Despite the “progress” in developing “fintech” and fintech ventures, El Salvador’s ecosystem is still in its infancy and has a long way to go to compete with the rest of the region. According to a Central Reserve Bank (BCR) report, 66.7% of these solutions are from entities that are neither supervised nor regulated.
The study, published on the BCR website, considers the segment to be “complex” and “initial” due to the lack of precise legal definitions for registration and regulation, but has “lots of potential for growth”. , I admit that I contribute more. financial system.
The term fintech is a relatively new term in the El Salvadoran market, but it has been used since 1990 to refer to platforms that provide financial solutions such as payments, money transfers, loan requests, and financial management.
66.6% of the fintechs identified originate from entities not regulated by the Financial System Supervisory Authority (SSF), El Salvador’s supreme body for the financial industry.
Meanwhile, 7.41% are based in organizations that have an indirect relationship with a regulated provider, and 25% are part of a supervised entity’s modernization process.
A first approach to this segment can be found in a report by the Inter-American Development Bank (IDB), which has spawned Finnovista since 2017. The latest edition, published in April 2022, reveals that these platforms have grown 360% in the last four years in El Salvador, with 30 fintechs operating in 2021.
The BCR report reveals that the 2021 SSF survey found 25 fintech companies, 12% of which are in the prototype stage and expect their development to be completed by the year.
The ecosystem got a boost in 2020. Confinement schemes digitized the daily activities of many people and were proposed as an alternative to traditional systems.
Therefore, according to the BCR report, most of the development is focused on payment solutions, with a 60% share, with companies serving financial institutions accounting for a 20% share.
Financing platforms account for 8% of the market, ‘InsurTechs’ (insurance providers) 4%, personal financial management 4% and businesses 4%.
Competition with users.
Initially, fintech was thought to compete with the big banks, but experience in recent years has shown that fintech is actually a complement, as it enables access to financial services in sectors that have been neglected by the traditional system. It has been shown to be
Fintechs offering loans stood out in 2020 as small entrepreneurs were hit by the covid-19 pandemic and asked for small sums to restart or keep their businesses running, according to a central bank report. .
These platforms have become popular because interest rates are lower than those set by the Anti-Usury Act, ranging from 1.5% to 3.5% per month, with loan sharks charging up to 90% on loans.
A supplier consulted for this study revealed that it had 150 customers and $80,000 in loans in less than a year.
BCR recognizes that there is no specific legal and regulatory framework for fintech, which puts entrepreneurs at a disadvantage in terms of legal certainty.