The Argentinian Central Bank (BCRA) has mandated digital wallets operating in the country to give their customers the earnings they obtain on their deposits. The order applies to the funds placed in wallets that are not invested based on the customer’s choice.
The resolution applies to the funds in wallets that customers do not invest. Payment account holders will now receive periodic returns.
Mercado Pago, one of the strongest companies in the South American country, quickly rejected the decision.
As a result of this update, savers who hold their money in payment accounts will now receive regular profits. Previously, these deposits did not provide any return for clients. Mercado Pago, one of the leading companies in South America, promptly dismissed the decision.
What the BCRA Says in its Resolution
The amount of money deposited in these accounts by payment service providers is 331 million dollars, according to the Central Bank of Argentina’s latest Retail Payments Report.
Previously, the BCRA required these funds to be held in sight accounts by financial institutions. The goal was to protect them from unforeseen events and assure their accessibility, while also allowing for up to 45% of this amount to be invested in National Treasury Bonds denominated in US dollars.
The official communication of the monetary authority remarks that
“Payment service providers that offer payment accounts (known as virtual wallets) will have to pass on to their clients the total return they receive on the peso balances of the deposit accounts in the financial institutions in which those clients’ funds are deposited.”
The news was received very badly in the FinTech world. Mercado Pago was the first to openly show its opposition. The company released a statement expressing its disagreement:
“We refuse this action that benefits no one. It is a form of harassment against the Fintech industry and Mercado Pago. It causes great harm to the industry and reduces investment incentives. It’s difficult to grasp this unpredictable and unexpected action in this situation. We see it as a rule made with hostility.”
Not only do we view the decision as an assault on the industry, but we informed the government that this action was taken previously.
In addition to defining the resolution as an attack on the sector, the firm let the government know that such a measure was adopted some time ago.
Mercado Pago users are already, for the most part, receiving returns on their balances. This product is an absolute success; in terms of number of users and total amount invested (it is already the number one fund in Argentina for retail users). This obviously generates discomfort in the traditional banking system, which pays 0% for balances in savings banks.
Background to BCRA’s Attack on the FinTech Sector
In December 2021, the Central Bank made another change that upset the FinTech industry. They implemented a rule that removed a source of funding. The authority ordered virtual wallets to hold all client deposits in a demand account at the BCRA without the ability to invest the money elsewhere.
In addition, the Central Bank stated that FinTech or payment service providers offering payment accounts could not conduct or assist transactions using digital assets for their clients. This rule only applied to transactions involving cryptocurrencies that were not authorized by the BCRA and not under the jurisdiction of the national authority.
This provision received significant criticism. This is the newest action that has upset the industry.
By Audy Castañeda
