Fintech is defined as computer programs and other technology used to support or enable banking and financial services. The term refers to financial and economic activities that aim to enhance and automate the delivery and use of financial services. They seek to help companies, business owners, and consumers to better manage their financial operations, processes, and lives by deploying specialized software and algorithms utilized on computers companies’ financial and economic activities, and, increasingly, smartphones.
In general terms, a Fintech company can help you in your venture if you want to: accelerate the payment and transaction processes of your customers; develop the infrastructure for the financial services of your company through data science, big data, or blockchain; improve cybersecurity; and to manage your digital assets, cryptocurrencies, or alternative monetary policy, among many others. Likewise, if you are a natural person you can go to a Fintech to apply for a loan in case you do not want to do it through a bank, make any payment transaction or transfer through the internet, also explore the world of Blockchain, and crypto or virtual currencies, among other activities.
It is an industry focused on improving and optimizing the time users spend acquiring a digital service or product. We see it every day when we prefer to pay for what we consume with QR or pay for streaming services through a mobile app with our credit card or through any other digital tool. All of which leads us to a win-win, companies on their side cover their needs corresponding to financial transactions, while enhancing customer satisfaction, being one of its main focuses the development of User Experience, or UX, considering the demands of users.
So great is the impact of these types of startups in Latin America that it is estimated that, in 2020, 13 million citizens made an online transaction for the first time, including e-commerce purchases, streaming services, and delivery apps, as well as a growing reliance on online financial services, such as bill payments. Mexico, for example, was the first Latin American country to establish a regulatory framework for Fintechs in 2018, and by 2020 it already had the largest number of registered Fintech companies in the region (441). Meanwhile, in Brazil, there are about 498 companies specializing exclusively in financial technologies, in Colombia 128, Argentina 118, and Chile 82.
This impact is due to the fact that 70% of the Latin American population is still unbanked, so Fintech platforms represent a potential solution to the financial inclusion challenges that the region faces. A clear example of this is Central America, where the Fintech ecosystem has grown more than 112% to date. Given such fierce growth, let’s look at the behavior of some Central American countries in terms of regulations:
In Guatemala, there is no specific regulation for Fintechs, which limits the provision of services they can offer to the public.
El Salvador was the first country in the world to adopt bitcoin as a legal currency and is at the forefront of financial legislation, thus taking Fintech as fundamental for the economic development of the country.
For its part, Honduras, seeing the exponential growth of this industry, in October 2021, the National Congress approved a decree to regulate local entities engaged in making payments and transfers, which must be approved by the Central Bank of Honduras.
In 2020, the Central Bank of Nicaragua approved the regulation of Financial Technology Providers of Payment Services, and in 2021 the anti-money laundering law was reformed, and the concept of “Virtual Assets” was incorporated for the first time, allowing both banks and non-financial Fintech companies to offer virtual asset services.
Lastly, in Costa Rica, although there are still no specific regulations for the sector, laws, and regulations have been issued to regulate this type of activity, and recently a bill was presented to the Legislative Assembly that seeks to regulate the figure of the virtual asset service provider. Meanwhile, in April 2022, the country’s authorities created the Center for Financial Innovations as a space for dialogue and consultation for those who wish to develop technological innovation initiatives in financial products or services.
As other Latin American countries move forward with regulations, opportunities will arise to evaluate the transformative impact of financial technologies.
The legal challenge faced these days with the emergence of these new companies is the protection of their intangible assets. Being the basis of their business, the diverse types of protection that our legal systems offer them must be considered.
Unfortunately, in the regulations of Latin American countries these business methods (software, source codes, or similar) are considered in the legislation as exclusions from patentability. The same happens with the regulations of the European Patent Office, in which it is not possible to file patent procedures containing algorithms and formulas that measure the risk or financial profitability of a company or software in isolation, as is the case of Fintech companies. A clear example of this is the Pension Benefits System Partnership case (https://www.epo.org/law-practice/case-law-appeals/recent/t950931ex1.html), in which the reason for refusal was that the application referred to a method for doing business, lacking any technical character and, therefore, excluded from patentability under Article 52, paragraphs 2 and 3 of the EPC (the invention consisted of applying a series of algorithms to make calculations concerning pensions and savings).
Although software protection cases can be protected by “computer-implemented methods” with patents, it only applies if this method fits with the following features: first, at least one step must have a technical effect; second, the help of a computer program is needed and, lastly, it must meet the requirements of patentability. Hence, the possibility of patent protection for this type of business is very limited.
For this reason, we cannot fail to mention the alternative protection provided by intellectual property, such as copyrights. In these cases, it would be applicable for the protection of the software source code, being necessary to prove that it is an original work.
Another relevant option is to protect them as trade secrets. Unlike other IP Rights, secrecy does not involve a formal registration process at a government office. It requires each business to take the appropriate steps to have its secrets protected (more in our article “Trade Secrets: what you need to know”).
Whichever form of protection you choose, we recommend adding the non-conventional trademark registration of the company name, as it does not usually generate major complexity and gives additional security to your business.
As with any new technology, product, or service in the market, many changes are coming in the next few years for the Fintech Ecosystem, and it is undoubtedly necessary to stay informed to understand how these new technologies work, as well as to study all the options they offer us.
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