Competition, Fintechs and Open Banking – Francisca Levin – 2024 LACCF

This presentation by Francisca Levin (Lawyer and Lecturer at University Adolfo Ibáñez and P. Catholic University, Chile) was made during a discussion on Competition, Fintechs and Open Banking held during the 2024 OECD-IDB Latin American and Caribbean Competition Forum in the Dominican Republic on 9-10 October 2024. More materials and information can be found at https://oe.cd/laccf24.

This presentation was uploaded with the author’s consent.

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Fintechs and Open Banking in Chile:
A regulation-for-competition
Francisca Levin
Lawyer and Lecturer at University Adolfo Ibáñez and P. Catholic
University, Chile.
OECD Latin American and Caribbean Competition
Forum 2024
Santo Domingo, Dominican Republic

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Fintech’s competitive landscape in Chile
▪Covid-19 effect: digital disruption of financial
sector due to rapid development of Fintechs
▪Fintechs initially emerged ‘accommodating’
into incumbents’ activities (rather than direct
competition)
▪Financial and technological setting facilitated
progressive adoption of Fintech services
BMI1UU
Fintechs in Chile appeared mainly in nascent markets
providing services to non-banking, low-income users
Source: OECD, Financing SMEs and Entrepreneurs: An OECD Scoreboard Special edition: The impact of COVID-19 (2020); CCAF, World Bank and World Economic Forum
(2020) The Global Covid-19 FinTech Market Rapid Assessment Report’); andFinnovista,FintechRadarChile2023.
Main Fintech’s segments in Chile

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Competition enforcement paved the way for Fintech ecosystem in Chile
While tackled incumbents strategic behaviour, enforcement efforts
alone were insufficient to address entrenched entry barriers
Card payments market – TDLC/Supreme Court’s decisions
(Instrucción de Carácter General No. 5/2022)
▪FNE and private enforcement cases mainly brought against
Transbank, a merchant acquiring monopoly
▪Enforcement efforts derived in interoperability and transparency
remedies, which favoured Fintech’s entrance
Fintechs vis-a-vis Banks – interim measures
▪Cases before the Competition Court (TDLC) and Supreme Court
regarding banks unilaterally closings the accounts Fintechs used to
operate (although all rejected).
Payment segment
as one of the main
‘entry gates’ for
Fintechs

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Chile adopted a thorough regulatory framework for Fintech
Entry barriers acted as a market failure rationale that
supported Fintech regulation
▪Entry barriers as a source of competitive advantages for incumbents
▪Structural barriers
▪Information asymmetries between financial service providers
▪Regulatory barriers
▪Lack of interoperability between new players and traditional operators’ mechanisms
▪Insufficiency of competition enforcement and technological advances alone to foster
entry of new players in a level playing field

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The promotion of competition at the center of Fintech regulation
Article 1 Fintech Act
A Financial regulation with competition law principles
Fintech Law (2023) aimed at preserving
financial stability and promote financial
inclusiveness while fostering
competition in the market and data
protection, through technological
neutrality.
Source: FintechRadarChile2024,Finnovista

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Open
Finance
System
Model for
Information
Exchange
High security
standards
User consent
Rremote
automated
access
interfaces
(Application
Programming
Interfaces)
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The implementation of an Open Finance System
Broad regulation for financial
services offered by ‘technology
means’ (beyond banking)
Financial data as a ‘competitive
bottleneck’
Increased transparency to
prevent practices that may
entrench incumbents' dominance
over data
A proactive regulation intented to lower asymmetries
of information and competitive advantages through
data sharing

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Shaping the Open Finance System: FNE’s advocacy role (I)
Fintech Act mandated FNE to carry an ex-ante competition
assessment of the Open Finance System Draft Regulation
LACCF 2024 Session I Contribution from Chile
FNE’s assessment raised some concerns
to financial regulator to ensure OFS
adequately complied and promote
competition.

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Shaping the Open Finance System: FNE’s advocacy role (II)
Lack of
interoperability
with exclusionary
effects
Concerns due to
increased
transparency and
information
exchanges
Reduction of strategic
uncertainty, facilitating
coordination
Need to ensure no
technological
impediments to
information exchange
Strict catalog of shareable information
Terms and conditions of products & services
Identification and registration of clients
History of transactions
Communications between financial services
providers
Standarization of API standards
LACCF 2024 Session I Contribution from Chile, p. 5-7.
Draft Open Finance System Regulation could
raise some competition concerns

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Shaping the Open Finance System: FNE’s advocacy role (III)
FNE evaluated Financial Regulator’s toolkit
to foster compliance to OFS obligations to
exchange information
LACCF 2024 Session I Contribution from Chile, para. 44; Fintech Law, article 27; OFS Regulation, Section
V.B; Decree Law No.3538 of 1980, Title III; Chapter 1 -13 Updated Compilation CMF Regulations.
Beyond sanctions: should other incentives be
in place to foster participation and access to
information?
•Incumbent’s incentives to restrict access to
proprietary information and exploit
competitive advantages and information
asymmetries against new rivals
Suspension or
cancellation of registration
For banks: lowering of
management classiffication for
repeated non-compliance with
regulations
Temporary suspension
Fines
Censorship

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Next challenges?
To avoid ‘creative compliance’ of regulation
▪Finding regulatory gaps that allow restrictions on data exchanges by legacy
players less incentivized to reveal their information
To avoid exchanges of commercially sensitive information beyond
necessary to operate the system that may turn into illegal behaviour
The Fintech Law and Open Banking System
enforcement

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Fintechs and Open Banking in Chile:
A regulation-for-competition
Francisca Levin
Lawyer and Lecturer at University Adolfo Ibáñez and P. Catholic
University, Chile.
OECD Latin American and Caribbean Competition
Forum 2024
Santo Domingo, Dominican Republic