Fintech in Costa Rica: changes and perspectives

By: Randall Barquero

In 2022, the Fintech sector continued to grow in Costa Rica, and the outlook for 2023 is even more promising. In this article, we will review the recent dynamics of the sector and what we can expect in terms of regulation soon.

According to the latest Fintech report published last April by the Inter-American Development Bank (IDB) and Finnovista , at the close of 2021 a total of 44 Fintech startups were estimated in the country, while a year later, at the end of 2022, 55 such companies were already identified, according to the “Fintech Radar” of Costa Rica, published by Misión Lunar and the Fintech Association of Central America and the Caribbean, which evidences a growth of 25% per year. In the regional context, the Costa Rican ecosystem is among the 3 most dynamic in Central America and the Caribbean, along with the Dominican Republic and Guatemala, countries that have also been very active in recent years, with year-on-year growth of more than 75% since 2017, according to figures from the IDB report mentioned above.

In April 2022, the National Council of Supervision of the Financial System (CONASSIF), inaugurated its Center for Financial Innovation (CIF), a space that seeks to promote dialogue and informal consultation between entrepreneurs and regulators, so that all those interested in developing a Fintech project can have this channel of communication and guidance on the regulation applicable to their proposal.  Previously there was already a “Fintech Group” formed by officials from the different Superintendencies of the financial system and the Central Bank of Costa Rica, which studied the dynamics of the Fintech sector but with little or no interaction with the participants in the ecosystem, a situation that has now begun to change with the opening of the CIF.

For its part, the most widely used electronic wallet in the country, the SINPE Mobile of the Central Bank of Costa Rica (BCCR), continued its solid growth of the last 3 years, with 66.33% more transactions than in 2021, reaching more than 372 million transactions, of which 242 million were between accounts of different banks, and the difference between accounts of the same bank. This milestone was accompanied by the BCCR’s announcement of its interest in extending the National Electronic Payments System (SINPE) to the rest of the countries in Central America, with which financial entities, public institutions and Fintech companies that are already part of that system, could have the opportunity to mobilize funds to and from other countries in the region, as they have been doing for many years domestically, and also other entities in the region could join the system, as is already happening with the International Bank of Costa Rica, domiciled in Panama.  This could represent a great opportunity for regionalization of payment services in the region, considering the development, efficiency, and recognition of this system at international level.

Unlike other countries in the region, during 2022 Costa Rica did not pass any law directly related to the Fintech ecosystem, although some proposals were presented, which we will comment on below. At the regulatory level, some regulations were issued or updated that have an impact on certain Fintech verticals that participate in regulated systems, particularly credit and debit cards; with the update of the regulations related to the Payment Card System, where payment gateways and aggregators act, which must be registered with the BCCR in 2023. Similarly, the SINPE regulations were also modified to establish the technical standards to be met by non-supervised companies that are part of this system and provide payment services (such as some Fintechs), which must be determined by the BCCR and not by the General Superintendence of Financial Institutions (SUGEF), which had issued the first requirements, generating disagreement among several participants.  In this line, some companies supported by the Fintech Association, have spoken in favor of further clarification and precision of certain regulatory criteria recently issued by the authorities, which has generated some discussions and proposals that are expected to generate a new regulation, including proposals for legislation, in order to provide greater legal certainty to this segment of companies and their users.

What to expect for 2023 in Fintech regulation?

The Fintech regulatory landscape for Costa Rica in 2023 promises to be quite active. In addition to the results of the conversations and negotiations on the topics mentioned above, which could lead to new proposals, there are other initiatives related to the sector that have already been presented or have been publicly announced, both of a public nature and others that come from the private sector. As an example of the latter case is the “Cryptoassets Market Law” bill, currently being processed in the Legislative Assembly (Exp. No. 23.415), presented by Congresswoman Johana Obando of the Progressive Liberal Party and promoted by the Blockchain Association of Costa Rica.  The bill seeks to establish a legal definition of cryptoassets and their categories – based on international experiences such as the European one with the MiCA Regulation, as well as to regulate their ownership, uses and liability. It also proposes to delimit the form of registration for crypto-asset service providers, their registration in terms of prevention of money laundering, and their entry into SINPE. Finally, it includes a proposal on the tax regime for cryptoassets that would be applicable in the country.

On the other hand, in terms of regulation, the market is waiting for CONASSIF to approve and publish the Regulations to Law 10.069 “Law on Electronic Bills of Exchange and Promissory Notes”, which should have happened in June 2022 when the stipulated term expired. Although a version was published for public consultation in July 2022, after that there have been no pronouncements on the matter. This Regulation will establish the parameters and requirements through which companies and institutions interested in acting as Centralized Registries may opt for registration with the General Superintendency of Securities. Both the financial sector and the Fintech ecosystem could greatly benefit from the migration of these securities to the electronic format, by having the opportunity to provide greater agility, transparency and certainty to users, as well as being able to carry out financing transactions, deliver portfolios as collateral, among others, in a more expeditious manner, and also opening an important opportunity for the chaining of B2B support services such as technology providers, cybersecurity, regtech, among others. 

Likewise, SUGEF has publicly mentioned that it is handling a proposal for legislation related to the eventual regulation of payment gateways and wallets, which would be called payment receiving entities. It would seek that these types of companies would be required to register in order to have a license that would allow them to carry out their activity, and a preliminary draft is currently in consultation with different stakeholders in the financial industry and the Fintech sector. For the time being, SUGEF has said that it wants to focus on this initiative to regulate this type of payment entities before proposing legislation on other Fintech activities or issues.   

In some circles it has been commented the possibility that a proposal to regulate crowdfunding investment would soon be known, for which the Superintendencia General de Valores and the Bolsa Nacional de Valores would have a very important role.  

The aforementioned initiatives, as well as the natural dynamism of the Fintech ecosystem, where the only constant is change, augur a very interesting new year in our country and in the region.