This document summarizes the opportunities and challenges of the FinTech sector. It describes what FinTech is and the major trends, including the emergence of firms providing crowdfunding, virtual assets, and electronic payments. Mexico has over 2,000 FinTech firms concentrated in payments, lending, and markets. The FinTech sector benefits financial inclusion but also poses risks like money laundering that require regulation. Mexico passed a FinTech law in 2018 to regulate crowdfunding, electronic payments, and virtual assets entities while promoting innovation through a regulatory sandbox.

1. Opportunities and challenges
of the FinTech sector
April 2018

2. The provision of financial products and services through new business models, based on technological
innovations.
What are Financial Technologies?
RegTech Robo-
advisor
Artificial
Intelligence
Block-
chain
Collaborative
economics
SupTech
Any application or platform that makes
regulatory compliance more efficient,
through automatized processes and at
lower costs (e.g. AML/CFT).
Applications that combine digital
interfaces and algorithms, with a
set of capabilities that range from
automatic financial advice up to
personalized portfolio
management.
A set of rules that use historical
information in an iterative
manner in order to solve problems
and improve automatically
without human intervention (e.g.
credit scoring models).
FinTech applications used
by supervisory authorities
(e.g. to verify regulatory
compliance).
Platforms that connect
peers without
intermediaries
(e.g. crowdfunding).
Machine
learning
Computer systems able
to perform tasks that
would normally require
human intelligence to
be completed (e.g. fraud
detection).
A decentralized, open and safe distributed digital ledger
that is used to log and update transactions in real time
(e.g. uses: bitcoin, diamonds and real state).
2
Major trends on financial technology:

3. Technological innovation has resulted in the emergence of different types of FinTech firms
FinTech Firms
3
Crowdfunding
Virtual Assets
E-money (Electronic payments)
– Web pages that offer a range of projects for users to lend or invest their money (without the need of an intermediary) in exchange of interest
(for debt) or dividends (for equity).
– Due to the lack of intermediaries (which reduces costs), users get higher yields than those from traditional financial intermediaries, and
borrowers pay a lower cost for funding.
– Value representation electronically registered and used by the public as a payment method for all kinds of legal acts, and whose transfer can
only take place through electronic means.
– These are issued by private developers and are not backed by a central bank or sovereign government.
– These assets are obtained, stored and exchanged online, and they can be used to make purchases of goods and services.
– Online wallet that allows deposits by cash or debit card. It can be used to make purchases of goods and services online, as well as to transfer money
electronically to others.
– In other countries it can also be used to carry out purchases in the real world through smartphones or special devices such as bracelets or rings.
Examples:
Main
Sectors
Robo-advisors
For firms or persons
Others: technologies for the provision of financial education, savings, insurance, electronically exchanged securities, etc.
– Web pages that offer real time financial advisement (personalized or automatized) for their clients’ investments.

4. Mexico
(N°1 in Latin America)
Size of the FinTech sector
4
- No. firms: over 2,000.
- Assets: around $870 USD bn. (1.16% of the global GDP).
- Investment: from $17.8 USD bn. in 2014, to over $38 USD bn. in 2016 (+113%).
- Main Hubs:
USA: California and NY
UK France
China
India
Global-level statistics:
- Funding: over $105 USD bn.
Mexico
(June 2017)
• Active users: over 540 thousand.
• Assets: around $400 MXN mn.
• Transactions: over $17,400 MXN mn.
• Employees: over 400.
- Main firms:
− 69% of firms is under 3 years old, and 39% has
less than 10 employees.
- No. firms: 238.
FinTech firms distribution by sector
76
48
56
5
53
Financiamiento
Colectivo
Pagos electrónicos Asesoría Financiera Activos Virtuales OtrosVirtual assetsElectronic
payments
Collective financing Financial
counsel
Others

5. Fintech sector in Mexico
5
Crowdfunding
Payments and
remittances
Payments: crypto
Enterprise financial management Personal financial
management
PFM: comparison Insurance
Financial
education and
savings
Lending
Trading and markets
Lending: P2P
Enterprise technologies for
Financial Institutions
Scoring, identity and
fraud
Wealth
management

6. Ago-2010
In the last years, the FinTech has grown at an exponential rate both in Mexico and around the world.
FinTech sector growth
6
2
59
2011 2016
$150
$354,0
00
N°: 123
N°:[VAL
OR]
2012 2016
Payments volume and active accounts of PayPal
worldwide
(USD bn and million accounts)
[CELL
RANG
E]
[CELL
RANG
E]
2009 2015
[CELL
RANG
E]
[CELL
RANG
E]
2014-2T 2017-1T
2014-2T 2016-4T
$7
$343
Crowdfunding
Platforms
N°: 24,406
N°: 514
Total amount operated and active users of
PayPal Mexico
$11,253
219,606
Sept. 15-16 Sept. 16
No. users
MexicoGlobal
2017-3Q
Average price
(USD)
$ 0.07
Oct-2017 Dec 29, 2017
$ 14,845
$ 5,306
(million pesos)
Volume raised globally
(USD mn)
Number of Mexican platforms Volume of Bitcoin transactions in Mexico (through
Bitso)
and number of new users
(million pesos and no. users)
Q
QQ
Volume of total Bitcoin exchanged
globally
(USD bn)
Collective financingElectronic payments Virtual assets

7. Promotes
financial
inclusion
Fosters competition
More efficient and
less costly processes
Highly scalable
models
Reduction of
systemic risks
(TBTF)
Increases the safety
and quality of
services
… amongst others.
7
FinTech sector benefits

8. All these innovations are revolutionizing the industry,
by establishing new models and channels for the
usage and access of financial services.
However, these new technologies entail
new risks that must
be adequately assessed and regulated.
8
FinTech sector

9. risks
Main
FinTech sector risks
Money laundering & financing of terrorism.
Legal uncertainty.
Financial and systemic risks.
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Lack of consumer protection.
Technological risks.
For instance: impersonation and identity theft, information privacy and
platform or database integrity.

10. International regulatory experience
10
● Given the sustained and accelerated growth of the FinTech sector worldwide, and the inherent risks that this industry poses for the stability and integrity of financial
systems, several countries have regulated or are in the process of regulating the FinTech sector.
 In fact, this regulation has been one of the key issues in the discussion at various international forums and organizations in which Mexico participates actively,
mainly within the Financial Stability Board of the G-20 (FSB).
Collective financing:
USA, Canada, China, Spain, Italy, France, United Kingdom and New Zealand.
Virtual assets:
Certain states within USA, and Japan.
The European Union, Australia and Canada have done so focusing on fiscal issues and money
laundering.
Electronic payments:
USA, United Kingdom, the European Union, Australia, Peru, Colombia, Bolivia, Paraguay, Uruguay, Brazil and
Kenya.
Regulatory Sandbox:1
United Kingdom, Australia, USA, Singapore, Canada (Ontario), Malaysia, Thailand, Hong Kong and Indonesia.
1/ “Legal space” under which a regulated activity (that needs an authorization, registry or concession) can be carried out under a lenient regulatory framework during a limited time period.

11. Mexico’s FinTech Law
11
Prevent Money
laundering &
financing of
terrorism
Financial
innovation and
financial
inclusion
Consumer
protection
Maintain financial
stability
Promote competition
Governing
principles
34
1
25
The FinTech Law was published on March 9, 2018, in the Federal Official Gazette. This Law is based on 5 governing principles (to provide more flexibility),
and secondary regulation which will be actively updated according to the sector needs. The latter, given the inherent risks that this industry poses for
financial stability and its sustained and accelerated growth.

12. Regulated
entities
 These need to be authorized in order to carry out financing operations (debt, capital or co-ownership).
– Debt-financing entities must use at least one Credit Bureau.
 Risks disclosure regime (e.g. project selection criteria and payment indicators).
 A single project can not be funded by more than one platform.
 Guaranteeing yields is prohibited.
 Incentive alignment schemes will be imposed (e.g. skin in the game).
 Issuance, administration and redemption of electronically registered money balances are permitted to make
payments or electronic transfers.
 Operations can be carried out in Mexican pesos or virtual assets.
 These can act as money transmitters.
 They are able to commercialize, issue, or manage debit cards.
 They are not allowed to pay yields for accumulated balances.
12
Mexico’s FinTech Law
 E-money and Crowdfunding entities are able to operate with virtual assets approved by the Central Bank
of Mexico.
 The Central Bank of Mexico will determine which virtual assets may be used, as well as their respective
conditions and restrictions.
 Any institutions that operates with virtual assets must comply with AML/CFT regulatory framework.
Virtual
Assets
Electronic payments
entities
Crowd-
funding
entities

13. figures
Other
regulate
d
APIs (Application
programming interfaces)
● Definition: “legal space” under which a regulated activity (that needs an authorization, registry or
concession) can be carried out under a ad hoc regulatory framework during a limited time period.
 Its purpose is to support innovation.
 The launch of the product or service has to be carried out for a limited scope and number of
customers.
● Regulation:
 Temporary licenses will be granted.
 This scheme can be used by either new unauthorized firms, or established institutions (e.g.
banks).
● Definition: technological specifications used by apps to communicate with financial entities (e.g. for
information sharing, among others).
● Regulation:
 Financial entities, money transmitters, clearing houses and FinTech firms must have APIs.
 Clients consent will be necessary to share their information, either from a financial entity to a
FinTech firm or vice versa.
 Financial entities will be allowed to charge a fee for the use of their APIs (as its development is
costly). These charges will be regulated and supervised by the relevant authority.
Regulatory Sandbox
13
Mexico’s FinTech Law

14. Cooperation and dynamism in the FinTech law
14
To keep fostering this dynamic, a Group of Financial Innovation will be created as an advisory
and consultative body, to coordinate the public and private sectors in the exchange of ideas, the
promotion of the sector’s development and to plan their future regulatory framework.
 Federal Government: Central Bank of Mexico, the Ministry of Finance, the National Banking and
Securities Commission (CNBV), the National Insurance and Bonding Commission (CNSF), the
National Retirement Savings System Commission (CONSAR). Other entities may attend as guests.
 Private Sector: 7 industry-related representatives.
Permanent members:
The FinTech Law’s design had been a long and an open process that required the cooperation of
participants, from both public and private sectors.

15. Mexico’s FinTech Law
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1) Law on Credit Institutions;
2) Securities Market Law;
3) General Law of Organizations andAuxiliaryActivities of Credit;
4) Law for theTransparencyandRegulationof FinancialServices;
5) Law to Regulate Credit Information Societies;
6) Law of Protection and Defense to the User of Financial Services;
7) Law to Regulate Financial Groupings;
8) Law of the National Banking and Securities Commission;
9) Federal Law for the Prevention and Identification of Operations with Resources of Illegal Origin.
 Other existing laws were amended for the correct implementation on the FinTech Law:

16.  The FinTech Law establishes a general framework that mirrors the existing regulation on AML/CFT, and provides faculties to
the Ministry of Finance for sanctioning secondary rules that will guarantee:
 Adequate client identification (identity theft).
 Safety and privacy of information (remote account-opening regime).
 Identification of final recipients.
 Implementation of a risk-based approach AML methodology.
 Institutional capacity building so that FinTech firms can comply with the relevant AML/CFT dispositions.
 This general faculties’ regime allows the incorporation of the best practices defined by the bodies that establish international
regulations (FATF).
 Given the transnational nature of these services, it is important to have a harmonized regulation and supervision framework
for these entities.
 The second transitory article of the FinTech Law establishes that the Ministry of Finance has 6 months to
issue the AML/CFT General Rules.
16
Relevant AML/CFT regulation for the FinTech sector