Open Banking Mexican style

In 2014 in the UK, at the time the Competition and Markets Authority (CMA) carried out its investigation into the retail banking market, there were around 70 million active personal current accounts (PCAs), with market penetration of around 97% of adults. Of these accounts, the CMA found that the four largest banking groups for PCAs had a combined market share of just over 70% in 2015. Open Banking in the UK therefore has its roots firmly in competition concerns.

By contrast, the Mexican banking and financial services market is characterised by a lack of consumer engagement. A 2016 report by the national regulator estimated that around 57 million Mexicans (representing close to 60% of the adult population) did not have access to a bank account, and those with access don't always use it. It has been suggested that over 90% of the population prefers to pay in cash, whilst the World Bank has reported that less than 14% of the population has access to formal savings. Against this background, it may not be obvious why lawyers from Hogan Lovells offices in London and Mexico have spent time helping Mexican regulators and industry to start the ball rolling on a Mexican version of open banking. After all, how do you legislate for access to accounts that don’t exist?

A report introduced last week in Mexico City by the inspirational Constanza Gomez Mont, founder and CEO of C Minds, a US-Mexican impact innovation agency that designs strategies for economic and social development through cross-sector collaboration and by harnessing the power of disruptive technology, tries to answer that question. The report was written jointly by C Minds, the FinTech Hub and the Open Data Institute, and commissioned by the British Embassy in Mexico under the auspices of the UK government's Prosperity Fund, which promotes growth and prosperity in developing countries. In particular, the report highlights that open banking could:

  • Help consumers to choose the right product for them in a more competitive financial sector
  • Offer innovative services to those underserved by the current system
  • Help small businesses access credit
  • Help established banks and financial institutions to expand services and reach new markets
  • Allow challenger banks and FinTechs to innovate and grow
  • Promote economic growth through new investment opportunities in the booming Mexican financial services ecosystem
  • Provide opportunity for increased economic growth through widening access to financial services for women (Mexico was ranked 81st out of 144 countries on gender equality by the World Economic Forum in 2017).

In other words, the aims are on the whole very similar to those behind the establishment of open banking in the UK, despite the very different market conditions: different problems, same solution. It is this incredible scope for promoting innovation and change that we find exciting about the introduction of open banking in Mexico, and why we were delighted to be asked to present our thoughts on comparisons with the UK (and the lessons we've learned) to the inaugural meeting of the working group that is tasked with delivering on this promise.

If anyone needs proof of the scale of Mexico's ambition, we recommend taking a look at the new Fintech Law (Ley FinTech, published in the Mexican Federal Official Gazette on 9 March 2018), where even a quick glance will reveal that Open Banking is just a very small part of the package of reforms aimed at modernising the industry and addressing financial exclusion. To this end, the law introduces provisions regulating crowdfunding, crypto-currency transactions and digital payment institutions, and introduces a regulatory sandbox, as well as requiring open access not just for banking but for all financial services.

Our week in Mexico City, connecting and discussing with regulators and industry, showed that there is a great deal of optimism and energy around Open Banking in the country. Promisingly, there is already a high level of engagement not only amongst FinTechs but also amongst the larger banks, some of whom have already designed and launched their first open APIs. There is, however, still a great deal of work to be done in terms of raising awareness and promoting engagement with smaller players and potential investors, as well as with consumers. In common with all open banking projects, Mexico's implementation will need to overcome the challenges of creating common technical standards (not currently required in the law but probably essential to promoting widespread engagement and efficiency), designing an appropriate governance structure that facilitates implementation without becoming an obstacle itself, and the need to ensure sufficient flexibility in the secondary legislation without losing clarity of intent. On top of this, Mexico has its own challenges such as addressing and overcoming a significant digital and financial literacy divide.

One of our core recommendations to the Mexican regulators was to get a strong message out early to consumers in order to build awareness and confidence because, without that, the open banking revolution may be little more than a minor uprising. That would be a huge shame, as the potential this project has – not only to re-shape the economy but also to drive beneficial change at all levels of society – is incredibly exciting.

As a result of these changes, the next couple of years therefore look set to be pivotal both for financial services and for the wider Mexican economy. We will be watching with great interest – and with fingers crossed that open banking will achieve at least some of what it promises in terms of addressing financial exclusion and gender inequality, as well as paving the way for the wider economic benefits to be realised.

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