The Sandbox Challenge and what it means for fintech innovation in Mexico
Experts from Ava Labs, KPMG, BIVA, and the DAI/UK Prosperity Fund came together for a virtual panel to discuss fintech challenges and opportunities in Mexico
Mexico has positioned itself as the technology hub and gateway for the fintech industry in Latin America. In March 2018, the government enacted the Fintech Law (has been enforced since September 2019) to establish guidelines for those looking to participate in electronic payment funds, virtual assets, and crowdfunding. Most crucially, the Fintech Law establishes a regulatory sandbox, which promotes innovation by allowing organizations to operate under a temporary license without having to comply with all of the regulatory requirements at once.
The Sandbox Challenge, the first financial innovation contest that promotes entrepreneurs from Mexico, is bringing worldwide attention to regulation like the Fintech Law and the vibrant fintech ecosystem in Latin America.
Over 15 organizations, including AVA Labs, KPMG, Biva, and the DAI/UK Prosperity Fund are supporting the contest, and ensuring this vital dialogue continues even while most of the world is home due to the COVID-19 pandemic. AVA and the participating organizations came together for a virtual panel to discuss the challenge and share perspectives on what the future holds for fintech innovation in Mexico. The panel was pre-recorded, with questions asked on YouTube, once the video was published. Although the Sandbox Challenge has concluded, you can learn more about the challenge here and in the article below. If you’re interested in learning more about what AVA is building, please join our official community channels.
Below are some of the highlights with questions answered by the featured panelists:
Following the establishment of the Sandbox regulation, how do you think fintech innovation in Mexico will change?
Raúl Nava Salazar, DAI/UK Prosperity Fund: Equities regulation in Mexico is traditional, but according to Comisión Nacional Bancaria y de Valores (CNBV), the governing agency of the Mexican financial system, there will be a regulatory update–for example, with regarding robo-advisors. However, innovative products can always be tested, especially in the National Securities Banking Commission regulatory sandbox.
Santiago Rincón Gallardo, BIVA: I think we’ll see more startups adding value to the financial ecosystem in Mexico, in many spaces like payments, post-trade, crowdfunding, and the like.
How can Mexico benefit from financial technologies like blockchain?
Blanca Córdova, KPMG: Blockchain is a technology highly characterized by transparency, immutability, and programmability through smart contracts. Participants interact through a distributed network that drives trust while lowering significant barriers-to-entry and friction points that the financial industry currently faces, offering a high potential for democratizing financial accessibility and participation. Highly centralized systems are being forced to adopt new digital technologies such as blockchain in order to enable more complex distributed models, providing alternative trust mechanisms that can increase transparency, security, and accountability in multiple areas such as digital payment methods, billing and settlements, digital identities, contract management, and fundraising.
How can AVA help bring blockchain technology to the masses?
Kevin Sekniqi, AVA Labs: AVA Labs empowers people to build an open, simple, and democratic internet of finance that enables the world to have a more prosperous future. Many of us in the Web 3.0 space can agree that blockchain technology will have a prominent role within our future; the main hurdle that it currently faces is not only adoption but understanding; the average person is unable to experience the benefits of the technology due to bottlenecks that exist within the technology itself. This doesn’t mean that the tech lacks disruptive potential, but rather that our industry must do everything in its power to address those bottlenecks head-on.
At AVA, we’re solving these issues from the ground up; starting with the protocol level, a revolutionary consensus protocol called Avalanche. AVA is the first smart contracts platform that confirms transactions in under one second, supports the entirety of the Ethereum development toolkit, and enables millions of full block producers to participate in consensus.
Simultaneously, AVA is addressing challenges within layer 2 and layer 3 by creating new solutions or fostering a culture of growth and collaboration through initiatives such as AVA-X, our moonshot accelerator for developers building decentralized applications. With our bottom-up approach, we’re confident in blockchain technology being widely adopted by the masses.
How do you see blockchain technology disrupting traditional investment products such as retirement funds and insurance in Latin America?
Blanca, KPMG: The insurance industry has actively explored blockchain-based solutions, particularly those involving smart contracts. Self-enforcement rules can be programmed into traditional investment products to streamline processes, eliminate unnecessary third-party interaction, increase efficiency, and mitigate dependency risks. New investment mechanisms continue to emerge through the use of blockchain technology and smart contracts, such as automated retirement contributions subject to a varying income, immediate payment of funds when reaching a certain age, or dynamic insurance premiums based on real-world information. Additionally, insurance companies can benefit from automating claims, using smart contracts and AI to increase efficiency, and improve customer experience throughout the notification, validation, investigation, resolution, settlement, and closure processes.
Raul, DAI/UK Prosperity Fund: There are a couple of factors. One important one is financial education and technological adoption. Particularly in Mexico, the former still has areas of opportunity, while the latter has progressed well: for example, mobile technology penetration is around 85% of the total Mexican population.
What regulation must be enacted to help blockchain technology reach its full potential?
Blanca, KPMG: It’s difficult to say what regulation will help industries foster blockchain technology, especially when considering the varying degrees of regulatory burdens and requirements across different sectors. Cases such as the financial and insurance industry become especially complex and sensitive to adopting new technologies such as blockchain due to regulatory barriers and uncertainties that disincentive key market players to invest in developing new solutions. Therefore, early regulation that could potentially create unnecessary barriers for certain business models, should not be enacted.
Instead, creating a controlled testing environment, such as a regulatory sandbox, allows policymakers to design a regulatory framework that can promote technological adoption while mitigating risks. This is why involvement from governmental bodies is critical for blockchain solutions to gain traction. Bilateral communication between the public and private sectors must seek to promote transparency, inclusion, and innovation while establishing regulations that promote a safe environment for all participants; the private sector must apply strict self-regulation policies while the public sector needs to provide certainty and openness towards adopting new digital innovations.
How do you think blockchain technology and innovations impact industries in Mexico?
Blanca, KPMG: There are three key considerations to have in mind when analyzing the potential impacts of blockchain technology. First, there is a strong social and cultural component to consider. Blockchain offers tools to completely change interactions among parties that require a trusted third party as an intermediary. This has caused individuals and organizations to question certain paradigms still present in traditional systems.
Second, there are economic factors in place, such as the enablement of more inclusive decentralized business models, the creation of more efficient distributed ecosystems, and the introduction of unprecedented cohesion within the internal record-keeping process.
Lastly, there are regulatory and legal impacts. Given that our current regulatory frameworks were not prepared for this type of interaction model, there are significant risks and challenges that require policymakers to adapt regulation for emerging blockchain-based business models.
What do you feel is the biggest challenge with fintech regulation in Mexico?
Raul, DAI/UK Prosperity Fund: There are currently no regulatory impediments, so the best advice is: whatever project you would like to implement using such innovative technology as blockchain, please have the advice of a lawyer to know what is possible and what is not, and then present the project to the National Banking and Securities Commission. That way, you will have the feedback of regulators and will be able to innovate with peace of mind.
Santiago, BIVA: The implementation and surveillance. There is a fine line between letting people innovate and stifling innovation through overregulation. We need to avoid the latter.
Where is AVA’s target market after Mexico?
Kevin Sekniqi, AVA Labs: AVA is a global project with a global team. Our target market exists where demand for blockchain technology exists, and there is a lot of interest from major organizations within Mexico, proven by the participation of the panelists for AVA’s Sandbox Challenge webinar.
Our team and community will dedicate resources to any market willing to reciprocate with the same enthusiasm for blockchain innovation. Awareness and education are paramount to the success of the technology and its adoption.
*Questions may have been edited from original submission for grammar and clarity
About Ava Labs:
Ava Labs makes it simple to launch finance applications using blockchain technology–with highly scalable and efficient networks, customizable public and private blockchains, the capability to create any digital asset, and more. We are empowering people to build an open, simple, and democratic internet of finance.