articles Ratings /ratings/en/research/articles/190213-the-future-of-banking-new-rules-foster-fintech-at-chile-s-banking-industry-10875292 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List
COMMENTS

The Future Of Banking: New Rules Foster FinTech At Chile’s Banking Industry

COMMENTS

Servicer Evaluation Spotlight Report™: Somebody's Watching Me--The Importance Of Quality Call Monitoring In Residential Mortgage Servicing

COMMENTS

COVID-19 Impact: Key Takeaways From Our Articles

COMMENTS

U.K. Banks’ Creditworthiness Will Be Tested As Fiscal Support Ebbs

Take Notes: The German Covered Bond Market


The Future Of Banking: New Rules Foster FinTech At Chile’s Banking Industry

FinTech companies, with simple products, lower banking service costs, but also a trendy marketing campaign aimed at a younger crowd, have the potential to reshape the banking industry globally. The FinTech business is shaking the pillars of traditional banking, but the increasing competition from digital players can also provide advantages to banks through partnerships with FinTech startups, which could lead to lesser costs, low redundancy, solid technical know-how, and increased efficiency. This could help reduce the cost of credit for the system as a whole. Moreover, the FinTech business has the potential to foster financial inclusion. In contrast, an unregulated development of FinTech businesses could bring additional risks, namely governance and process controls, cyber risks, third-party reliance, contagion, and pro-cyclicality.

Chile is not an exception to this trend. On February 11, the Chilean Commission for the Financial Market (CMF; the financial markets regulator) published a paper titled "General Guidelines For The Regulation Of Crowdfunding And FinTech". Although regulations are currently at an early stage, we view their rollout as a positive development in order to reduce potential risks that could arise if the digital players suddenly begin jeopardizing the financial system as a whole.

S&P Global Ratings currently views FinTech as the new competitor on the block, but not yet a game changer for the banking system. However, we believe it will increasingly become a force to be reckoned with, and the impact will depend not only on how banks respond to the new competition and the particular vulnerability of their business models, but also on the response by authorities and regulators to FinTech's growing clout.

What Can FinTech Offer To The Sector?

FinTech holds many potential benefits including bolstering financial inclusion through increasing access to finance among lower income individuals and small businesses. Small- and medium-size enterprises (SMEs) are crucial for economic growth and job creation, but securing the financing that they need to survive and prosper can often be difficult. FinTech can offer solutions that are efficient and effective at lower scale, which could benefit SMEs and provide them with greater access to a wider range of funding options. Innovative FinTech products can be better tailored to their needs. FinTech is allowing banking customers to conduct transactions through their mobile devices, improving efficiency and the customer experience. Data aggregators can synchronize financial data from various sources and integrate bank accounts from different financial institutions, reducing the costs for business. By reducing information asymmetry in the marketplace, FinTech is not only improving the ability to match investors, lenders, and borrowers, but providing a more level playing field that allows retail investors to have greater participation in the market. FinTech intermediaries could also help bring additional liquidity to the market.

The New Regulations Are Step In the Right Direction

The proposed framework follows the discussion and analysis that CMF carried out in 2018 with market participants. Authorities considered not only the experiences of other Latin American banking industries such as those in Argentina, Brazil, and Mexico, but also of peers in Australia, EU, and the U.S., as well as the principles and recommendations issued by international organizations.

The CMF expects that the publication of this report will serve as a basis for the formulation of comments and additional clarifications of guidelines for FinTech in the banking sector. This will allow the CMF to design the regulatory framework that encourages innovation, competition, and greater participation in the financial system, while protecting investors and users from potential risks. The regulation also intends to protect integrity and stability of the financial system as a whole, without creating unnecessary obstacles to the development of the sector.

The scope of financial services covered by the proposal are:

  • Collective financing platforms;
  • Financial advisors;
  • Channels providers for processing of purchase orders or payments;
  • Alternative transaction systems; and
  • Custodians of financial instruments.

The proposal is based on the following pillars:

1. Proportionality: establish differentiated and proportional requirements according to the risks inherent to the particular activities carried out by each entity.

2. Neutrality: the new framework doesn't create regulatory asymmetries between those entities that are intensive in the use of technologies, as opposed to those that are not, or that are regulated based on the use of a particular technology.

3. Integrality: the regulation applicable to crowdfunding not only addresses aspects of the activity itself, but also regulates services and related aspects, in order to allow companies to generate economies of scale or scope, and improve their competitiveness at the local and regional level.

4. Flexibility: allow the coexistence of various business models and that these can change over time without the need to constantly adjust this regulation.

5. Modularity: recognize that there may be service providers that only perform a component of the value chain, which is why the requirements that the entity have a direct relationship with the offered component.

Regulation Will Help Chile Catch Up With Regional Peers In Terms Of The FinTech Growth Rate

According to Finnovista's and BID's partnership in investigating FinTech's evolution in Latin America, 84 of such entities are currently operating in Chile, representing only 7% of the region's total enterprises. The front runners are Brazil (33%) and México (23%). Moreover, the growth pace of FinTech in Chile is not comparable with those in the larger economies. Although we do see the favorable trend in this segment, Chile is one of the few cases with less than 50% annual growth of FinTech businesses. The reason could be the lack of regulatory framework (until now) that held investments amid operational uncertainties, high barriers to entry, and greater access to financial services in Chile than among regional peers.

The FinTech business in Chile is distributed as follows: Around 30% of entities are offering payment and remittances services, followed by enterprise financial management (16%), crowdfunding (14%), lending (9%) and the remainder in multiple businesses (personal financial management, scoring, fraud identification, wealth management, insurance, among others).

Chart 1

image

Could FinTech Pose A Threat To Traditional Banking In Chile?

The unique nature of banking may offer some protection against the digital players. The business is tightly regulated, and the barriers to entry are high. In addition, customers typically build a long-term relationship with their banks, with whom they entrust their money and personal information. Major concerns among bank clients are over payment transfers, data confidentiality, and controls to avoid fraud. They don't yet perceive banking services as a commodity, like other businesses, so we expect traditional banking entities to remain the core players in the Chilean financial system.

But this can change. Customers have yet to start changing banks frequently, because clients don't view lenders as easily replaceable as digital providers. However, we believe a shift could occur in the medium term as the new legal framework eases banking mobility while the younger generation is more open to the change. With that in mind, FinTechs' strategy is to provide high-quality services at a competitive cost. But given that they don't typically offer the full range of traditional banking products and services, they need to convince clients of the value of their currently narrow range of offerings. This is why, in our view, the FinTech business has not yet expanded as quickly as its potential may suggest.

However, banks are aware of the danger of a sudden change, given technological "disruptions" in other industries. Banks are mindful that the future of banking is on the digital front, and will definitely influence the future of Chilean's large, traditional banks. All of them are looking to steadily rein in high costs by reducing manual processes, centralizing back office operations, increasing the number of standard operations carried out online or via mobile devices, and widening the use of their branches for higher-value activities. But these initiatives require larger investments and the changes take time, given that traditional banks need to adjust their existing systems while maintaining the service levels and protect their data.

For the moment, we view FinTech as the new competitor, but not yet a game changer for bank ratings. Moreover, banks could benefit from the digital developments through partnerships with FinTech startups, which could reduce costs and redundancy, enhance technical know-how, and increase efficiency.

However, we believe FinTech will increasingly become a force to be reckoned with. The eventual impact on banks' credit quality will depend not only on how banks respond to the new competition and the particular vulnerability of their business models, but also on the response by authorities and regulators to FinTech's growing clout.

Related Research

  • The Future Of Banking: Is Orange Changing The Color Of Banking In France?, Dec. 11, 2017
  • The Future Of Banking: How FinTech Could Disrupt Bank Ratings, Dec. 15, 2015
Primary Credit Analyst:Cynthia Cohen Freue, Buenos Aires +54 (11) 4891-2161;
cynthia.cohenfreue@spglobal.com
Secondary Contact:Rafael Janequine, Sao Paulo (55) 11-3039-9786;
rafael.janequine@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back