The slowdown of financial innovation at the Banking Convention

I attended the Banking Convention organized by Asobancaria (Colombian Banking and Financial Institutions Association) for the first time. I've always been more involved in technology development and the fintech business rather than being in direct contact with how power operates in Colombia, but it was undeniable that this convention was a true gauge of the tension in the country.

Vicky Dávila attacked the government and received a lengthy ovation from the financial sector; leaders of the political opposition expressed deep concern over the lack of confidence-building messages from the government; members of Congress showcased their disagreements live; the Finance Minister showed that the country will see very limited growth despite the projections; the financial sector demonstrated how tight last year ended and highlighted the risks ahead amid an unstable scenario; President Gustavo Petro emphasized his need for lower interest rates to move forward, and many other things emerged from the convention.

In short, we are in a tough spot, there is no question about that.

However, the convention ended on a conciliatory note amidst all the turmoil: a message of harmony between banks and the government during economically challenging times for the country. A sort of pact where they agreed to treat each other "gently" for the sake of Colombia's fiscal future and to find solutions together.

While this unfolds, the fintech industry is solely focused on how to advance on regulatory matters to create more room for innovative industries.

The government and the fintech industry are progressing on three regulatory changes that could completely transform the financial sector: the implementation of open banking, the establishment of an instant payment system, and the regulation of blockchain technology.

The Instant Payment System is a part of Petro’s National Development Plan and essentially aims to create technological rails that serve the population, enabling instant payments between entities. It removes barriers to eliminate cash transactions as much as possible. In Brazil, with PIX, cash has almost disappeared, and the same happened in India with UPI.

Mandatory open banking was approved in the National Development Plan, and the Financial Superintendency is now regulating it, claiming it as their flagship project, but the exact mechanics are yet to be revealed. What is it about? It’s very simple: the owners of financial data are the users, and financial institutions, banks, and fintechs must compete for customers by offering the best rates and opportunities.

The regulation of blockchain technology aims to ensure that the rules imposed on the crypto industry are neutral and do not affect an industry that is not financial in nature and does not require supervision. However, there has been no political will to achieve this. Congress struck down the bill that had advanced to the third debate last year, and neither the Superintendency, the Ministry of Finance, nor the Central Bank have taken steps forward. We are practically back at square one, even though the project idea is already solidified. Rules are needed, but they must be neutral for the industry.

These three advances essentially aim to create room for non-traditional players because they foster competition and strengthen the primary goal of fintechs: enabling more people to access financial services and closing the gaps in that regard.

The problem is that these topics cause anxiety in more traditional sectors and could profoundly change the financial sector: traditional entities could lose customers. This is because neobanks or other fintechs may offer better services to users, because instant payments in a public system could take away business from existing rails like ACH, Credibanco, Redeban, or Transfiya, which are all managed by traditional banks, or because blockchain technology could completely revolutionize a country’s monetary policy.

Although these are complex topics, regulatory pressure, along with Colombia's technological and access needs, has put these matters on the government’s agenda. The government has even shown openness to achieving regulatory changes, provided they are presented as alternatives for a highly informal and underbanked population. Fintechs carry a very powerful social component.

But in a country on edge, where the government and traditional banks are sending a message of a pact for economic recovery, there doesn't seem to be room for innovation or substantial progress on these matters. It’s not that it’s an easy task, nor is it about harming traditional banks, but in other places, it’s been innovation that has forced traditional systems, through regulatory channels, to modernize and adapt.

I hope I’m wrong, and that the government moves these topics forward and views them as an opportunity for economic recovery. Sometimes those of us who work in technology don’t fully grasp the pace of politics or policymakers, but we do believe we know where we need to go as a financial industry.

Bonus track. The only beacon of hope is the draft decree recently issued by the Financial Regulation Unit on the Instant Payment System, which came as a surprise to traditional banks because, in a few words, it forces them to join the system and promote it. Surely, the banks will oppose it; it remains to be seen whether they do so publicly or privately.

‍