The outbreak of COVID-19, declared a pandemic by the World Health Organization (WHO) on March 11, 2020, has forced Honduras and the rest of the world to hit “pause” and in some cases, “stop” on various aspects of life. We have been forced into quarantine as the main measure to prevent the spread of the virus, which has impacted most sectors of the global economy. As a result of this situation, many businesses have had to close and/or, if they have the opportunity, innovate and reinvent themselves.
Before the pandemic caught us by surprise, many companies had plans to implement innovative business models in the future. However, the pandemic has forced us to “fast forward” to different ways of doing business, compelling the implementation of these developments now!
Technology has enabled the development of innovative business models in Honduras in recent years. This can be seen in the communications sector with social media, digital strategy, and targeted ads based on behavior; in the education sector with different virtual learning platforms; in the labor sector with comprehensive tools to facilitate teleworking, such as task managers, communication platforms, and cloud services; in the transportation sector with service platforms based on supply-and-demand systems and user-provider interconnections; and in the financial sector with the digitalization of financial services and financing platforms.
In recent years, Honduras has moved toward new ways of providing financial services with the implementation of technology, which has led to the emergence of FinTech.
What is FinTech?
“FinTech” is a term that combines the first syllables of “Finance” and “Technology.” It is defined as “The technology that enables financial innovation, which can result in new business models, applications, processes, or products with a material effect on financial markets and the provision of financial services.”
FinTech responds to the ever-increasing need to innovate in the financial sector—a need felt by those who analyze and understand the future of money, transactions, and financial services.
According to a report by the Inter-American Development Bank (IDB), “Latin America 2018: Growth and Consolidation of Financial Technology in Latin America,” Honduras is one of the Latin American countries that is most behind in the development of FinTech activities, with Mexico and Brazil leading the way in this field.
The innovative implementation of technology into financial services offers a series of benefits, both for those who provide the financial services and for the users of these services. These benefits include:
- The primary benefit is promoting Financial Inclusion. Many users have difficulty using financial services under the traditional system or being considered for financial products like a credit card or bank account due to a lack of credit history and collateral, geographical limitations, lack of financial education, lack of identification documents, among other reasons. Innovative sources of information for evaluating credit behavior, easily accessible financial services via mobile devices, payment platforms with a robust commercial network, and other solutions help increase and facilitate opportunities for people to obtain and consume different financial services.
- The facilitation of the formalization of financial business. This is a transformation in the way basic financial business is formalized, such as opening accounts, money transfers, deposits, remittance collections, and loan disbursements. It allows for more efficient formalization through digital means, without the need for the physical presence of the parties involved, while following the established regulations and provisions.
- An economic benefit: lower costs per transaction. Through financial innovation, disruptive business models are introduced [1], leveraging new technologies that reduce the costs associated with traditional transaction execution.
From this, the importance of supporting initiatives that promote the transformation of the financial sector in Honduras is clear, initiatives that also give entrepreneurs who wish to be part of these developments an opportunity.
Under this premise, the Regulatory Framework for Non-Banking Institutions that provide payment services using Electronic Money, known as INDEL, was created in Honduras. In September 2015, Decree No. 46-2015, containing the Law on Payment and Securities Settlement Systems, was published in the Official Gazette La Gaceta. Following this, in February 2016, Agreement No. 01/2016 was published, approving the Regulation for the Authorization and Operation of Non-Banking Institutions that provide payment services using Electronic Money. In July of the same year (2016), the National Commission of Banks and Insurance (CNBS) approved the Rules for the Supervision of Non-Banking Institutions that provide payment services using Electronic Money. These legal texts introduced the terms “electronic wallet,” “Mobile Transaction Circuit (CTM),” “electronic money,” and “Non-Banking Institution that provides payment services using Electronic Money (INDEL)” for the first time in Honduras.
The legislation mentioned above regulates the constitution, operation, functions, and prohibitions of the Non-Banking Institutions that provide payment services using Electronic Money (INDEL) and defines them as: “A legal entity of a public or private nature that offers fund transfer services and payment operations for goods or services, through the use of mobile devices in the form of electronic money (which must be stored in an electronic wallet).”
Thus, at the end of 2019, the BCH authorized the operation of the first Non-Banking Institution that provides payment services using Electronic Money (INDEL), after more than three years of the authorization request and the completion and accreditation of countless requirements demanded by the law.
The Central Government has not lagged behind in technological innovation. Faced with the COVID-19 emergency, it has instructed the simplification of administrative procedures through the implementation of Digital Government. Through Decree 33-2020, which contains the Law on Aid to the Productive Sector and Workers in the Face of the Effects of the Pandemic Caused by Covid-19, it authorizes the Central Bank of Honduras (BCH) and the Honduran Bank for Production and Housing (BANHPROVI) to directly contract electronic wallets or other electronic mechanisms that allow micro and small businesses in all productive sectors of the country to access credit in an expedited and secure manner through information and communication technologies.
Likewise, starting in 2019, in response to the country’s needs and with the aim of promoting innovation in the financial services sector, the Central Bank of Honduras (BCH) created the Technical Committee on Innovation and Financial Technology and the National Commission of Banks and Insurance (CNBS) created the FinTech and Technological Innovations Committee. These, along with a group of FinTech companies from Honduras, make up the “technical tables for financial innovation” proposed by the Inter-American Development Bank (IDB). These technical tables are platforms for interaction, cooperation, and coordination among the public, private, and academic sectors of Honduras, made up of specialists interested in and related to the topic of innovation. Their main objective is to seek innovative financial solutions that benefit users and, in general, all participants in the financial sector.
With the development and implementation of new technologies and given the current economic situation of the country as a result of the COVID-19 pandemic, financial innovation is definitely a topic with great potential that is worth getting involved with, promoting, and encouraging. The country must adapt to the changes and take advantage of the opportunities that financial innovation represents. Without a doubt, it will improve the lives of all Hondurans, both for service providers and users. Consequently, those traditional service providers that fail to adapt to technological advances and do not offer effective solutions to users will be left behind in history.
- Informe del Banco Interamericano de Desarrollo (BID), “América Latina 2018: Crecimiento y consolidación de la tecnología Financiera en Latinoamericana”