Financial markets across the globe are being reshaped, as FinTechs continue to appear in greater numbers all around the world.
One market that is facing major FinTech reform is Chile – where a public battle between a FinTech and a public bank was widely covered by the press, at a time when new FinTech-oriented laws are being formally introduced and discussed at regulatory and political levels. This potentially positions Chilean financial markets to be restructured to accommodate – or even mandate – open banking.
In this article, I will briefly explore the BancoEstado vs. Khipu controversy and how it gave awareness and traction to new laws concerning FinTechs. I will also examine the implications and impacts these events are likely to have on the country’s financial and banking markets.
The State of FinTechs vs. Traditional Banks in Chile
Banco del Estado – also known under its brand name BancoEstado – is the only public bank in Chile and is owned by the Republic of Chile. BancoEstado is Chile’s second-largest bank and is highly rated by consumers, making it an influential institution in the Chilean financial industry.
Khipu is a Chilean-based FinTech company that offers digital payment services. The payment solution offered by Khipu was originally compatible with any bank or financial institution belonging to the CCA in Chile.
However, this changed when BancoEstado blocked Khipu’s services for customers of their bank. This occurred after BancoEstado introduced new anti-bot technology that blocked specific FinTech applications deemed as unsafe – the main of which was Khipu.
This action led to immediate backlash from the Chilean FinTech community, with Khipu responding through a public statement. Part of this statement (translated from Spanish to English) reads:
“Situations like the one that Khipu is experiencing damage the development of the Fintech ecosystem in Chile and, therefore, hinder innovation, the generation of greater competition in the financial system and progress in the financial inclusion of people and businesses that have been neglected by the traditional system.”
Khipu vs. Banco del Estado Goes to Court
In response to BancoEstado’s actions, Khipu took the case to court to argue their rights as a financial services provider within Chile’s financial industry, as well as to highlight the potential negative effect this action had on customers.
Khipu chose to file a protection appeal against BancoEstado, which has led to deeper discussions of the role of FinTechs within the Chilean banking sector and the potential of introducing new open finance rules into Chile’s official financial systems.
During September, the case has reached the Supreme Court where a protection appeal presented by BancoEstado was rejected.
The Power and Momentum of FinTechs in Chile
Chile is currently one of the fasting growing financial markets – and part of this is due to the work of FinTechs, as well as the long-standing innovation of banks.
While this legal battle is yet to reach its conclusion, it is possible we will see the introduction and passing of new laws that grant FinTechs greater autonomy and rights within the Chilean financial market.
The Effects the New Chilean FinTech Law will Bring to Traditional Finance
The “FinTech Law” bill could have a plethora of impacts on traditional finance in Chile, but there is one key element that will stand as the central focus: enabling open banking in Chile.
Without meaning to, by blocking Khipu and its customers from using FinTech-based payment services, BancoEstado has opened the conversation within the courts of the potential benefits of granting FinTechs greater commercial power and mandating open banking models.
Chile’s financial industry is transforming in front of our eyes.
The story of Khipu vs. BancoEstado is a testament not only to the level of support behind FinTechs in the country but also to how interwoven traditional banking and FinTechs already are within the country.
As the “FinTech Law” makes its way through the Chilean political and regulatory systems, we should all keep our eyes on Chile as they progress towards embracing new and innovative banking methods.
Written by Daniel Freudenthal