacity of two or more systems or components to interchange and use information with the purpose of processing and liquidation of transactions with payment devices” including deposits, withdraws and payments.
Said payment devices can take form as debit cards, electronic wallets, smart phones, keychains, bracelets, tablets, wrist watched, amongst other (article 2). Moreover, as of July 2021, these devices must incorporate the EMV (Europay-Mastercard-Visa) technology and standards which allows validation via an online PIN o biometric identification.
While the interoperability in POS and automatic cashiers will be in force until January 2023, the regulation states that said apparatuses must accept and process transactions performed via EMV credit cards from any issuer, including the possibility of cash withdrawals, and, ideally, the ATM networks will be able to accept non-contact technology.
All providers of these services, domiciled or not in Costa Rica and who operate in the national market must register before the CBCR and comply with their guidelines.
Opportunities for Fintechs
This regulation opens an important window of opportunities for Fintechs companies and their alliances with traditional financial entities. According to the Observatory of Financial Digitalization (OFD) FUNCAS-KPMG (2019), 48% of fintechs are complementary to banks; 32% are collaborative, and only 20% are direct competitors.
In this sense, we have observed the international experience of Banking-as-a-Service (BaaS) methodologies, in which banking entities communicate and work with fintechs through infrastructure built over APIs (application program interface). This allows banks to maintain and administer services and core banking technology exclusively while they offer new services to the final consumer in a faster and more efficient manner.
Some of the areas in which fintechs can collaborate with banks are security and fraud prevention, transaction monitoring, client authentication, payment transaction information capture, improvement in the user experience, process simplification, just to name a few. It is important to remember that 1 in 4 startups in Latin America are fintechs.
In the case of the new regulation, article 26 establishes that international companies or national proprietors of credit card brands, must allow any provider whose services are registered with the CBCR, to act as purchaser of said brand in the national marketplace, as long as they comply with the technical standards. “The process of adhesion to the brand system must allow for equal conditions, be expedient and transparent, and avoid conditions of exclusivity.”
In order to comply with the new regulation, the financial and banking entities can rely on companies with a financial-technological base, and at the same time, there is pressure in the marketplace to foster financial service and product innovation. While there is still need for a more solid regulatory frame for the correct development of these companies, including regulatory sandboxes, this norm is an important step in that direction, allowing equitable competition conditions.
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