MEXICO: An Introduction to Fintech Legal

It is undeniable that the fintech sector is continuously evolving, adapting to changes and incorporating new technologies to improve the user experience. This growth is not risk-free –  it is especially prone to regulatory risks, since the growth is faster than the regulatory updates.

According to BCG’s report “Reimagining the Future of Finance”, it is estimated that the fintech sector, currently representing only 2% of global financial services revenue, will reach USD1.5 trillion in annual revenues by 2030, which will constitute almost 25% of all bank valuations worldwide.

Although the fintech sector in Mexico is at an early stage of development, it is the most dynamic in Latin America, having 773 fintech entities registered at the beginning of 2024, which are of great relevance in the market and responsible for generating many jobs. It is estimated that by 2027 there will be around 86 million registered users of fintech services.

New Technologies and Trends

The ecosystem of fintech electronic payment entities in Mexico continues to expand and evolve and by 2025, the electronic payment sector is expected to see significant advances in several areas, such as AI, tokenisation, blockchain and crypto-assets, among others. These technologies are enabling the creation of more sophisticated and secure financial products. Some relevant aspects of the new technologies that are being incorporated and becoming more relevant in the fintech sector are discussed below.

• AI contributes to improving transaction security, detecting fraud and personalising the payment experience for users.
• Tokenisation has advantages such as transparency, security and cost reduction in the transactional area, since it creates a digital representation of a real asset (tangible or intangible) or virtual asset through a token in a blockchain network or a similar system, which allows the secure transaction of such asset on a digital platform.
• The trend in crypto-assets consists of users carrying out transactions using bitcoin and other cryptocurrencies. Financial institutions and investment funds are increasingly involved in the cryptocurrencies field, either through direct investment in digital assets or through cryptocurrency platforms. Likewise, companies are starting to accept cryptocurrencies as a form of payment and are exploring how to integrate them into their transactions. There has been an increase in efforts to educate the public about cryptocurrencies and blockchain technology, which is helping to make them more mainstream, and reduce fear and uncertainty. However, the high volatility of cryptocurrencies remains a significant challenge to their adoption in the financial markets.

These trends are shaping an exciting future for the fintech sector, but also present significant challenges.

Regulation

Mexico is an attractive country for the development of fintech entities and, as mentioned above, the most dynamic in this sector in Latin America, having a robust legal framework, as well as the backing of the National Commission for the Defense of the Financial Services Users (“CONDUSEF”) which deals with controversial cases, protecting the users of fintech services. Additionally, the National Banking and Securities Commission (“CNBV”) and the Mexican central bank, Banxico, are in charge of authorising, supervising and regulating fintech entities, ensuring stability, security, proper operation and the healthy development of this sector.

Fintech entities must comply with a series of regulatory requirements, including anti-money laundering regulations, user protection and risk management standards.

The CNBV and Banxico conduct ongoing reviews of fintech entities to ensure that: (i) they have the corresponding authorisations if they are operating or offering a service considered as regulated under Mexican law; and (ii) the entities that already have authorisation issued by the CNBV, operate safely and comply with the laws and regulations. These reviews include auditing, inspecting and reviewing the operating practices of the mentioned entities. Both agencies have shown interest in constantly modifying the applicable regulations as the fintech sector evolves, without compromising financial stability and user protection. Projects are under way to improve financial infrastructure and foster collaboration between traditional and fintech entities. Banxico, for example, has launched initiatives such as the Interbank Electronic Payments System (“SPEI”) to facilitate digital transactions, and the CNBV is continuously working to establish appropriate conditions to promote the incorporation of new technologies such as AI into the regulatory framework.

It is also important to mention that the CNBV is one of the strictest and most rigorous authorities in Mexico, which undoubtedly generates confidence among users and investors regarding regulatory compliance.

Challenges and Risks

ESG criteria

In recent years, the implementation of ESG criteria within companies has played an increasingly important role, not only because it allows companies to have a constant evaluation of their environmental, social and governance practices, but also because it allows them to identify areas of opportunity to improve their impact in ESG areas.

Due to the accelerated growth within the fintech sector, and the inevitable competition between fintech entities, such entities have been forced to innovate and face new challenges. Thus, during 2024 and as indicated by current trends for the coming years, ESG practices represent a great attraction for investors. It has been demonstrated that companies are currently much more demanding that their suppliers and service providers have ESG policies, and that this is an essential aspect in determining the engagement or rendering of a service. Consequently, companies are willing to pay a higher cost but with a guarantee of compliance with ESG standards.

As a result of the above, in 2025 fintech entities should focus on implementing ESG practices that will allow them to improve their environmental impact and, at the same time, give them a competitive advantage within the sector.

Financial inclusion

An important challenge for fintech entities is to ensure that the new technologies that will be implemented in the coming years are accessible to everybody, and guarantee that regardless of the entity or its location, people can have access to the Open Finance infrastructure.

Personal data protection and cybercrime

As technology advances, cybersecurity is an aspect that is gaining and will continue to gain relevance in the fintech sector in Mexico. In a digital environment, it is increasingly common to receive threats that put financial and personal information at risk, such as financial frauds like phishing, identity theft and scams.

It is therefore of extreme importance that fintech entities have security measures in place and that these are constantly reviewed, allowing such entities to ensure protection of the identity and confidentiality of financial and personal data of their users. Having defined protocols for how fintech entities should act in the case of an incident that involves a significant risk of a data protection breach, is of the outmost importance.

Tax structure and compliance

We have observed that due to the rate at which fintech entities grow, they tend to regard tax structure as a non-priority issue, which is attended to when a problem arises with the tax authorities. However, such tax structure and compliance must be a priority from day one, more so in Mexico given the current tax policies.

Current political outlook

Finally, it is undeniable that Mexico is facing uncertainty due to the current political panorama, resulting from the change of government and general international conditions, which represent an important challenge for the country. It will be necessary to find a way to generate certainty and security both for users to start and/or continue using the services offered by fintech entities, as well as for investors and entrepreneurs, both national and international, who intend to get involved in this sector. Likewise, it will be important to pay special attention to the policies to be implemented by the new government and see how they affect or benefit the fintech sector.

In conclusion, we strongly consider that fintech entities are not just a transitory trend, but will last for the future and will continue to transform the financial landscape in the years to come. Therefore, it is essential that fintech entities pay close attention to regulatory updates and reforms that are implemented, and are prepared to face the risks and challenges that will surely be a constant over time due to ongoing technological advances.