The potential impact of regulation on tech companies in Latam

Read the full story on Techcrunch or on Medium for the Spanish version.

The rapid expansion of the tech sector has increased the pressure on Latin American regulators to enact legislation that addresses fintech activity.

Each country has managed its own set of regulations regarding fintech. If regulators want to facilitate the growth of fintech and innovation companies, they must work together to create regulations that match across borders. 

For many start-ups, regulation will mean complying with the rules before officially launching and operating on the market. 

If a fintech is already operating while the regulation is enacted, it will often be forced to freeze its operations and focus on compliance. This means a halt in cash flow, as the company cannot take on new customers nor provide the service to existing ones. Without large financing, many startups will be pushed out of the market.

In 2019, 53% of startups surveyed by Fintech Radar Mexico said that the fintech law will create strong entry barriers. Additionally, 41% said regulation is rigorous and 46% said the high costs associated with compliance will create inefficiencies. Only 24% said they are ready to comply with the regulation.

In this increasingly regulatory climate, fintechs looking to scale and enter new markets should ensure that they have maximum contact with that market before its official launch. Once their product is operational in a new country, they must be agile and quickly test the market responsiveness to the product to determine its potential for success.

The foundations for further growth and dynamism in the fintech ecosystem in Latin America will rely on a careful balance between consistency in regulation, tailored legislation, and forward-looking implementation. 

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