Introduction
A few weeks ago, we had the pleasure of talking to Edwin Zácipa, Colombian FinTech advocate, mobilizer, and supporter. Edwin served as director of Colombia Fintech, the country’s FinTech enterprises association, and has recently joined Open Vector, a firm that leads open banking initiatives across the globe.
Portrait of Edwin Zácipa
How do you end up in a sector as disruptive as FinTech?
I would have to tell you my complete story. I come from the financial world, having worked in banking within the business intelligence segment. My everyday task was getting into the bank’s large information silos to develop predictive statistical models and deploy commercial campaigns. Five years ago, I decided to resign to dedicate myself exclusively to the world of entrepreneurship and innovation. I have founded several startups and participated in diverse processes, from devising a business to raising capital. I have also failed and learned in the process. I even launched my own FinTech! Why am I telling you this?
Every day we used to monitor what was happening within the financial sector; we knew which banks were innovating, what products were they releasing, what was happening locally, and what was going on abroad. We saw how the FinTech movement in other countries began to organize, began to build a value agenda with the financial sector and the government, and began to generate positive transformations. Take, for example, faraway cases like London or Singapore that today are global capitals of FinTech. The FinTech movement eventually reached this continent. The first ones to organize in Latin America were Mexico, whose FinTech association must be about five years old. We saw this active associative process happening in Mexico, and we wanted to transfer it to Colombia. A few years ago, my company and nine other FinTechs participated in an acceleration program led by some of the most active early-stage investment funds for technology in Latin America. That process set the stage for devising the Colombian FinTech association and served as the site for building a consistent framework. After setting things up, I ended up appointed as executive director for Colombia Fintech. During the last three years, I helped position the FinTech sector so that today it has become a legitimate, representative sector recognized by the government, the market, and the financial industry. FinTech is accelerating digital transformation within the traditional financial services industry, which has been delivering financial services without improving user experience and without achieving the necessary levels of access and inclusion. I think the result of the Colombian experience has been tremendously positive. In that sense, you could say I have managed to be immersed within both realms: the corporate and banking world, which I understand from the inside, and the entrepreneurial world, the world of that day-to-day worker who is developing a business model and looking for ways to grow and scale. That is pretty much my trajectory for the last couple of years, and I am still deeply involved with the FinTech movement actively supporting the ecosystem.
Could you tell us a little bit about your new role at Open Vector?
After leading the initiatives at Colombia Fintech for three years, I finally decided to take on a new path towards the next significant disruption phenomenon within financial services: open banking. Open banking allows the hyper-personalization of financial services opening up the possibilities for new players, services, and new products to arrive, which will ultimately benefit consumers.
Open banking is just barely taking-off worldwide. The first country to implement it was the United Kingdom, where regulatory authorities and competent entities worked closely for about ten years to motivate this. In Latin America, the first country to embrace open banking standards was Mexico. Through the fintech law, the state set the guidelines for enabling the interoperability and portability of financial data. That way, people, businesses, and financial entities can easily share data and financial capabilities with third parties, new players, or FinTechs, strengthening the financial services ecosystem.
In recent months, Brazil began to define what will be the regulatory framework to implement open banking. In that sense, after seeing how this new revolution continues rising, I end up joining Open Vector. Open Vector is a British firm specialized in open banking. The team in London took part in implementing open banking standards with the leading banks in the United Kingdom. The firm’s team was also part of the first definitions of open banking for ATMs in Mexico, and we also have an active presence in Brazil.
I currently lead Open Vector operations here in Colombia. My purpose is to activate discussions and conversations on how to create an environment conducive to open banking here in Colombia between financial institutions, non-bank players, and FinTechs. We are making approaches with regulatory authorities and market players to start developing the first open banking initiatives here in Colombia.
Open banking is a phenomenon that has already reached the country, there are already some individual and private projects being developed, and we are also building a powerful initiative here in Colombia that we will soon announce. So basically, this is my new role: evangelizing this new disruptive current of open banking within FinTech 2.0.
Why are open banking initiatives so important for consumers of financial services in Latin America?
Open banking brings a very significant contribution: it will give users control, empowering financial consumers on how to manage their financial information, and enabling an entire ecosystem of applications and services beyond those offered by banks, allowing people to make better financial decisions. Open banking’s importance lies in that it will enable information to flow, making the financial system more efficient: meaning that if you, for example, use Bancolombia and I use Itaú, and I want to transfer you one hundred thousand pesos online, in real-time, open banking enables that. Open banking allows the exchange of information and interchange of financial services in a much more accessible, easy and beneficial way and always online. It is a process that, with COVID-19 has accelerated quite a bit. The benefits of open banking are being recognized, considering many people need to find digital alternatives to mobilize their money as opposed to cash, and they demand to have much greater clarity and transparency of what is happening with their money and financial products. Open banking will allow this open ecosystem to thrive.
And we will come to a time when we will talk not just about open banking but of “open finance”: the empowerment of consumers concerning not only banking products but all financial products and services. For that environment to thrive, you require a consensus. Not only between all the banks but with all the players in the financial system, including stockbrokers, pension funds, credit bureaus, and insurers, to modernize their infrastructure to facilitate this interexchange of information between service providers that have the data and service applicants. This setting will help create more personal finance management applications, more instant payment solutions, and new alternative sources of data to give credit engines and decision-makers more variables. Ultimately, it generates greater financial inclusion since it improves the understanding of customers with added data, enabling delivery of financial products and services to people and businesses with greater capacity. Open finance provides an exciting dynamism to the ecosystem with FinTech as an accelerator of the digital financial services transformation.
What do you think of the FinTech (and Insurtech) ecosystem in Colombia?
The FinTech ecosystem in Colombia is at its best. Today we are positioned as the third country leading FinTech activity in Latin America right after Brazil and Mexico. We have the privilege of surpassing countries like Chile and Argentina that, in a certain way, have had more interesting dynamics in terms of investment and capital and with much more developed financial markets. Colombia ranks third, and it is a privilege and pride that we are there as an ecosystem.
Now, being in that position requires us to maintain ourselves, since other countries are moving forward, which requires us all to work as an ecosystem. That is the purpose for which the ecosystem exists: so that companies, regulators, entrepreneurs and innovation agents, the financial industry, suppliers, and investment funds all collaborate to further develop the FinTech ecosystem in the country. And primarily, in Bogotá, because this is an issue where we are competing at a city-region level, meaning Colombia does not compete with another country, but cities like Bogotá compete with centers like London, São Paulo, or Mexico. I do think we have an impressive dynamism in Colombia, given the number of FinTech startups that have emerged. There has been a lot of government support from supervisors and regulators to develop innovation within the financial system further. Even some of the old structures have been modernized.
Nevertheless, there are still many things to be improved. The subject of adoption, increasing demand, and making more people into FinTech consumers. The question of investment and capital, so that more funds or intelligent vehicles arrive to support these companies’ growth. And also the talent issue, further professionalizing the sector through empowerment, better leaders, and an excellent technological base of teams for building scalable products. All of these variables are what we have to take into account to analyze the ecosystem. In some, we are doing very well; in others, we are moving at a slower speed and have to accelerate. That is the challenge of strengthening the ecosystem.
It is interesting that in your question, you mention InsurTech since this is a sector that is not yet much talked about even though it is an important business segment of the FinTech ecosystem. This lack of information exposes how some sub-segments are not as developed compared to other countries and where we have a lot of work to do. Although the FinTech ecosystem is a driver of financial inclusion in credit and digital payments, we still do not have many players or volumes or enough adoption in InsurTech, WealthTech, neobanks, personal finance management. So we still have a lot of work to do to increase supply, so demand expands, and so the ecosystem in all of its variables continues to grow. That is the challenge we have, we are on the right track, and many players are betting on this endeavor from both the public and private sectors so that the ecosystem continues to develop.
What do you think of the advancements of FinTech regulation in Colombia? What’s in place? What are we missing?
In Colombia, we have quite a few good regulatory advances to highlight. The regulatory agenda in Colombia is considerably active regarding the FinTech industry’s development, as well as removing obstacles, regulatory burdens, or compliance issues for incumbent and traditional players as banks so that they can be more agile when delivering financial services. There has been complete inter-institutional coordination by the national government to support the FinTech sector. These initiatives come from the national development plan and new policies formulated, not only regarding regulatory developments in decrees and laws but also in the formulation of programs to support the industry. In recent years, we have seen many regulatory modifications implemented, such as crowdfunding, investments in FinTech, digital identity, digital advisors, regulatory sandbox, and FinTech licensing. And we also see how other institutions such as MinTic [Ministry of Information and Communications Technology ] or MinComercio [Ministry of Commerce, Industry and Tourism] support the industry not necessarily through regulatory matters, but through different types of programs, such as Fondo Nacional de Garantias, Bancoldex, or Innpulsa, entities which lead particular initiatives to support and promote the FinTech sector—and leading the entrepreneurial ecosystem to support the FinTech sector, through gaining access to alternative financing schemes.
What is missing? We are missing open banking. There is no clear guideline on how to adopt open banking. We need to make progress on matters of open data. Not only in terms of financial information but a vision of how the government and public sector consider the issue of open/shared data. Such a regulatory framework is yet to be articulated. There are also a series of pending adjustments, such as updating the payment systems, FinTech licensing (fast track process, or sandbox 2.0) so that new financial entities can be constituted under a FinTech business. We are also pending an update of the private equity funds regime (looking to promote venture capital funds). And we are also missing a national policy of financial inclusion that understands the entire COVID-19 factor since the financial inclusion dynamics are now different. So we have advanced a lot, we are missing some items, but fortunately, we can say that today in Colombia, we have one of the most favorable environments in the world for financial innovation and specialized in financial inclusion.
What is your prediction for the Colombian FinTech scene? And for Latin America?
Excellent question. Coincidentally, I had my predictions for this year, but I certainly couldn’t predict a difficulty like the pandemic. I can tell you what I am noticing right now, and that we must take into account.
First, I think all of the underdeveloped FinTech subsegments are going to start to activate: WealthTech, InsurTech, PropTech, neobanks, all those mini-ecosystems are going to be activated since as we advance with financial inclusion, we are also developing financial education. Therefore, more people are going to use digital tools not only to make payments or to finance themselves but to manage their savings, to protect themselves, to find a comprehensive solution that assembles all of their financial products. So we are going to see a higher offer of neobanks, digital advisory platforms, digital insurers, which will boost the ecosystem quite a bit soon.
Another projection would be the entry of BigTechs, which are already moving actively in Latin America. Cases like WhatsApp with Facebook in Brazil, where despite all the restrictions generated, it should not be ignored that the company already has the technology to conquer financial services. In Colombia, the same will most certainly happen.
Another predominant topic will be open banking. We are still at a very early stage, but open banking will eventually be the language that FinTech companies and financial entities will use to communicate. Open banking is where the ecosystem is headed. Payments will work through open banking, credits will be approved through open banking, etc.
Another exciting trend is that FinTech is going to become B2B oriented, turning to a neglected segment, which is SMEs. SMEs are the back base of Colombia’s economy and are the most neglected in terms of financial services. They have credit barriers, and their systems are quite disorganized regarding cash-management processes. So we are going to see an explosion of B2B FinTech precisely to serve the SME market. We are going to have neobanks serving SMEs, business credit cards, and digital corporate insurance. Just as there is an excellent offer of digital financial solutions for people, we will see a growing number of solutions for SMEs.
Finally, COVID-19 spoiled our prediction of having the first Colombian FinTech unicorn this year. Confidently, this could happen soon, given the significant players we have across the ecosystem, which are actively acquiring users, raising capital, and growing exponentially. We have to keep following these businesses because we will see them scale in the next two to three years.