How fintech and digital banking regulation could help in the Coronavirus crisis.
PRESS (translation of an article published in Abogados.com)
How fintech and digital banking regulation could help in the Coronavirus crisis
By Daniel Levi y María Shakespear (i)
I. Introduction
The current health crisis has demonstrated, as never before, the great importance that, in these times, the communication technology and, in particular, the financial technology and the electronic payments system have gained.
It is not casual that, due to the several quarantines established by countries, the close of boundaries, travel bans, and fostering of remote work or home-office, the world has already evidenced a significant increase in the use of digital services, mainly in the financial area(ii), which suggests that this phenomenon has arrived to stay (iii).
II. Concrete benefits
The benefits that the fintech and digital banking industries may generate in this context, as it already can be seen, are numerous, within which the following can be mentioned, among others:
• E-wallets and digital apps: Allow receiving and managing payments remotely (either for purchases, payment of services or taxes, or for transfers), so that people may operate from home, avoiding agglomerations in public areas, in bank branches or in-state or services agencies.(iv)
• Contactless and QR code payments: Reduce the use of “physical cash”, thus avoiding the manipulation of plastic cards, the introduction of passwords or pins, the signature of slips, as well as physical contact between people and dissemination of the virus.(v)
• Payment portals and Gateways: People may continue purchasing remotely and merchants may continue operating with non-present sales, therefore reducing the economic paralysis created by this extraordinary situation.
• Instant electronic payment systems: Save the delay of transfers, allowing people to receive on an instant basis their remunerations or sale collections, so to apply them to the urgent purchase of medicines, food or cleaning products.
• International electronic remittances: Relatives or friends of people that have remained stuck in a foreign country, due to the travel ban and closing of frontiers, may send them immediate and urgent financial help.
• Platforms of digital credit: If under reasonable rates, may financially assist small businesses or individuals that may precise discounting receivables or to finance their working capital.
• Interconnection between bank and non-bank accounts: This may speed-up the movement of money in moments where the economy and payment chains are stagnant.
• Open banking models: Could allow financial consumers to instantly compare the price of the different financial products offered by the several market players, thus protecting from abuses that used to happen in situations of necessity.
• Blockchain registries: Would permit the traceability of donations, social aid or public funds, so to verify that they get to their true beneficiaries and that they are used in accordance with the intended purpose.
III. Impact in Argentina
In Argentina, the impact of mobile or electronic solutions could be even greater, considering that a significant part of the population is still out of the financial system or is virtually disconnected from it.
In this respect, according to the “National Strategy for Financial Inclusion”, published by the end of August 2019, it is estimated that an approximate 20% of the Argentine adult population has no bank accounts or debit cards and that, within the 80% that has an account, a third ignores having it or acts as if it does not have it.(vi) In addition, it is calculated that in Argentina more than 50% of the transactions are performed with “physical cash”.(vii)
On the other hand, according to statistics of the National Agency of Communications (ENACOM), we know that in Argentina there are more mobile phone lines than persons, namely that there is a very high penetration of cellphones or smartphones.(viii) It is also known that retail electronic payments in Argentina have been raising progressively.(ix)
IV. The regulation
At the local level, we already count on several regulations that allow, foster, delimit or standardize the use of some of these tools in the financial area, which extensive and growing use has been seen along the latest days.
In this respect, during the last years, the Central Bank of Argentina (BCRA) has established an initial regulation for e-wallets or payment service providers (PSPs), has approved a standard for payments with QR code, has regulated instant electronic payments, has authorized 100%-digital banks, has permitted banking digital onboarding, has generated an interconnection between banking and virtual accounts (CVU code), has introduced reporting, protective and transparency regimes have reduced the interchange rates for cards, has regulated E-Checks, has permitted the operation in the internet cloud, has reestablished the universal free banking account, and permitted banks to invest in digital businesses, among others.(x)
In addition, the recent Communication “A” 6942 of the BCRA, issued during the current sanitary crisis, has expressly acknowledged the essential relevance of the electronic and digital systems (either banking and non-banking) to face this extraordinary situation, by determining that, during the mandatory quarantine, “it shall be kept operative the Electronic Clearing Chambers, the Electronic Mean of Payment, the ATM networks, the electronic transfer of funds, the administrators of credit and debit cards, the acquirers and processors of electronic means of payments, the payment service providers, as well as their connected providers and all other market infrastructure necessary for the regular provision of the services of financial institutions and of payment systems”.(xi)
V. The open debates
This regulatory scenario, which at first glance may look auspicious and encouraging for the development of fintech and digital banking activities in Argentina, has to awaken though in the latest months some questions about its future evolution, given the rebirth of certain discussions about the benefits that financial technology contributes and about the way to regulate its uses.
This controversy could be seen, for instance, with a recent Resolution of the Labor Ministry(xii) that prohibited the payment of remunerations in mobile or electronic devices, where the Ministry argued that these means of payment “have not generated actual advantages in the life of citizens nor in the economic activity”.(xiii)
It could also be evidenced in front of other recent regulations of the BCRA that strongly reduced interest rates for the credit card revolving(xiv) or that restricted the automatic or recurrent debit for the collection of loans(xv), or in front of the suspension of the IT promotional regime(xvi), or in front of the imposition of heavier conditions over simplified corporations(xvii).
VI. The challenges
To the extent that electronic payments and financial services based on technology acquire more volume and relevance – as it is happening today -, these unresolved debates will be less neutral in practice.(xviii)
In Europe, Asia or in neighbor countries like Brazil or Mexico(xix), in each case in its own way, they have already understood, some years ago, that a modern financial system requires of the mutual integration and cooperation of the banking sector and the non-banking technological businesses, with reasonable rules for coexistence, control, and guarantees, so to create conditions of higher innovation, competence, transparency and interoperability and, at last, to generate a better experience for the final user, who is currently the main target of protection of the law.
Perhaps this situation of necessity and urgency may inspire the different players of the local financial sector (banking and non-banking) to think together long-term policies, that may allow overcoming the divergences of the current conjuncture, and may permit that all population could enjoy, in a safe, agile and efficient way, the benefits of financial innovation and financial inclusion that the present moment is offering.
The current critical experience and the recent issuance of the Communication “A” 6942 of the BCRA that we cited above (which recognized the relevance of all the involved actors of the financial and payment systems – banking and non-banking – in this emergency situation), could be auspicious indications for that happening.
(i) Partners of the Fintech and Digital Banking Department of Beccar Varela (Argentina).
(ii) CROSMAN, Penny, “Fintechs getting a boost from Coronavirus outbreak”, published by American Banker, on March 18, 2020, in https://www.americanbanker.com/news/fintechs-getting-a-boost-from-co-ronavirus-outbreak.
(iii) MCINTOSH, Rachel, “Could the Coronavirus be a catalyst for fintech?”, published by Finance Magnates, on March 13, 2020, in https://www.financemagnates.com/cryptocurrency/news/could-the-coronavirus-
be-a-catalyst-for-fintech/; see too SKINNER, Chris, “The rush to digitalisation post-pandemic”, The Financer, March 19, 2020, in https://thefinanser.com/2020/03/the-rush-to-digitalisation-post-pandemic.html/
(iv) RISE, Eugenio, “Impuestos y pago de servicios online ‘matan’ coronavirus: cómo las fintech facilitan operaciones en cuarentena”, iProp, March 24, 2020, https://www.iproup.com/finanzas/12288-fintech-como-pagar-impuestos-y-servicios-y-evitar-coronavirus.
(v) “WHO urges switch to contactless to slow virus transmission”, published in Finextra on March 3, 2020, in https://www.finextra.com/newsarticle/35384/who-urges-switch-to-contactless-to-slow-virus-trans-mission; see too HEARING, Alice, “Cardless in the coronavirus crisis”, Financial Times, March 18, 2020, in https://www.ft.com/content/f06c27d1-409b-4636-b314-59d7940cfc52.
(vi) Resolution 17/2019 of the Ministry of Finance, dated August 30, 2019, pp. 14 and 15 of the Annex to the Resolution, published at https://www.boletinoficial.gob.ar/detalleAviso/primera/214809/20190830.
(vii) Id., pp. 23 and 24.
(viii) ENACOM, “Penetración nacional de la telefonía móvil (accesos por cada 100 habitantes)”, according to statistics as of June 2019, in https://datosabiertos.enacom.gob.ar/visualizations/29940/penetracion-nacional-de-la-telefonia-movil-accesos-por-cada-100-habitantes/.
(ix) BCRA, “Primer informe de pagos minoristas”, in http://www.bcra.gov.ar/Noticias/Informe-pagos-minoristas-012019.asp
(x) Among the most relevant regulations in this respect, we can cite, for instance, Law 27,253, which obliged merchants to accept electronic means of payment, certain new exemptions that were established for the Tax on Debit and Credits in Bank Accounts for electronic payment service providers, a sectorial agreement to reduce merchant discount rates in credit and debit card transactions, the antitrust decision to open the electronic payments market, etc.
(xi) Free translation of section 7 of the Communication, in http://www.bcra.gov.ar/Noticias/Informe-pagos-minoristas-012019.asp.
(xii) Resolution 179/2020 of the Labor Ministry, dated March 9, 2020, published in https://www.boletinofi-cial.gob.ar/detalleAviso/primera/226539/20200311
(xiii) “Bancos vs. Fintech. Derogan la opción de pagar salarios en billeteras virtuales”, La Nación, March 11, 2020, https://www.lanacion.com.ar/economia/oficial-se-derogo-resolucion-permitia-acreditar-sueldos-nid2342053.
(xiv) “Tras la pulseada con los bancos, Pesce puso techo a las tasas de las tarjetas”, El Economista, February 20, 2020, in https://www.eleconomista.com.ar/2020-02-tras-la-pulseada-con-los-bancos-pesce-puso-techo-a-las-tasas-de-las-tarjetas/
(xv) PEDOTTI, Ana Clara, “Financieras no bancarias en alerta por una normativa del Banco Central”, El Cronista, February 25, 2020, in https://www.cronista.com/finanzasmercados/Financieras-no-bancarias-en-alerta-por-una-normativa-del-Banco-Central-20200225-0036.html
(xvi) TERRILE, Sofía, “Preocupación en el sector de servicios por la modificación de la ley de economía del conocimiento”, La Nación, February 21, 2020, https://www.lanacion.com.ar/economia/preocupacion-sector-servicios-modificacion-ley-beneficia-nid2336176
(xvii) OLVEIRA, Dolores, “Interna en el Gobierno por las SAS: cuáles son las alternativas que están en danza y qué opinan los expertos”, iProp, March 2, 2020, https://www.iproup.com/innovacion/11760-interna-en-el-gobierno-por-las-sas-cuales-son-las-alternativas-que-estan-en-danza-y-que-opinan-los-expertos
(xviii) For instance, the fact that today payment of salaries can only be made in Argentina with “physical cash”, as the only legal alternative for banking deposits or banking checks, causes that a lot of workers that do not have a banking account or do not have easy access to ATMs – but have cell phones -, suffer difficulties for receiving their remuneration through other lawful manners, even if on an exceptional basis, during the quarantine.
(xix) The European PSD2 (2015), the Open API Framework of Hong Kong (2018), the Brazilian rules for Arranjos e Instituições de Pagamento (2013), the Fintech Law in Mexico (2018), are some examples.
Cómo la regulación fintech y de banca digital puede ayudar en la crisis del Coronavirus
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