FTIs vs Fintechs: Understanding the Key Differences

Most likely, you have recently heard about a concept known as Fintech or Finance Technology in some of your financial conversations. However, you should know that as a result of the so-called Law to Regulate Financial Technology Institutions, a new financial sector has emerged in Mexico: Financial Technology Institutions.

Although many people mistakenly believe that these two concepts, Fintech and Financial Technology Institutions, are the same, the truth is that it is not so and between them, they present notable differences that today we will explain to you. Get to know all the information about it.

What are fintechs?

Fintech is any app, mobile platform, or website that offers some kind of financial or money-related service to people or businesses that use technology to do their work but are not regulated or watched by financial authorities.

You should know that as a result of the so-called Fintech Law, a new financial sector emerged in Mexico: Financial Technology Institutions. According to the FinTech Mexico Association, the following verticals are the most important within the sector:

Means of payment and transfers: Payment platforms, e-commerce, and international transfers.

Infrastructure for financial services: Customer assessment and risk profiles, fraud prevention, identity verification, banking APIs, payment methods aggregators, big data & analytics, business intelligence, cybersecurity, and electronic contracting.

Digital credit origination: These are companies that offer credit products through electronic platforms.

Financial solutions for companies: Accounting software and billing and financial management infrastructures.

Personal finance and financial advisory: Personal finance management, financial product comparators and distributors, financial education, automated advisors, and financial planning.

Financial markets: Digital brokerage services for securities, financial instruments, and currencies.

Insurtech: Technology applied to the provision of services in the health, auto, life, etc. insurance sector.

Proptech: real estate companies that make use of technologies, especially artificial intelligence to buy, sell and rent properties.

Cryptocurrencies and blockchain: Developers of blockchain-based solutions, intermediaries, and digital asset markets.

Disruptive financial entities: Neobanks, challenger banks, or other 100% digital financial entities.

What are Financial Technology Institutions (FTIs)?

Financial Technology Institutions (FTIs) are all those Fintechs that have received authorization from governmental bodies to operate under the "Law to Regulate Financial Technology Institutions." According to Article 11 of this Law, to organize and operate a fintech as an FTI, it is required to obtain authorization that will be granted by the National Banking and Securities Commission (CNBV), with the prior agreement of the Inter-Institutional Committee (CNBV, Ministry of Finance, and Bank of Mexico). Currently, the only FTI figures that can operate in the market are the following:

Collective Financing Institutions (CFIs) or crowdfunding: Crowdfunding, or collective financing, is a financial technology platform where it is possible to obtain economic resources from a large number of investors to fund a project or business that is of interest to them. That is, any investor can lend money to an entrepreneur or a social cause in exchange for interest payments (in the case of debt CFIs), profit (in the case of an IFCC), or royalties (in the case of an IFFCOR).

EPFIs (Electronic Payment Fund Institutions): This figure includes the so-called electronic purses or wallets, and they perform various functions or services: receive or send electronic money; offer virtual or physical debit cards, and direct debit services.

Differences between fintech and financial technology institutions

Now that you know a little more about which companies are fintechs and which are FTIs, let us list the main differences between these two sectors:

Regulation

The first major difference between financial technology institutions (FTIs) and fintech companies is the lack of regulation of the latter. The institutions that receive authorization to operate as FTIs are part of the Mexican Financial System and are regulated by the CNBV, the Bank of Mexico, the SHCP, and CONDUSEF itself. If you have any doubts or problems with them, you can go to the pertinent authorities to request advice on the matter.

Possibility of initiating a complaint process

In addition to the previous point, since the ITFs are part of the Mexican Financial System, in CONDUSEF there is the possibility of initiating a complaint process in the Electronic Complaint Portal available at: https://fintech.condusef.gob.mx/ This Commission will not be able to intervene in your favor with fintech companies that do not have the necessary permission to operate as FTIs.

Number of FTIs and fintech companies

Finally, another difference lies in the fact that there are currently only two types of institutions recognized as fintechs: collective financing institutions (CFI) and electronic payment fund institutions (EPFIs). As of today, there are 10 CFIs and 14 EPFIs that have CNBV authorization to operate fully, and there are more than 40 FTIs in the process of authorization. Since fintech companies don't need permission from the government to work, the Finnovista radar estimates that there are around 650 fintech startups in Mexico.