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Challenges and opportunities within the Guatemalan legal framework
…The main challenge of introducing these technologies in Guatemala is the population’s lack of access to the platforms themselves…
[/vc_column_text][us_separator size=”small”][vc_column_text]ByGonzalo Menéndez González|Socio, Lexincorp Central American Law Firm
In recent months, the importance of conducting business on virtual platforms has increased. The goods and services that have been able to adapt most quickly to the conditions of social isolation, forced and voluntary confinement, are those that have not been as affected by the pandemic. This reality, whether new or not, is the one we will see prevail in our future. Within this framework, so-called FinTechs (financial technologies), which consist of new technologies that seek to improve and automate the delivery and use of financial services, are emerging as the primary vehicle for developing new lines of business.
In Guatemala, within the regulatory system that encompasses traditional financial services, limits and obstacles are a reality of the services a bank can provide, for example. These include compliance requirements to prevent money laundering, which have kept the majority of the population without access to banking services, as they are often difficult to comply with for people in areas with low state influence. Monetary transfers, which are essential family remittances, have a commission fee that impacts the recipient. And, for businesses that need investors, going to a bank to apply for a loan may require proof of profitability, which they lack due to the fact that they have not even started their projects, due to the reserve requirements imposed by these institutions.
This is where FinTechs come in. For example, they serve as payment methods (PayPal, for example), which can present a viable alternative for transferring money without having to go through an intermediary. There are also crowdfunding platforms like GoFundMe.com, where anyone with an idea can present it to the world to request funding. Investors are directly involved with the product/service/cause they are funding and have direct information on the results. This is different from the situation with deposits in savings accounts or investment funds. They not only offer new payment platforms, but also distinct economic structures independent of any country, as is the case with bitcoins, a monetary system entirely based on blockchains. These technologies also rely on Big Data analysis, which allows information to be gathered from a huge number of users to offer personalized products. In the specific case of financial services, they have focused especially on payment methods and automated investment advisors (“robo-advisors”). The market is open to professionals with analytical backgrounds such as mathematicians or statisticians.
The main challenge in introducing these technologies in Guatemala is the population’s lack of access to the platforms themselves. A computer is not readily available in the most remote parts of our country. However, in places with similar poverty conditions, such as some African countries, this obstacle has been overcome with technologies that rely on cell phone text messaging, enabling banking access for low-income populations by accepting deposits of less than a dollar (https://www.mckinsey.com/industries/financial-services/our-insights/mobile-financial-services-in-africa-winning-the-battle-for-the-customer#).
On the other hand, for consumers, the obstacle may be the lack of certainty and security, as these technologies largely fall outside the legal framework that protects users of financial systems.
The reality is that our future is moving toward greater use of virtual platforms to conduct our daily lives, and the management of financial services cannot be left behind. Traditional institutions must streamline their processes and offer their users greater freedom of transactional movements that do not require their physical presence in a branch. Users will have the opportunity to choose between the security provided by regulated institutions and the speed and convenience of non-traditional virtual platforms.
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