We’re excited to announce that we’ve received our approval letter from the National Banking and Securities Commission (CNBV) to become a licensed Fintech—making us the first operating neobank to do so.
It’s a major milestone, but the journey continues as there are still minor conditions we have to meet before we can publicly state that we’re a licensed financial institution. It’s the equivalent of running the first 26 miles of a marathon. You’ve run the race, but you can’t take the medal home until you sprint (or at least stumble) across the finish line.
Financial regulations can make for a long and painful journey, but working in Fintech for over a decade has taught me how much regulations matter. When executed properly, they create a balance of protecting us without being overly restrictive. When executed poorly, they either fail to protect consumers against bad actors or prohibit the innovation required to create more options for those same consumers. For example, I hope we all agree that you should need a license before driving a car and should lose that license if you continually put others at risk. That’s a particularly apt example in Mexico where it was easier to get a driver’s license than open a bank account. There was bound to be a change.
I had started working on Cuenca in January 2018 and fell in love with Mexico. There’s a massive opportunity—as Angela Strange and Matthieu Hafemeister of Andreessen Horowitz have outlined in their recent post on Latin America’s Fintech Boom. Mexico is also simply an amazing country filled with a rich culture and incredible people. I first traveled to Mexico in 2012 when I proposed to Bibiana in the Sumidero Canyon in Chiapas, and six years later, the two of us and our dog, Limoncello, moved to Mexico City where we live to this day.
The original plan was to raise money to acquire an operating Sofipo (similar to a community credit union focused on financial inclusion), but that plan changed at the beginning of March 2018 when it became clear the bill for the Fintech Law (Ley Fintech) was on the verge of being signed. As a condition of the Fintech Law, the Transitory Period allowed existing Fintechs to continue operations while working on their application and waiting for licenses to be issued. In 48 sleepless hours, we incorporated, built an initial version of the service, signed up customers and started transacting.
As we started operations, the President signed the bill on March 9, 2018 and the law went into effect the next day. It changed the game. The law created the Electronic Funds and Payments Institution (IFPE) license, a new form of financial institution that offers the flexibility to take customer deposits and work directly with Banco de México, Mastercard and Visa. There’d no longer be a need to partner with a bank in a country where there are a grand total of only 51 banks and only about 20 that issue cards.
We spent the last three years working with regulators, improving our platform, building a legal and compliance team, preparing hundreds upon hundreds of documents and submitting multiple versions of our application. Relating the process to a marathon, as I did, is grossly inaccurate. Think of it more like traversing a rugged mountain range while having to create the path along the way. It was only possible because we did it as a team.