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The Central Bank of Ecuador (BCE) has issued the country’s first fintech regulations, pursuant to the country’s Fintech Law that was passed at the end of 2022.
The new rules establish requirements for companies that hold an account with the central bank and act as fintech service providers, including payment aggregators, gateways, remitters and digital wallets.
These firms are now required to set up a local company in Ecuador and seek authorisation from the BCE before starting their operations. The central bank could later withdraw the licences in cases of non-compliance or misconduct.
When carrying out a payment, firms must disclose their fees to the customer, the deadline for payment execution and must obtain prior consent to the payment if that is irrevocable in nature.
Firms that specialise in electronic deposits and payments, such as digital wallet providers, must ensure 24/7 availability of funds and keep all of their customers’ funds separate from their own operational resources.
Additionally, the regulations require firms to ensure that their platforms are interoperable with other existing payment systems and comply with the rules and technical standards laid out by the central bank.
Under the rules, new market entrants will be able to apply to a regulatory sandbox, which can last up to 24 months.
The document adds that fintech firms must also comply with local money laundering laws.
The rules entered into force immediately on August 7, and apply to payment firms only. They do not apply to crypto-asset firms, the central bank said in a statement.
According to the BCE, only electronic money and credit, debit and prepaid cards are considered a means of payment in Ecuador, while crypto-assets are “not a legal tender” in the country nor are they a “means of electronic payment authorised at the national level”.
Mandate for digital payment acceptance
Although financial inclusion is an issue across Latin America, it is particularly the case in Ecuador.
According to payments infrastructure firm PPRO, Ecuador lags behind the Latin American average in terms of its banked population and penetration of credit cards, internet and smartphones.
In 2022, the central bank said there were 183m interbank payments made with a value of $176bn, out of which 70.6m were real-time payments worth $20.34bn.
However, the use of cash is still the most common payment method in Ecuador, where 71 percent of the transactions take place using physical money.
In 2021, to encourage the use of digital payments, Ecuador abolished a previous $0.22 fee for receiving interbank transfers, and in 2022, it mandated that payments made to or by public services above the value of $76 must be made via an electronic channel.
Building on these efforts, the regulations now prescribe that each entity that engages in economic activities within the country, and has a unique taxpayer identification number called an RUC, must offer at least one type of electronic payment method to their customers.
Fintech Law to encourage digital payments
The BCE was tasked by the Organic Law for the Development, Regulation, and Control of Financial Technology Services (Fintech Law) to issue rules that define the operations, governance, risk control and financial requirements for fintech firms and ensure that those rules are followed.
The Fintech Law was published and came into effect in December last year and laid down the groundwork for various fintech services, including payments, but also securities and private insurance.
In addition to establishing various fintech services as a legitimate business model, the law included provisions that allow fintech firms to attract investments via new mechanisms such as venture capital, angel investment or seed funding.
It gave eight years to participants of the financial system to bring bank accounts in line with the IBAN standard.
At the same time, it ordered the central bank to lay the groundwork for open banking and to publish APIs for information sharing to facilitate interoperability with fintech companies.
