This country-specific Q&A provides an overview of the legal framework and key issues surrounding fintech law in Peru.
This Q&A is part of the global guide to Fintech.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/fintech-2nd-edition
What are the sources of payments law in your jurisdiction?
The authority that supervises payment services is the BCRP (Banco Central de Reserva). Additionally, Law N° 28194 regulates the means of payment used in Peru, which mainly refers to bank transfers. The means of payments regulated by the law are the following: (i) Deposits, (ii) bank draft, (iii) transfers of funds, (iv) payment orders, (v) debit cards issued in Peru, (vi) credit cards issued in Peru, (vii) cheques with the clause of "non-negotiable", "non-transferable", "not to order" or other equivalent, issued under Article 190 of the Securities Law. The law establishes that the mentioned means of payment must always be used when the amount of the transaction is equal to or above US$ 1,000.
In addition to the traditional means of payment abovementioned, the Law N° 29985 regulates electronic money (e-money) as a payment method. In fact, the only totally digital method of payment recognized in Peru is e-money (monetary value represented by a claim on its issuer). The activity of issuing electronic money is reserved for those companies that operate under the supervision of the Superintendence of Banking, Insurance and Private Administrators of Pension Funds (SBS), these companies are named Electronic Money Issuers.
In Peru there is no payments law like the PSD2, European Second Payment Services Directive, which is a specific regulation for payments market that regulates digital payments. Nevertheless, recently the government has published the National Competitiveness and Productivity Plan which addresses the need to regulate the FinTech industry in order to have clear rules for the development and expansion of this industry. As the FinTech industry mature, additional regulatory proposals will be presented to regulate other services related to payment platforms, factoring, foreign exchange, among others.
Additionally, an updated version of the National Policy of Financial Inclusion was published in August 2019 where a reference of INDECOPI's initiative to carry out a market study aimed at analysing the conditions of competition existing in payment card systems. Although it constitutes a progress, it would be advisable to have a study of the existing legal barriers in the means of payment in general, in order to be able to prepare proposals that contribute to a financial inclusion environment.
Can payment services be provided by non-banks, and if so on what conditions?
Payment services can be provided by non-banks, as it is done by Electronic Money Issuers for electronic money transactions. Additionally, for the transfer of funds at national and international level, different from wire or bank transfer, it must be done by Funds Transfer Companies, which are regulated entities supervised by the SBS. These companies are specialized in sending and receiving money between customers’ accounts.
Also, e-money businesses (FinTech) provide payment services that do not need a bank as an intermediary, but it is mandatory to operate through an Electronic Money Issuer. Consequently, e-money businesses (FinTech) should have partnership agreements with Electronic Money Issuers to operate properly. One example of it is a Peruvian e-wallet that does not need a bank account to register, the user only needs to access to the app and register phone number, ID number and phone operator. The payment and transfer of funds is done by using e-money, this means that the user must previously charge the e-wallet with fiat money (by the use of several channels offered that may be banking entities or agents affiliated to the e-money business or the Electronic Money Issuer) that will become e-money, and then manage the transactions from the e-wallet.
Besides the mentioned scenario, which is regulated and requires a license, there is the case of FinTech businesses focused on payment and transfers services, involving sending money either locally or internationally, and includes payment facilitators (gateways). It is of our understanding that nowadays payment facilitators are offering new payment services without the necessity of bank accounts. There is a Peruvian FinTech (payment facilitator) that works with affiliated e-commerce businesses in order to give their customers a payment solution which can be only the processing of internet banking payments, or the option of making cash deposits in agencies or agents affiliated to the platform. In Peru, 60% of the population is excluded from the traditional financial system, so having an alternative of payment services provided by non-banks will promote financial inclusion.
What are the most popular payment methods and payment instruments in your jurisdiction?
Cash payments are the most common in Peru. Credit and debit cards are also commonly used. Payment gateways and e-money businesses are beginning to emerge in Peru giving more Peruvians the option to make digital payments.
What is the status of open banking in your jurisdiction (i.e. access to banks’ transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?
Banks in Peru share the personal data of their customers with third-party service providers through the use of APIS. The latter is done voluntarily using private agreements. There are no laws mandating banks in Peru to share their customers’ personal data with third-party service providers.
However, there is a growing conviction that Open Banking represents the future of banking, if an integrated and collaborative financial services ecosystem is to be pursued, where the processing of consumers’ personal data, such as financial information, is primarily aimed at improving the user experience of the data subjects, through a wide range of services.
Open Banking is considered a trend in the payments ecosystem that was first introduced by the Mexican FinTech Law, and it is expected to be replicated by other countries in LATAM, including Peru. As a result, various agents that participate in the payments market, such as financial institutions, third party payment agents, and the Government itself, will have to take new legal approaches to address the new challenges that will arise from the development of open banking.
How does the regulation of data in your jurisdiction impact on the provision of financial services to consumers and businesses?
The Peruvian legislation on the protection of personal data (Law N° 29733) is definitively less strict than the European data protection legislation (GDPR). Nevertheless, Peruvian legislation is of significant importance for the provision of financial services to consumers in Peru.
One of the main obligations of the Peruvian legislation on the protection of personal data is the requirement to request the consent of the data subjects for the processing of their personal data, including its transfer to third parties, unless such personal data are necessary for the performance of contracts or for the fulfilment of legal obligations, such as compliance with obligations relating to the prevention of money laundering and the financing of terrorism, among other exceptions.
In addition, Peruvian legislation on the protection of personal data obliges to inform data subjects the purpose for which their data will be processed and the third parties to whom such data may be transferred, whether or not consent is required.
What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?
In regard to the promotion and encouragement of innovation in the financial sector, it is worth highlighting two aspects that have been incorporated in the recent bill No. 4324-2018-PE submitted to the Congress of the Republic of Peru on May 13, 2019, which aims to regulate the business model of financial crowdfunding. Such aspects are the following:
(i) The forthcoming Law of Crowdfunding gives entities that administer crowdfunding platforms the freedom to set the percentage of interest rates, without any limit.
(ii) The forthcoming Law of Crowdfunding grants powers to the SBS and SMV to temporarily authorize entities to carry out activities or provide services that qualify as innovative models under special conditions conducive to their development (sandbox).
In this sense, the PNIF (National Policy of Financial Inclusion) published last August 3, 2019, proposes as a guideline that regulators evaluate the development of the regulatory framework in order to generate an environment in accordance with new global trends in the provision of financial services. Therefore, regulators must issue a regulatory framework that promotes the digital transformation of financial services.
Finally, the National Plan for Competitiveness and Productivity (Plan Nacional de Competitividad y Productividad) published last July 28, 2019, establishes as a priority objective the adoption of a regulatory framework for the FinTech industry according to the principles for FinTech Regulation approved by the Council of Ministers of Economy and Finance of the Pacific Alliance (Alianza del Pacífico) last July, 2018.
In this sense, it is proposed to have a flexible and dynamic regulatory framework, which would occur, in the first place, with the enactment of the Law of Crowdfunding. Subsequently, it is expected that there will be more legislative proposals for other FinTech business models, and also it is expected that a "FinTech Regulatory Platform" will be available for allowing companies to develop and implement innovative products/services subject to less stringent conditions (sandboxes).
Do you foresee any imminent risks to the growth of the fintech market in your jurisdiction?
We do not see any imminent risks to the growth of the FinTech market in Peru.
However, we believe it is important to take into account for the drafting of the upcoming laws requirements and conditions that are neither obstructive nor limiting to adequately safeguard the risks involved in the FinTech market and not to limit the free development of innovation and fair competition in financial services. Accordingly, it is expected that the authorities in Peru will work together to approve laws and regulations consistent with the Guiding Principles for FinTech Regulation approved by the Council of Ministers of Economy and Finance of the Pacific Alliance (Alianza del Pacífico), as well as with the policies and guidelines that have been proposed in the National Plan for Competitiveness and Productivity and the PNIF.
What tax incentives exist in your jurisdiction to encourage fintech investment?
The investment in FinTech business is recent in Peru. Currently, there are no tax incentives to encourage FinTech investment. In general, investors are subject to the general tax regime as any investor, whether national or foreign.
Even if there is no specific tax incentive applicable for investing in FinTech businesses, the Law of Income Tax in technological companies contemplates a special retention rate considerably lower (4.99%) than the general regime (30%) for loans originated from foreign countries, only if the requirements established in the law are fulfilled. This may encourage foreign investment in Peruvian businesses, although it is not specially designed for the FinTech industry.
In the same regard, it should be borne in mind that the financing of local enterprises (including enterprises with advanced technology businesses) through loans involves an interest expense, which is deductible to determine the benefit of the enterprise subject to income tax. A loan is more advantageous than a capital injection, since the latter does not allow the deduction of expenses for the distribution of dividends. This additional aspect must be taken into account by investors that are investing in IT companies.
The rule mentioned in the previous paragraph is applicable, as of 2019, only for companies with incomes greater than 2,500 Tax Units (approximately US$ 3 million) and provided that they comply with the requirements set forth in the Law of Income Tax.
Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?
FinTech investment is mainly focused on the seed and pre-series A stages. We are still waiting for our first Series A investment in FinTech. The segments of FinTech companies that have received funding are the following:
- Lending, like Independencia and Apurata.
- Payments, like Culqi.
- Marketplace, such as Innova Factoring and Innova Funding (factoring).
The largest bank in Peru, BCP, has set up a dedicated corporate venture capital arm and has already made two acquisitions. Endeavor Peru, an important international organization dedicated to the development of entrepreneurship, has recognized two FinTech companies with significant impact (Latin FinTech and Zest)
From the publication of the National Plan for Competitiveness and Productivity, investments in FinTech's business models are expected to increase, from the creation of the Entrepreneurial Capital Fund (Fondo de Capital Emprendedor), which would place capital in specialized private funds in exchange for one share, to investments in dynamic and high-impact ventures that seek consolidation and escalation. In this way, the emergence of FinTech business models is promoted in Peru with the high impact and benefit that this entails for financial inclusion; and it is expected that this will be the initial step for a comprehensive policy of support to entrepreneurs in our country.
If a fintech entrepreneur was looking for a jurisdiction in which to begin operations, why would it choose yours?
FinTech entrepreneurs should be aware that starting a business in Peru is attractive for the following reasons:
- Peru is a country with a high level of its population excluded from the formal financial system. Therefore, business models that are capable of improving the offer of financial services are required. In summary, Peru constitutes a great business opportunity with social value.
- Peru is part of the Pacific Alliance; thus, FinTech Regulation should be developed taking into account guiding principles such as the promotion of innovation in the provision of financial services, promotion of competition, regulation proportional to risks, technological neutrality, among others.
- Although in Peru several authorities are competent to regulate financial services according to the scope of their mandate, SMV, SBS, BCRP (Banco Central de Reserva del Perú) and INDECOPI (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual), it should be noted that in the recent proposal of Law of Crowdfunding there has been coordination between authorities to implement a regulatory framework for FinTech that promotes a balance between the protection of public interests and innovation/competition in the provision of financial services for the benefit of consumers. Since the publication of the National Plan for Competitiveness and Productivity and the PNIF, it is expected that the coordination of the authorities will be constant not only with regard to the enactment of laws, but also in the development and implementation of measures in general for the promotion of financial inclusion.
- Peru is committed to the implementation of objectives that are part of the National Plan for Competitiveness and Productivity and the PNIF, which aims to promote access to and responsible use of comprehensive financial services that are reliable, efficient, innovative and appropriate to the needs of diverse segments of the population. Therefore, it is unquestionable that the Government is not only attentive and shows interest in innovative models of the FinTech industry, but also seeks to improve those aspects that hinder innovation and financial inclusion, through the implementation of measures and guidelines, such as, for example, improvements in financial education programs and digital infrastructure, promotion of the use of digital media to facilitate transactions, strengthening of credit risk centres, adaptation and development of regulations in accordance with new trends in the provision of financial services, as well as regulatory proposals that favor a environment of competition, among others.
- As part of the forthcoming Law of Crowdfunding, interesting proposals have been put forward to promote innovation in financial services that need to be reviewed, e.g. the provision of tax benefits for FinTech business models that favor financial inclusion. This shows that as part of Peru’s agenda is the reviewing and promotion of FinTech business models, as well as prioritizing the elaboration of a regulatory framework that provides security to investors and gives confidence to FinTech entrepreneurs without neglecting the protection against the risks associated with such businesses.
Access to talent is often cited as a key issue for fintechs – are there any immigration rules in your jurisdiction which would help or hinder that access, whether in force now or imminently? For instance, are quotas systems/immigration caps in place in your jurisdiction and how are they determined?
Foreign personnel can immigrate to Peru, it is not forbidden, but it is important to consider the immigration procedures they must fulfil. Moreover, regarding the application of employment rights and benefits, foreign workers have the same rights and obligations as national workers.
If foreign personnel are required to provide services in Peru, the company must take into consideration the specific provisions regulated in the legislation for the hiring of foreign workers. Additionally, to hire foreign citizens to work in Peru, two requirements must be fulfilled: (i) the employment contract must be registered within the Ministry of Labour; and (ii) the worker must have the enabling migratory quality that allows him to work (work visa approved by the National Superintendence of Migrations).
It should be noted that our legislation establishes that companies domiciled in Peru - whether national or foreign - cannot have more than 20% of foreign workers on their payroll. And, the remuneration of foreigners cannot exceed 30% of the total payroll. This cap has exceptions; foreigners married to Peruvians, foreigners who have the status of permanent residents, foreigners under multilateral agreements signed between Peru and their country of origin, among others.
If there are gaps in access to talent, are regulators looking to fill these and if so how? How much impact does the fintech industry have on influencing immigration policy in your jurisdiction?
There is no specific regulatory measure on the access to talent in this regard.
What protections can a fintech use in your jurisdiction to protect its intellectual property?
Intellectual property comprises both industrial property and copyright; they are protected in a different way. Industrial property rights are protected since their registration at INDECOPI (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual), this means that the registry is constitutive of rights in this case. Industrial property rights include patents, utility models and industrial designs, trademarks, and geographical indications. The copyrights, referring to the rights of the authors in their literary and artistic works, are protected since their first use.
It is important to mention that for the ownership of intellectual property rights, registration is required in order to be opposable against third parties, and it must be registered under the competent authority. The registration grants an exclusive right (for a period of time) to economically exploit that invention. The right of exclusivity has two aspects of protection: to grant intellectual property rights; and to avoid third-party use of the invention without permission.
A FinTech can protect its intellectual property through the registration of distinctive signs (e.g. trademark) at INDECOPI. Trademarks are governed by the principle of territoriality which means the protection applies only in Peruvian territory. The owner of a trademark has the exclusive right to use it in accordance with his interests: license the trademark to others; constitute guarantees; and transfer their rights to a third party. Moreover, the owner may object to the registration of distinctive signs which he considers affect his rights and to file complaints in case of use of identical or similar signs by third parties.
How are cryptocurrencies treated under the regulatory framework in your jurisdiction?
There is no specific regulation on cryptocurrencies in Peru. Cryptocurrencies are considered non-regulated financial assets and, since there is no specific regulation, the applicable legislation is the Peruvian Civil Code which regulates contracts between private parties.
How are initial coin offerings treated in your jurisdiction? Do you foresee any change in this over the next 12-24 months?
There is no specific regulation on Initial Coin Offerings (ICOs) in Peru. Nevertheless, the Law N° 30050 mandates that the advertising or offer made in Peruvian territory for buying or selling any financial asset using any mass media, like technological platforms, may only be carried out by entities authorized or supervised by either the Stock Market Superintendency (SMV) or by the Superintendency of Banking, Insurance and Private Administrators of Pension Funds (SBS). Therefore, the advertising of ICOs in Peru is not permitted for unauthorized or unsupervised entities.
Furthermore, there is not any legislative project or draft concerning ICOs and we do not foresee that it will change in the near future.
Are you aware of any live blockchain projects (beyond proof of concept) in your jurisdiction and if so in what areas?
There are some Peruvian companies that have been developing blockchain – based solutions. However, these are not important live blockchain projects, rather they are still a proof of concept.
To what extent are you aware of artificial intelligence already being used in the financial sector in your jurisdiction, and do you think regulation will impede or encourage its further use?
Artificial Intelligence (AI) started to be used in the financial sector 3 years ago. However, the level of development of this technology is still incipient in the country. Banks begun to prove AI for virtual customer assistants (chatbots) to improve user experience (UX), followed by the automation of their internal processes, such as anti-money laundering (AML) controls. It is expected that in the near future AI would be used as an alternative credit scoring for the unbanked.
In our opinion, regulation will be neutral -neither impeding nor encouraging- the use of IA in Peru.
Insurtech is generally thought to be developing but some way behind other areas of fintech such as payments. Is there much insurtech business in your jurisdiction and if so what form does it generally take?
The insurance commercialization, including the onboarding phase, using technology (defined as “Insurtech”) is still in an embryonic phase in Peru. In the case of B to C services, this activity is mainly concentrated in traditional insurance companies that have the authorization of the supervisor (SBS) to sell insurance. Due to the progress of regulation, it is possible to sell and contract insurance policies (directly or through authorized third parties) by remote marketing systems, including various electronic contracting channels (mobile applications, web site, etc).
In this context, an interesting opportunity for FinTech is to make alliances with insurance companies through collaboration schemes that allow insurance companies to offer their different products in a more efficient and friendly way. In this regard, some interesting experiences in Peru are, for example, the case of Seguro Simple.com, which operates as a vehicle insurance comparator, through a technological platform, allowing consumers to quote their insurance with different companies with total transparency and agility. Another interesting example is the case of Hello Zum, which provides management services for sales and after-sales processes to various insurance companies, saving them money and time in processing information.
Are there any areas of fintech that are particularly strong in your jurisdiction?
According to the report of Finnovating News (2018), the FinTech map of Peru registers only 3% of startups dedicated to “online insurance” within the Peruvian FinTech ecosystem. Which, as mentioned before, it shows that Peruvian Insurtech Industry is still in an embryonic phase of development, so it is not possible to conclude that there is a particularly strong area in this industry.
The foregoing, however, represents an interesting opportunity for Insurtech businesses to take impulse and take off, considering the special conditions of the Peruvian market, such as the need to promote greater financial inclusion as part of the Government’s agenda (ENIF), the increasingly widespread use of mobile technology by Peruvians, cultural and consumption habits, among other reasons; that could contribute to the proliferation of innovative business models, especially in the field of microinsurance, where the current Government is committed to continue supporting initiatives and efforts aimed at insurance education (ENIF).
What is the status of collaboration vs disruption in your jurisdiction as between fintechs and incumbent financial institutions?
During the last 2-3 years, FinTech companies and financial institutions have begun to form alliances with the primary objective of facilitating the provision of financial services and improving the user experience (UX). Most of these collaboration agreements involve FinTech companies providing “leeds” to financial institutions, being the latest the ones responsible for the service rendered to the customer. There are no relevant co-branding agreements, nor any disruptive initiative between FinTech and financial institutions in Peru.
To what extent are the banks and other incumbent financial institutions in your jurisdiction carrying out their own fintech development / innovation programmes?
During the last 3 years, most Peruvian financial institutions have started a process of digital transformation which include FinTech development and innovation programmes, as it is shown below:
- Banco Internacional del Peru – INTERBANK, has created “Labentana”, its own laboratory for FinTech development based on “Design Thinking”.
- Banco de Credito del Peru – BCP, has created the “Centro de Innovación CIX BCP” its own laboratory for innovation. In addition, BCP holding Credicorp has conformed Krealo, a vehicle created with the objective of acquiring or financing FinTech companies in LATAM.
- Scotiabank Peru, has created Digital Factory, its own laboratory for innovation.
- BBVA, with the support of the Spanish Innovation Center, is implementing “Design Thinking” methodologies within the organization, not only for the delivery of products, but also for its internal processes.
Are there any strong examples of disruption through fintech in your jurisdiction?
No. We have not seen any strong examples of disruption through FinTech in Peru. It is expected to happen with the arrival of digital banks.