Fintech for financial inclusion in Latin America and the Caribbean The case of Paraguay

Abstract

This report provides a first complete analysis of the key actors, structure and regulatory environment of the Fintech sector in Paraguay. It seeks to find the contribution of the Fintech sector to the key challenges in the financial sector in Paraguay and in most Latin American and the Caribbean (LAC) countries including financial inclusion, access to credits and a lack of digital innovation in financial and business services.

Full text

FINTECH
FINTECH FOR FINANCIAL INCLUSION IN LATIN AMERICA AND THE CARIBBEAN:
THE CASE OF PARAGUAY 1

FINTECH FOR FINANCIAL INCLUSION IN LATIN AMERICAN AND THE CARIBBEAN:
THE CASE OF PARAGUAY
Authors:
• Prof. Dr. Augustinus Van der Krogt
• Ing. Cecilia López Closs
The findings, interpretations, and conclusions are the authors’ and they do not necessarily
reflect the views of the institutions they represent.
Design, layout and illustration:
• Lic. Horacio Torreani
Report published by: Paraguayan German University (Universidad Paraguayo Alemana),
Paraguayan Chamber of Fintech (Cámara Paraguaya de Fintech) with the collaboration of
the Ministry of Industry and Commerce of Paraguay (Ministerio de Industria y Comercio
de Paraguay).
Published in August 2020.
Copyright: This work is under the license of Creative Commons
Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-
NC-SA 4.0), this license lets others remix, adapt, and build upon the
work non-commercially, as long as they credit the authors and license
their new creations under the identical terms. Note that the URL link
(https://creativecommons.org/licenses/by-nc-sa/4.0/legalcode)
includes additional terms and conditions of this license.
INDEX
FOREWORD ........................................................................................................................................4
ACKNOWLEDGEMENTS .................................................................................................................... 5
EXECUTIVE SUMMARY ...................................................................................................................... 7
1. Introduction ....................................................................................................................................9
2.Challengesinthenancialservicessector .............................................................................. 11
2.1. Low financial inclusion ..........................................................................................................................11
2.2. Limited access to credits and investment ....................................................................................13
2.3. A backlog in innovation in financial services ...............................................................................14
3.Fintechasanalternative ............................................................................................................ 16
3.1. Defining Fintech ......................................................................................................................................16
3.2. Tendencies in the global and LAC Fintech industry .................................................................18
3.3. Impact of Fintech on financial inclusion, access to credit and innovation .......................19
3.4. Digital technologies in Fintech ........................................................................................................22
3.5. Regulating Fintech ................................................................................................................................ 25
4. Fintech in Paraguay ................................................................................................................... 30
4.1. General sector characteristics ..........................................................................................................30
4.2. Financial inclusion through digital payment services .............................................................33
4.3. Access to credits through Digital lending and Crowdfunding .............................................36
4.4. Innovation through Fintech solutions for financial institutions, companies,
and consumers .......................................................................................................................................39
4.5. Cryptocurrency services .....................................................................................................................42
4.6. Digital technologies in Fintech ........................................................................................................43
4.7. Towards an effective regulatory framework .............................................................................. 44
5. List of Fintech companies ..........................................................................................................48
6. References ................................................................................................................................... 49

Encouraging the entrepreneurial spirit and culture to carry out
research, development and sustainability of entrepreneurial
projects and creating support measures is the main objective of
DINAEM.
It is clear that supporting start-ups, and in this case to Fintech,
which are enterprises with a great capacity for scalability and
employment generation and financial inclusion, are a priority
for our government and but where the government, the private
sector and academia must necessarily have an impact and focus.
We understand that the new times demand undertakings with
great resilience, innovation and capacity to expand their reach to
the entire world. Through this report, Paraguayan talent shows us
that our country and its young people are in a position to take on
this challenge and be at the forefront of competition at the global
level.
I am pleased that our University can contribute to the research on
new and promising economic activities such as Fintech. This report
shows that this sector already contributes to the much needed
development and innovation of our economy, in particular where
it concerns the increased participation in the formal financial
system and access to finance by lower income families and small
and medium sized enterprises.
The Fintech industry in Latam is experiencing significant growth,
in investments, job creation, increased financial inclusion in the
most vulnerable sectors. This study is the first step to achieve the
visibility of the sector and boost its growth in Paraguay in these
same terms mentioned before. It also shows the importance of the
inclusion of technology to meet the challenges that the country
has in terms of banking and financial education. As Founder
and President of the Fintech Chamber of Paraguay, it is a great
honor to be able to share this work with the highly prestigious
Paraguayan German University.
Edgar Colmán M.A., National
Entrepreneurship Director
Ministerio de Industria y
Comercio del Paraguay.
Dr. Enrique Bendaña, Rector
Universidad Paraguayo
Alemana.
Cinthia Facciuto, President
Cámara Paraguaya de Fintech.
FOREWORD
We would like to thank Cinthia Facciuto of the
Cámara Paraguaya de Fintech who trusted us
to undertake this research project and shared
her extensive knowledge of the stakeholders
in the Fintech Sector in Paraguay. We
furthermore acknowledge the assistance of
Edgar A. Colman, Edgar Alcides Ortellado B.
and Juan A. Paredes Romero of the Ministerio
de Industria y Comercio de Paraguay for their
support and advice. Finally we thank Tania
Ziegler and Felipe Ferri of the Cambridge
Centre for Alternative Finance for their advice
on the research methodology and all their
experience of the global Fintech sector.
ACKNOWLEDGEMENTS
Ing. Cecilia López Closs
Research Assistant Universidad Paraguayo Alemana
Research Affiliate Cambridge Centre for Alternative
Finance.
Prof. Dr. Augustinus van der Krogt
Dean Faculty of Business Sciences
Universidad Paraguayo Alemana.

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EXECUTIVE SUMMARY
This report provides a first complete analysis of the key actors,
structure and regulatory environment of the Fintech sector in
Paraguay. It seeks to find the contribution of the Fintech sector to
the key challenges in the financial sector in Paraguay and in most
Latin American and the Caribbean (LAC) countries including financial
inclusion, access to credits and a lack of digital innovation in financial
and business services.
As for financial inclusion only 50% of the adult population in LAC
and 31% in Paraguay is bancarized. Looking at limited access to
credits, in LAC only 23% and in Paraguay 15% of the adult population
and 37% of small and medium companies have access to credits
from formal financial institutions. A lack of digital innovation in the
financial and business sector is a consequence of a lack of research
and development in the private sector, limited technology transfer by
research institutions and a lack of government subsidies.
To overcome these challenges, the Fintech sector offers a series
of opportunities. The rapidly growing digital payment services can
contribute to financial inclusion. Digital lending can offer alternative
and more efficient and accessible sources of financing to consumers
and businesses. The Fintech sector provides a series of innovative
digital solutions that can make financial and business services more
efficient and accessible to a larger group of customers and small
businesses.
To exploit these opportunities, the Fintech market has grown to US$
135 billion in 2019 in developed countries. In LAC the Fintech sector
has surpassed the US$ 1 billion mark with Brazil, Mexico, Colombia and
Argentina all hosting over 100 companies offering Fintech services.
In Paraguay, the sector is still small but growing with 36 companies
offering Fintech services in 2019. The sector has so far had most
impact on financial inclusion by the rapid growth of mobile money
accounts offered and is now a leading country in LAC with more than
one third of the country’s adult population owning a mobile money
account. In 2020 the growth of digital payment services is boosted
by the distribution of government subsidies to almost 1.4 million low-
income employees and families via mobile digital accounts.
As for an alternative to the access of credit, the volume of digital
lending services offered in Paraguay is still limited and represents

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only 1% of the total credit volume in Paraguay.
However, with 150,000 low income families
and small companies as beneficiaries from
digital lending in 2019, the Fintech sector
shows that it can be an important alternative
lending source for low income families and
small companies which should be expanded
further in the coming years.
The Fintech companies in Paraguay that offer
innovative digital technologies to financial
institutions and businesses have an important
contribution in the promotion and adoption
of digital innovation in Paraguay. They all
make use of combinations of innovative
solutions such as predictive data models,
robotics, machine learning, block chain, image
recognition, natural language programming
and deep learning to improve the efficiency
and effectiveness of financial, operational,
marketing and sales services.
The future development of Fintech in LAC and
in Paraguay strongly depends on a country
specific and tailor-made regulatory process
and framework. The research finds that
Innovation Offices or Hubs are most effective
to facilitate the dialogue between Fintech
companies and regulators and to get to an
effective regulatory framework.
Considering generic regulations for the
Fintech sector, companies and regulators
agree that there is an urgent need to develop
and approve cross-cutting regulations for
data protection and public data access and
exchange, open banking and APIs and digital
and electronic signatures. With these generic
regulations, most of the Fintech services
offered to financial institutions and businesses
do not need a specific regulatory framework.
In the case of digital payment services, the
larger providers consider the regulations to be
adequate and appropriate for their activities,
but smaller companies consider the rules
to be too strict to enable the participation
of more innovative start-ups. The lack of an
appropriate regulatory framework for digital
lending services has been a great obstacle
for companies to advance in the sector. The
companies in this sector seek a specific
regulatory framework that provides a basic
level of guarantee for investors and lenders
without limiting innovation and access to retail
investors and lenders. In the specific case of
cryptocurrencies the operators indicate the
need for a specific regulatory framework if
Paraguay wants to develop a growing market
for crypto currency exchange and mining.
The financial sector in Latin America and the Caribbean (LAC),
including Paraguay, is facing important challenges, including limited
financial inclusion and access to credits as a result of strict banking
requirements of traditional banking institutions and high levels
of informality in the private sector. Furthermore, a general lack of
service and digital innovation in the region’s financial sector is found.
This report seeks to describe how the Fintech sector can assist in
addressing these challenges by analyzing the key Fintech services
that enable financial inclusion through digital payment services,
improves access to funding through digital lending and opens new
opportunities to improve operational efficiency, lower costs and
improve customer experience by introducing innovative Fintech
solutions for financial institutions, business and consumers.
After analyzing the key challenges in the financial sector in chapter
2, the report provides in chapter 3 a brief overview of the tendencies
in Fintech services at a global level and in the LAC region. It also
describes the regional impact of Fintech on financial inclusion, access
to credits and innovation and an overview of digital technologies and
regulations processes and frameworks.
In chapter 4, the research focuses on the results of an in-depth
analysis of the volume and types of Fintech services offered in
Paraguay and analyses the sectors’ contribution to financial inclusion,
access to credits and innovation. The chapter also describes possible
regulatory processes and frameworks that can assist in the further
development of the Fintech sector.
The report is commissioned by the Paraguaya Chamber of Fintech
and published with the support of the Paraguayan Ministry of Industry
and Commerce. The research is conducted by a team of researchers
of the Universidad Paraguayo Alemana and the Cambridge Centre
for Alternative Finance with the kind support of the participating
Fintech companies and responsible authorities in Paraguay who
contributed through questionnaires and interviews.
1. Introduction

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The Paraguayan Chamber of Fintech seeks to bring together the country’s Fintech
companies to strengthen the sector and its members. It seeks to turn Paraguay into a
regional benchmark in the creation and adoption of technology-based financial services
that can boost competitiveness, inclusion and financial education and excellent levels
of quality in the provision of these services to the community. The key services include
alternative finance, digital payments, open API, blockchain and education.
The Chamber seeks the following main objectives:
• Promote a regulatory framework adapted to the sector and Encourage and promote
the development and professionalization of financial services based on technological
innovation.
• Promote international cooperation and identify good practices in the Fintech and
related sectors and inform its members about the different rules and regulations
affecting the sector.
• Intervene in the approach and solution of public problems related to the sector and
promote the rules that favor the development of the entity and its associates.
• Promote technology-based financial education.
Paraguay has one of the least developed financial markets in Latin
America. This is expressed in different aspects of the financial sector
but in particular in terms of the access to efficient and effective
access to financial services by the population in general. In broad
terms, the financial sector faces three key challenges:
• Low levels of financial inclusion of the population due to inefficiency,
bureaucracy and high costs of traditional banking services
• Limited access to credit of investment sources by consumers
and small and medium-sized enterprises (SMEs) due to strict
requirements, bureaucracy and high-interest rates offered by
financial institutions and a lack of documentation and high levels
of informality among SMEs
• A lack of effectiveness, efficiency and high costs of financial
services due to a lack of innovation in services and technology
In this report, it will be looked into more detail at each of these
challenges and the current and potential contribution of the Fintech
sector to overcome each of these challenges.
2.1. Low financial inclusion
Whereas developed countries have a level of financial inclusion
between 90% and 100% if measured by the level of the banked
population, this is different for developing countries. At a global level,
only two-thirds of the adult population had access to a bank account.
Most unbanked persons are found among women and persons with
lower incomes and primary education or less. The unbanked do not
have an account as they do not have sufficient money to use an
account. Others indicate that they are lacking documentation and
distrust the financial system, that services are costly or not available
locally, (World Bank, 2018).
2. Challenges in the financial
services sector

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Figure 1: Bank account levels per 100 adults in 2017
Table 1: Percentage of the adult population over 15 years with an account in a financial
institution 2017
Table 2: Percentage of the adult population over 15 years with bank loans or credit card 2017
According to data from the World Bank in LAC,
the level of the banked population in 2017 was
just over 50% of the adult population (over 15
years). In the same year, only 31% of the adult
population in Paraguay had an account with
a financial institution (see Table 1), reflecting
the lowest levels of banking penetration in
different segments in South America. Different
from other developing countries, the inclusion
of women and rural persons was almost equal
to that of males with a bank account.
Source: World Bank (2018)
Source: World Bank (2018)
2.2. Limited access to credits and
investment
Where almost one-third of adults in developed
countries have access to credits from a
financial institution, this counts for only 10%
of the population in developing countries.
Most people rely on friends and family or do
not access any form of credit or loan. Access
to credits is much higher in LAC with 23% of
adults having access in 2017. Paraguay had
the lowest level of access with only 15% of
the population reporting having borrowed or
used a credit card in the last 12 months. This
could be linked to the low access to credit
previously mentioned. Furthermore, only 13%
of adult women have been able to borrow and
even fewer persons in rural areas.
As to access to credit in Paraguay, reports
of the Banco Central del Paraguay (BCP)
conclude that the majority of financial
institutions they had surveyed described
access to credit among individuals and small
enterprises as low, whereas for medium-sized
enterprises it was defined as medium in 2017.
These reports also shed some light as to the
common reasons behind rejected loans, the
majority of financial institutions mention
credit history and lack of credit information
for new applicants (BCP, 2018).
Other studies among a sample of SMEs
indicate that limited access to financial
resources is one of the key impediments to
start and manage a small or medium-sized
enterprise in Paraguay. In 2019 only 37% of
small and medium-sized companies had
access to formal financial institutions in 2019.
To finance their business, 11% has been able
to use saved company resources or secure
investment by its owners and 40% rely on
family and friends. Almost one-third of small
and medium-sized businesses does not have
access to one of these formal or informal
financing resources at all which either results
in a direct limitation to growth or in high levels
of bankruptcy (GEM, 2020).

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Figure 2: Sources of financial resources by SMEs in Paraguay, 2019
Source: Asepy, 2019; Van der Krogt, López and Paredes, 2020
The limited access to credits is confirmed
by the difficulties for SMEs to access loans
even during the COVID-19 crisis. Since March
2020 the banking institutions have been
able to assign only 30% of a US$ 565 million
credit fund for SMEs (Fondo de Garantía del
Paraguay), even with state-backed guarantees
up to 70%, and with more accessible interest
levels 7% and 10%.
The limitations in the credit market represent
an important opportunity for alternative
financing such as P2P Lending (BCP, 2015-
2018). Relatively high-interest rates -between
10 to 15%- of traditional banking also represents
a factor that can increase the demand for
alternative financing by SMEs. This is further
supported by excessive interest rates offered
to SMEs by the shadow banking system (Van
der Krogt and López, 2019).
Beyond traditional financing sources,
Paraguay has an underdeveloped financial
support system. Venture capital, initial public
offerings, and crowdfunding are the least
developed financial resources available in
Paraguay (GEM, 2020).
2.3. A backlog in innovation in
financial services
As to the general level of innovation, Paraguay
is lagging behind other economies in the LAC
region. In 2017 expenditure on Research and
Development amounted to only 0.15% of the
GDP, the lowest level observed in the region
(see Table 4).
Table 3: Research & Development expenditure in LAC 2017
Table 4: Research and Development transfer level 2019
Source: World Bank (2018)
Source: GEM Report on Paraguay (2020)
Furthermore, Paraguay scored lowest among
their peers in the region in the Research
and Development exchange index of the
2019/2020 Global Entrepreneurship Monitor
Report on Paraguay. This implies that experts
in the entrepreneurship ecosystem evaluated
a low level of transfer of knowledge from
academia to companies or the collaboration
between these institutions (see table 4).
Low levels of knowledge transfer limit the
innovation capacity of smaller companies
and start-ups. This is combined with high
costs of technology and a lack of government
subsidies to acquire technology and to
develop innovative ventures.
This affects innovation in traditional sectors
but also in more technology-driven sectors
such as software development and service.
These technologies are hitherto used only
by the few larger multinational companies in
the telecommunications and financial sectors.
Even in the more advanced software sector
only 7% of the companies are using innovative
technologies such as business intelligence
and predictive data analysis for decision
making and client support (Neubert and Van
der Krogt, 2018).
Innovation specific to the financial sector is
also scarce. This can be partially explained by
traditional type of financial service offered in
Paraguay. The financial market in Paraguay
is one of the least developed in the region
and it’s still catching up with some core
characteristics of more developed financial
markets. In this context, Fintech brings
along an important opportunity to overcome
high costs, bureaucracy, and inefficiency of
financial and other business services, and
therefore improve levels of financial access
and inclusion.

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3.1. Defining Fintech
The term Fintech (Financial Technology), has different definitions,
some define it as the technology used to improve financial services
and others define it as the companies that apply these technologies
to their financial products and services. In general, it can be said that
the Fintech industry is made up of companies that apply technology
to improve financial activities1. To have a study comparable at a global
level, the Fintech models (categories and subcategories) applied to
this study are based on those defined and used in other studies by
the Cambridge Centre for Alternative Finance (CCAF).
As key Fintech categories we will distinguish throughout the report
between the following seven categories:
1 Schueffel, P. (2016). Taming the beast: a scientific definition of fintech. Journal of Innovation
Management, 4(4), 32-54.
3. Fintech as an alternative Table 5: Fintech Categories and Sub-categories
Source: Cambridge Centre for Alternative Finance (2019), authors

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3.2. Tendencies in the global and
LAC Fintech industry
In 2019, global fintech investments reached
$135.7 billion, $64.2 of which were from deals
in the Americas (KPMG, 2020). A study by
PwC in 2019 indicates that the sector is still
dominated by traditional financial institutions,
media, and telecommunication companies
and technology companies. Fintech
solutions are rapidly adopted, not only by
financial institutions but also by media,
telecommunication companies, incumbents,
and start-up technology companies. In
developed countries, almost half of all
financial, telecommunication, and technology
companies have embedded fintech fully into
their strategic operating model, and many
have fintech-based products and services
(PWC, 2019).
Around 47% of the financial institutions and
35% of telecommunication and technology
companies indicate to collaborate actively
with Fintech companies to integrate digital
technologies into their business strategy
and operations (PwC, 2019). An overview of
Fintech companies active in each of the LAC
countries can shed light on the adoption of
Fintech in leading countries in the region. The
majority of Latin American Fintech start-ups
in 2018 were found in Brazil which hosted 33%
of all start-ups, followed by Mexico, Colombia
and Argentina.
Figure 3: Number of Fintech start-ups in LAC countries 20182
Figure 4: Fintech start-ups per category in LAC countries 2018
Source: IDB (2018) and Authors
Source: IDB (2018)
2 Fintech start-ups with their legal headquarters in LAC countries
Within the region, most companies are active
in three Fintech categories including New
and innovative services for companies and
consumers, Digital payments and Digital
lending (IDB, 2018). A similar segment
distribution was observed in Argentina
(Accenture, 2020).
3.3. Impact of Fintech on financial
inclusion, access to credit and
innovation
The use of technology-based financial services
can bring along important benefits to the
economic integration and development for
both companies and individuals. In particular,
digital payment services can contribute to
In 2018, the Alternative Finance (which
includes Digital Lending and Digital Capital
Raising) market in Latin America broke the $1
billion threshold, and reached $1.81 billion in
transactional volume (Cambridge Centre for
Alternative Finance, 2020).
financial inclusion (Demirguc-Kunt et al.,
2018). Digital lending and crowdfunding can
represent an important alternative source
of credits and digital technologies used in
financial institutions can make borrowing
more efficient and more accessible. The use
of digital technologies by companies can
make financial services for businesses and
consumers more efficient (see Figure 5).

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Figure 5: Fintech contributions to challenges in the financial sector
Figure 6: Internet users per 100 people in 2019
Source: Authors
Source: Internet World Stats (2020)
Research shows that benefits from mobile
digital payments are wide-ranging and
include increased income security of low-
income families through remittances or
urban-rural money transfers. Increased use of
digital accounts also stimulates savings and
increased spending on necessities (Demirguc-
Kunt et al., 2018).
The Fintechs providing technology for financial
institutions provide solutions that assist in
the access to more efficient and lower costs
of credits due to less red tape and reduced
investments in infrastructure (Alliance for
Financial Inclusion, 2018). Digital balance
sheet lending for consumers and businesses
can provide lower-cost access to credits and
loans even in rural areas with limited coverage
by traditional financial institutions.
Crowdfunding platforms provide alternative
sources of finance that connect donors or
indicates that 64% of consumers have used at
least one Fintech service. In the leading LAC
countries included in the study, the user levels
were a minimum of 64%, and higher than in
many developed countries such as Japan,
France and the USA (PwC, 2019). The most
well-known and used services are mobile
payments, digital savings and lending, digital
tools for budgeting and financial planning and
Insurtech.
The potential impact of Fintech is assisted by
a worldwide increase in access to the Internet.
In 2019, 62% of the population in LAC had
access to the internet. In Paraguay, half of
the population of Paraguay has access to
the Internet which is still below the regional
average (see table below). However, the
potential for Fintech is much higher if we take
into consideration an internet penetration over
80% among the adult population between 15
to 34 years as reported by a household survey
in 2018 (DGEEC, 2019).
investors directly to lenders. Most digital
lending and Peer-to-Peer (or Marketplace)
Lending have also developed more effective
and efficient credit scoring methods that
increase the credit acceptance rates in
particular among retail consumers and SME
lenders. Insurtech can provide access to
insurance to the previously underserved
population, as technology allows to overcome
the barriers that prevented these potential
clients from being reached (Alliance for
Financial Inclusion, 2018).
The innovations offered by Fintech companies
offering New and innovative financial services
for business and consumers contribute
to an overall improvement in the access,
effectiveness and efficiency of financial
business and consumer services (Alliance for
Financial Inclusion, 2018).
A recent PwC study on Fintech in 27 countries
Similarly, limited access to financial sources
is not limited by a lack of general access to
mobile services in Paraguay. Data indicate that
Paraguay has achieved a high level of mobile
penetration of 107 mobiles per 100 people in
2018, above the LAC average of 103 mobiles
per 100 people. Even though only 66% of the
LAC users and 50% of the Paraguayan users
have a smartphone, most users can still access
digital payments and other Fintech services
by using more traditional message-based
services (GSMA, 2019).

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Figure 7: Mobile users per 100 people in 2018
Source: GSMA (2019)
While access to the Internet and mobile services
facilitates financial inclusion and access to
credits, the digital technologies introduced by
Fintech services need to respond to the needs
of particularly underserved user groups and
require an adequate regulatory framework
(Demirguc-Kunt et al., 2018).
3.4. Digital technologies in Fintech
The Fintech sector applies a wide array of
digital technologies that support inclusion,
access to credits, and increased efficiency
of financial services. Many of the Fintechs
apply a combination of different technologies
and user interfaces including Web-based
platforms or Apps that are accessible through
computers and mobile devices. In this case,
some services such as digital payments
support SMS services to include users with
older mobile phones. Most platforms are
making use of cloud computing. To access
data, many Fintech companies are using APIs
to connect and use data from public and private
databases. To support and optimize Fintech
services many of the companies are using a
series of innovative digital technologies in the
field of Artificial Intelligence and Blockchain.
Key innovative digital technologies applied
in Fintech are described in the following text
box.
Artificial Intelligence (AI): The World
Economic Forum (WEF) defines artificial
intelligence as “a suite of technologies,
enabled by adaptive predictive power and
exhibiting some degree of autonomous
learning, that have made dramatic advances
in our ability to use machines to automate
and enhance pattern recognition, decision
making, customization, foresight, and
interaction”. (WEF, 2018)
Machine Learning (ML): It can be defined
as a field inside Artificial Intelligence. It is an
algorithm that can find patterns in data and
can use these patterns to make predictions
(Deloitte, 2017; MIT Technology Review, 2018).
Deep Learning (DL): It is based on machine
learning algorithms, which are applied
along with artificial neural networks. These
networks are formed by computational
nodes, that work together to process the
data and deliver predictions. Deep learning
can be supervised (a human “trains” the
algorithm) or unsupervised (the algorithm
learns by evaluating itself) (Deloitte, 2017;
MIT Technology Review, 2018).
Robotic Process Automation (RPA): These
are bots that can perform routine tasks, by
imitating human interaction with software
and are used to automate processes (Deloitte,
2017).
Natural Language Processing (NLP):
As defined by Deloitte (2018): “Natural
Language Processing tools encompass the
entire cycle of recognizing human speech,
understanding and processing natural
language, and generating text that can be
read and interpreted by humans.”
Image Recognition (IR): Another sub-field of
Artificial Intelligence. Through algorithms, the
computer/machine “recognizes” images, by
processing and analyzing them (PwC, 2017).
Predictive Analysis (PA): It is the use of
historical data, with analytical techniques to
predict future events (IBM, n.d.).
Blockchain (BC): Blockchain technology
is used for better security and operational
efficiency and involves the implementation
of a distributed database that is accessible
to all the users over a network, where each
user can add a new data record (block),
with a timestamp that cannot be altered.
The blockchain technology maintains the
authentication of data by restricting changes
in the older data blocks while allowing the
users to continue adding new data blocks,
thus providing high security and transparency
to companies operating in the Fintech
market. It enhances trade accuracy, speeds
up the settlement process, and reduces risks.
By 2020, 77% of financial organizations plan
to integrate blockchain into their operations
& 90% of payment companies plan to use
blockchain by 2020 (PwC, 2019).
Distributed Ledger Technology (DLT): As
defined by the World Bank (2018): “Distributed
ledgers use independent computers (referred
to as nodes) to record, share and synchronize
transactions in their respective electronic
ledgers (instead of keeping data centralized
as in a traditional ledger)”.
Key digital technologies applied in Fintech

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Fintech companies often combine a set of different digital technologies. The combinations can
vary according to each specific Fintec category and sub-category. The following table shows
the most regularly used technologies in each of the Fintech categories.
Table 6: Digital technologies applied to Fintech categories
Source: Cambridge Centre for Alternative Finance (2019), authors
3.5. Regulating Fintech
Regulation is a critical aspect for the growth
and development of the Fintech Industry,
inadequate regulatory frameworks could
hinder this growth and even have a negative
impact on the industry. It is paramount to
understand that each Fintech category has
a different business model and different risk
levels. Therefore, the adequate regulatory
process and model can vary for each type
of Fintech service. Thus it is important to
analyze experiences at global and LAC levels
to define the most effective type of regulation
for each specific Fintech category. Platforms,
borrowers, investors, and regulators alike,
worldwide, could benefit from learning about
the experiences in other markets.
Alternative regulatory processes
Before defining the appropriate regulatory
model, the Fintech sector can seek a regulation
development process that is adequate for the
disruptive potential and fast development of
digital technologies in the Fintech industry.
To respond to these characteristics some
countries have decided to collaborate on
a progressive and participatory process of
development of standards and regulations
alongside the implementation of Fintech
services. In the United Kingdom, where the
first digital lending platforms were introduced
in 2005, the platform operators created
an Association to establish basic industry
standards and later on collaborated with the
financial authorities on the development of a
specific regulatory framework which resulted
highly beneficial to platform operators,
investors, and lenders.
This process model has been later evolved in
more formalized regulation process models.
Innovation Offices facilitates dialogue
between the market and regulators. They
are dedicated departments within regulatory
bodies and through them, Fintechs can
receive clarification regarding authorizations
or licensing requirements and existing
regulations (UNSGSA FinTech Working
Group and CCAF, 2019; Alliance for Financial
Inclusion, 2020). In a recent study conducted
by the World Bank and the CCAF about the
Regulation of Alternative Finance, it was
revealed that Innovation Offices are the most
common innovation initiatives applied by
regulators (World Bank and CCAF, 2019).
Regulatory Sandboxes are safe spaces
where businesses can test their products or
business model in a structured and controlled
environment, without having to meet the full
extent of a given regulatory framework. This
also creates a space of dialogue between
regulators and businesses (Alliance for
Financial Inclusion, 2020).
In 2015, a Regulatory Sandbox was launched in
the UK, under the supervision of the Financial
Conduct Authority (FCA). Companies that
wish to test their products and services in
the Sandbox must apply and meet certain
requirements, established by the FCA, to
be eligible. Firms that are successful in the
application are assigned a case officer, who
supports the firm in this period of time,
clarifying where regulatory matters (FCA,
2017).
The study conducted by the World Bank
and CCAF on the Regulation of Alternative
Finance, also revealed that Innovation Offices
have had a higher impact on supporting firms
than Regulatory Sandboxes, as quantitatively
they have supported a higher number of firms
(World Bank and CCAF, 2019).

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Another innovative instrument for regulation
in the Fintech sector is related to digital tools
and platforms that serve the supervision and
compliance of regulations known as RegTech
or Regulatory Technology (Alliance for
Financial Inclusion, 2020).
Regulatory models for Fintech categories
Policymakers can choose between different
regulatory models. Most used models were
identified in a recent article and include
self-regulation, pre-existing regulatory
frameworks, such as banking or securities
regulations or developing new and specific
regulatory frameworks that consider the
particular characteristics of each type of
Fintech service (Van der Krogt and López,
2019).
In most of the Fintech sectors, it is advised
to introduce a specific set of regulations for
each type of Fintech which can minimize risk,
protect consumers, and allow sustainable
growth. The United Kingdom provides
the most successful example of a high
participatory process and specific regulatory
models for different Fintech services. Mexico
is an interesting regional example where
specific regulatory models were developed. In
2018 the financial authorities have approved
a regulation with specific and different
overseeing authorities and requirements for
digital payments, crowdfunding and crypto
assets. In some Fintech categories, self-
regulation can be an option, but in other
cases, it has shown to be strongly detrimental
to longer-term sustainability as in the case of
digital lending in Asia.
Table 7: Possible regulatory frameworks for the Fintech industry
Source: Authors, Van der Krogt and López (2019)
Based on international experiences, the
following suggestions are made for the
appropriate regulatory frameworks for each
Fintech category.
Generic regulations for all Fintech services:
To facilitate and regulate the Fintech sector
for all categories there is a need for a clear set
of regulations on consumer protection, data
protection, and access to public and private
data via APIs. In these cases, countries can
make use as a basic framework the General
Data Protection Regulation of the European
Union approved in 20183. Furthermore, the
Fintech sector requires the use of electronic
and digital signatures. Electronic signatures
provide an electronic symbol attached to
contracts or records and a digital signature
guarantees the authenticity of an electronic
document.
Furthermore, in these areas, there must be a
mechanism in place to supervise new aspects
of the application of digital technology and
data usage, as they bring out new risks
or issues related to the use of application
programming interfaces, data exchange and
usage, privacy and data protection concerns.
Digital payments: In most countries, digital
payment options such as remittances and
international transfers, payment gateways and
points of sales are to comply with the existing
payments regulations. Digital transaction
services such as mobile money, digital
wallets, and P2P transfers most countries
have developed a specific set of regulations
for this subcategory in digital payments.
This to secure a clear demarcation between
digital transaction services and intermediary
financial services.
Digital lending: Digital lending is one of
the most complex Fintech categories. The
application of pre-existing banking and credit
regulations to digital lending services may also
negatively affect its development and growth,
as requirements may be excessive for these
platforms and restrict its growth potential.
These restrictions may in particular affect
digital lending to SMEs in the LAC region
where banking institutions have strict lending
requirements combined with high levels of
informality and limited financial management
capacity among smaller companies.
Where higher risks for investors and lenders
are relevant there is a need for specific
regulation. The lack of proper regulation in
Peer-to-Peer Lending (P2P Lending) in China
allowed irregular platforms to operate in the
market and are suffering the consequences
now. Authorities continue to investigate these
platforms, and until now, many platforms
have been identified as problematic (Krogt
and López, 2019).
In the case of P2P for business and consumers
and Factoring and Invoice Trading, it
is recommended to develop a specific
regulation. One of the success stories is
the case of P2P regulation in the UK. Since
2014 the market has known sector-specific
regulation. Since 2014 the Crowleding
platforms are supervised by the Financial
Conduct Authority (FCA) which regulates
both banking institutions and securities but
who developed a sector-specific regulatory
regime including capital requirements
and other requirements to protect risks of
investors and lenders (Patwardhan, 2017). As
a result, this alternative form of financing has
proven to be an essential source of funding
with almost 30% of all SMEs in the UK being
funded through crowdfunding (Cambridge
Centre for Alternative Finance, 2018).
It is not advised to apply securities-based
regulation to P2P services as this makes retail
investors comply with extensive registration
and risk requirements. In markets such as
the USA where securities based regulations
are introduced, institutional investors’
participation is dominant and have driven
3 For more information on General Data Protection Regulation see https://gdpr.eu/

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away from the original idea of connecting
smaller investors and lenders (Van der Krogt
& López, 2019).
Crowdfunding: The crowdfunding sector has
seen different experiences with regulation.
Self-regulation may be an effective option
where financial risks for giving parties and
beneficiaries are more limited. This applies
for example to rewards or donation-based
crowdfunding which is not regulated in most
countries.
However, in the case of higher risks for
investors and clients such as equity or real
estate crowdfunding countries have opted to
develop a specific regulatory framework.
Technology for financial institutions and
Innovative solutions for businesses and
consumers: Similarly, the categories of
Technology for financial institutions and
Innovative solutions for businesses and
consumers do not need a specific regulatory
framework. However, as indicated, these
services do need to apply clear regulations
on consumer protection, data protection and
access to public and private data via APIs.
Some specific financial solutions such as
foreign exchange and savings are to comply
with standard banking regulations. The
appropriate regulatory framework may also
affect the type of investor and clients that will
use these financial services platforms. Other
more sophisticated and high-risk financial
services such as digital Wealth management,
Social trading, Stock market solutions and
Robo-advisors are to comply with securities-
based regulations to secure a playing level
field with traditional services.
Cryptocurrencies: While mining operations
are not regulated, the exchange of
cryptocurrencies are operating in most
cases considered under the securities-based
regulations.
Insurtech: Digital solutions for insurances
are in most cases regulated by the insurance
regulations in each country.
The following tables summarize the key
regulatory frameworks and specific aspects
that each Fintech subcategory is to comply
with.
Table 8: Regulation Models Applied for Fintech Worldwide
Source: Cambridge Centre for Alternative Finance (2019), Ehrentraud et al. (2020), Van der Krogt and López (2019)

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4. Fintech in Paraguay
The objective of this chapter is to provide
a mapping of the Fintech ecosystem4 in
Paraguay, analyze its current situation, its
potential contribution to financial inclusion,
access to credits, and innovation. Furthermore,
it will discuss the state of regulation for
the different sectors within the ecosystem
and collaboration between companies that
offer Fintech services or developers of
these technologies, with traditional financial
institutions and regulators and legislators.
4.1. General sector characteristics
The study has included 36 Fintech companies
including detailed primary data on 30
companies, and secondary information on
remaining companies, that offer or develop
Fintech services in Paraguay in 2019. With this
number of companies participating the study
provides data that are a statistically fully
representative overview of the Fintech sector
in Paraguay. These companies include 33
fintech companies that are based in Paraguay
and three international fintech platforms have
transactions in Paraguay. It also includes three
major telecommunications companies that
have dedicated Fintech units to offer digital
payment services in Paraguay. The study has
not included traditional financial banking or
credit institutions that offer financial services
online next to their off-line services.
The number of 36 Fintech companies situates
Paraguay regionally between countries with
middle-sized size of the Fintech sector such
as Ecuador and Uruguay. As a sector, the
companies employ around 373 persons based
in Paraguay in the development or offering
of Fintech services in 2019. The interviewed
companies indicate that qualified younger
talents are scarce but available in Paraguay to
expand and further develop the Fintech sector.
It is much more difficult to find digital experts
with experience in the local market, who need
to be hired from neighboring countries.
Another interesting characteristic of the
sector is the company’s lifetime. Different
from what could be expected in a new sector
the study indicates that almost half of the
companies are more than 5 years operational
and have integrated Fintech in their services
package. 40% of them are younger companies
that started between 2016 and 2018. Only
10% of the companies are new start-ups that
launched in 2019.
Within the sector, nine companies including
the telecommunication companies provide
digital payment services. Ten companies are
active in alternative sources of finance with
digital lending and crowdfunding. Seventeen
companies develop or provide innovative
fintech solutions to financial institutions,
companies, and consumers and crypto assets.
The participation of Fintech companies in
each category is similar to that in the wider
LAC region, except for a larger participation
of companies developing technology
solutions for financial institutions and a
smaller participation of companies in the
category of innovative services for business
and consumers.
4 The Fintech Ecosystem, as defined by Lee, I. & Shin, Y., J. (2018), is composed of fintech companies, technology developers,
government, financial customers, and traditional financial institutions
Figure 8: Number of Fintech companies per category in Paraguay 2019
Figure 9: Key Unique Selling Points of Fintech companies
Source: Authors
Source: Authors
The Fintech companies in Paraguay focus on
the speed of service and use-friendliness as key
unique selling points over traditional financial
institutions. To a lesser extent companies
focus on the development of optimal user and
As for their revenue models, most Fintech
companies in Paraguay and in particular those
operating in digital payments and crypto assets
have built their business on transaction fees.
Digital lending and crowdfunding platforms
user device interfaces. Current high costs of
traditional financial services and limited local
competition can explain that the product price
is the least important unique selling point.
are working mainly with a profit margin on
revenues. Most companies developing and
selling solutions to financial institutions and
companies apply a business model based on
subscription, set up of maintenance fees.

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Figure 10: Business revenue models of Fintech companies
Figure 12: Services provided by 9 Digital Payment companies in Paraguay 2019
Figure 11: Key risk factors perceived by Fintech companies
Source: Authors
Source: Authors
Source: Authors
Thirty percent of the Fintech companies see
major risks in changing consumer loyalty and
a change in the regulatory framework. Around
20% of the companies consider high risks of
The following sections describe the
particularities of each Fintech category in
terms of employees, revenues, clients and
its contribution to the main challenges in the
cybersecurity and fraud. Thirteen percent of
the participating companies see high risks on
possible collapses in infrastructure and a loss
of markets due to obsolete technology.
financial sector. Digital payments services can
provide an alternative and efficient solution to
advance financial inclusion. Digital lending and
crowdfunding are alternatives to overcome
limited access to credits. The Fintech solutions
for financial institutions and companies and
crypto assets are responding to the need to
adopt digital innovation in Paraguay.
4.2. Financial inclusion through
digital payment services
Digital payments services are by far the
largest and most developed sector in the
Paraguayan Fintech market. There are seven
companies active in this segment including
the main telecommunication operators and
some smaller companies. These companies
offer a combination of online and mobile
solutions to transfer or manage money locally
through and abroad through digital wallets
and other solutions. Others offer solutions to
facilitate online and mobile payments over
digital platforms and point of sales.
Most of the companies active in digital
payments serve individual customers and
SMEs that are underserved or that do not yet
make use of the traditional banking system.
Similar to other countries in the region,
together these solutions are a response to the
low levels of financial inclusion, binarization
levels, and the inefficient and costly financial
transaction services offered by the traditional
banking system in Paraguay.
The low level of banking penetration and access
to the financial system, together with the high
level of mobile telephone use, have resulted in
Paraguay becoming one of the countries with
the greatest use of mobile money accounts in
Latin America, with 29% of the country’s adult
population owning a mobile money account
by 2017. Furthermore, in the same year, 45%
of the adult population has made or received
digital payments. Moreover, access to mobile
accounts by the female population and in rural
areas is much higher than in other countries.
Digital payments through digital wallets are
mostly used for substitute small physical
money transfers between family members,
particularly from urban to rural areas and
to pay smaller informal transactions. Since
2019, payments have grown further as digital
accounts were also used to pay for public
services.

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Table 9: Adult population with mobile accounts in selected LAC countries 2017
Table 10: Key features Mobile payments in Paraguay 2019
Source: World Bank (2018)
Source: BCP (2020) & Authors
In that same year, only 49% of the adult
population had both accounts in financial
institutions and mobile money. This reflects
the positive impact that institutions outside
the traditional financial system have had on
the country’s financial inclusion (World Bank,
2018). This also implies that there is still a large
The financial inclusion through mobile digital
accounts is currently by far the highest in Latin
America and reflects the positive impact that
institutions outside the traditional financial
system have had on the country’s financial
inclusion (Demirguc-Kunt et al., 2018). While
growth potential in Paraguay for financial
inclusion through mobile transactions. Since
2017 the number of digital mobile accounts
has grown rapidly from 1.8 million to almost
3.2 million digital mobile accounts at the end
of 2019 (BCP, 2020).
this reflects a high level of financial inclusion,
it is important to mention that slightly over 1.7
million accounts are active which implies that
only 34% of the digital accounts are actually
used for digital transfers.
Figure 10: Total and Active Mobile Money Accounts
Source: BCP (2017, 2018, 2019)
The users together carried out over 55 million
financial transactions with a total value of
US$ 1,687 million and an average volume
per transaction of US$ 29 and an average
volume per user of US$927. The services
generated a combined revenue of around 2%
of the transaction volume for a value of US$
34 million. With these volumes, the digital
payments represent currently 99% of Fintech
transactions and over 90% of the revenues in
the Fintech sector in Paraguay.
The number of digital accounts is expected
to increase further in 2020 as a result of the
decision to use the digital payment solutions
of the telecommunications providers as
the exclusive channel to pay COVID-19
government subsidies to lower-income level
families.
Since March 2020, the government has used
the digital payment services to distribute
subsidies of its health emergency program
Pytyvõ to 1,111,749 informal employees and
food security program Ñangareko for 259,663
low-income families many of which did not
have a mobile payment account. With a total
expenditure of US$ 308 million through these
programs, this alone represents 20% of the
total value of digital payments in 2019 and
has added on a significant number of new
clients of mobile payments. The use of digital
accounts is also expected to grow because
of a recent expansion in digital account
usage with a maximum cast in volume lifted
from US$ 500 to US$ 1,000 and a maximum
expenditure or cash out period increased
from 90 days to 180 days.

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Case Yeroviajha: Yeroviajha developed Pasaporte
Digital to provide its customers with a digital payment
tool. This solution is currently accepted as a method of
payment in some sports retail stores.
This service was developed based on the fact that a
large part of the Paraguayan population does not feel
safe when online shopping and prepaid funds could
give them a sense of safety, protecting them from fraud
attempts. The customer can reload their Pasaporte
Digital, which works as a gift card, and can transfer
those funds or use them in specific retail stores.
4.3. Access to credits through Digital
lending and Crowdfunding
Digital lending services represent the
second-largest service of the Fintech sector
in Paraguay. These services are particularly
relevant to overcome the limited access to
credits in Paraguay where 63% of SMEs are
lacking access to credits through traditional
financial institutions. Digital platforms can
assist in diminishing the currently highly
bureaucratic paper-based and in-person
credit processes and can improve the overall
efficiency and costs of smaller sized credits.
Figure 17: Volume digital lending in US$ in Paraguay 2014-20195
Figure 18: Services provided by 5 Digital lending and 4 Crowdfunding companies in
Paraguay 2019
Source: Cambridge Centre for Alternative Finance (2020), Kiva (2020), Authors
Source: Authors
5 Volume in 2019 may not include all platforms operating in Paraguay
The need for alternative credit sources has
become all the more visible in the difficulties
of the traditional banking institutions and
cooperatives to expand credits to SMEs even
when the government has expanded the
guarantee levels up to 90% during the COVID-19
program. Since March 2020, six companies are
currently active in digital lending in Paraguay
with three companies offering consumer
loans. Four of the companies offer loans to
SMEs and start-ups. Two of these companies
facilitate peer to peer lending between
business and two companies offer financing
to businesses through factoring and invoice
trading. These companies actually support
the access to credits by both SMEs that are
registered in the banking system but also
underserved companies. This way the digital
lending services do represent an important
and first alternative to the traditional financial
institutions in Paraguay.
The category of crowdfunding has currently
four companies including two equity
crowdfunding platforms for companies and
two platforms that facilitate crowdfunding
based on donations.
Despite its importance as an alternative source
of financing, the total volume in digital lending
is still limited with US$ 14.5 million in total
outstanding loans in 2019, which represents
less than 1% of total lending in Paraguay. In
numbers of beneficiaries, digital lending is
more developed with 153,196 individuals and
businesses which accounts for almost 7% of
the total number of persons and companies
with loans in Paraguay in 2019.
It is also interesting to find that the average
volume of digital loans per person or company
is much lower than in the case of traditional
banking lending. This can indicate that
digital lending in Paraguay is reaching out to
lower-income users and smaller companies
than traditional financial institutions. This is
clearly a sector with an enormous growth
potential that will need to be supported by
an adequate regulatory framework and active
promotion by public and private institutions
in the ecosystem.

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Table 11: Key data Digital lending in Paraguay 2019
Source: BCP (2020), Kiva (2020), & authors
Case Study Kiva/Fundación Paraguaya:
Fundación Paraguaya is an organization
that seeks to eliminate poverty and
encourage entrepreneurship among the
low-income population. Since 2007 they
have worked with the US-based online
lending platform Kiva to offer microcredits
to low-income entrepreneurs. Fundación
Paraguaya grants the credits and
afterward creates a fundraiser on Kiva to
cover the costs of these pre-dispersed
credits. The monthly repayments made
by borrowers are directed to the funders
of the campaign posted on Kiva. In 2017
Paraguay was the second-largest funded
country on Kiva and has channeled over
US$ 9 million funded through the platform
in 2019.
Source: Kiva (2020)
4.4. Innovation through Fintech solutions for financial
institutions, companies, and consumers
Responding to the need for more innovation in the financial sector
in Paraguay, five Fintech companies are contributing actively to
the development of technology-based services that make financial
transactions more responsive to client needs and more secure
by assisting financial institutions in the adoption of solutions for
verification and fraud prevention and know-your-client services. The
slightly more than 100 employees in these companies mostly develop
and sell or license customized software solutions with an estimated
turnover of almost US$ 800,000.
Figure 19: Services provided by 5 Companies providing technology for financial institutions in
Paraguay 2019
Source: Authors
In Paraguay, most Fintech companies are dedicated to the
development and provision of new and innovative financial services
to businesses and consumers. With around 172 employees in this
subcategory, the companies’ revenue model is mostly based on the
development of advisory fees that amount to an estimated US$ 2.5
million to US$ 3.0 million in 2019. In this category of Fintech services,
five of the nine companies provide innovative credit scoring services
based on social media and other alternative sources of customer and
company data.

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Case Findo: Findo is a fintech company that started operations in Argentina and that
developed the first mobile scoring platform in LAC. With its intelligent digital platform, it
positions itself as a strategic partner of banks, financial entities, and companies interested
in expanding its customer base and expanding its business.
The Findo Score model predicts the probability that a loan applicant will default after
3 months and 8 months. The model uses different layers of information including the
traditional credit history, the applicants´ mobile phone and sociodemographic information,
socioeconomic information, economic reference variables and the ability to pay in the
geographical area. The model is developed with machine learning techniques to find
patterns in different socio-demographic variables of clients currently exceeding 10,000
data points. To support the credit scoring process Findo uses a gradient boosting machine
which is a technique that optimizes the risk assessment by using a decision tree with a
sequence of predicting variables in each decision level.
This innovative service can contribute to financial inclusion as it allows financial institutions
to complement and diversify traditional scoring methods for banked and unbanked clients
and strongly improve loan approval rates without compromising the clients’ payment
capacity. The fully automated digital credit scoring process also simplifies and improves
the speed of the loan approval process.
Other companies develop and offer marketing
tools based on data analytics or provide
customer assistance programs based on
smart chatbots and another offers artificial
intelligence-driven for asset management
advice. Other companies provide digital
solutions for accounting, business intelligence
services, and payment collection. Three
companies offer digital platforms to simplify
the savings and expenditures of individual
consumers and to compare credit options.
Figure 20: Fintech Services provided by 10 companies providing Innovative services for
companies and consumers in Paraguay 2019
Source: Authors
Case Goiko: Goiko started in 2017 with a platform that offers consumers to compare
different loan offers of banks and other financial institutions in Paraguay. Based on basic
personal data -age, location, income, debt history- the platform provides fully tailor-made
loan options. To select available options for each customer the company uses predictive
analysis on historic and transactional client data to select different loan options. The
same platform can be used to offer other financial services such as investment options
and insurances.
This Fintech service is relevant to the financial inclusion of lower-income persons as it
provides access to loans that fit within the debt and payment capacity of each individual.
Particularly outside urban areas, the platform allows interested clients to choose more
competitive loan offers beyond the traditional local credit providers. With 1,500 daily
visitors and 50,000 registered users, the service indicates the existing demand for these
kinds of Fintech services.

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4.5. Cryptocurrency services
Since 2017 three companies are active in crypto-based mining services
or operate online platforms to facilitate the exchange of crypto assets
for individuals and corporate clients. In 2019 these companies had a
limited number of 670 individual and corporate clients and a limited
transaction value of US$ 280,000.
This Fintech category is still in an initial stage of development but has
interesting potential in Paraguay if the services can achieve better
terms of collaboration with both regulators and banking institutions.
This potential is found in the first place as cryptocurrencies can
provide a very fast, low cost and transparent alternative method of
international financial transactions. Furthermore, mining operations
could be developed or accompanied by competitive energy costs.
The knowledge and experience of blockchain technologies currently
used by these companies as their core technology can on medium-
term be used in other decentralized financial and business operations
such as intelligent contracts used for loans and savings, real estate,
and insurances.
Figure 21: Services provided by 3 Crypto Assets companies in Paraguay 2019
Source: Authors
Case Cripex: Paraguayan company Cripex started in 2017 with a platform that offers trade
in more than 150 cryptocurrencies. Different from normal currencies, the cryptocurrency
transactions are backed by a distributed network of computers across the world called
nodes that store information about transactions and help to verify their authenticity by
all buyers and sellers. Different from the centralized transactions by traditional banks,
the cryptocurrencies are organized by blocks of transactions or blockchains.
The company is also active in cryptocurrency mining, a process in which new blocks of
currency transactions are added to the blockchain. This requires an accurate process
of validation that requires complex computational mathematics. For this, the company
uses high-powered and specialized computer hardware that requires extensive energy
sources. In this aspect, Paraguay can benefit from the lowest energy costs at the regional
level but would need even lower energy cost and government-supported incentives and
a clear set of rules for new investors to come if it wants to compete at a global level.
4.6. Digital technologies in Fintech
Similar to the companies at a regional level, the
Paraguayan Fintech companies are applying
global state of the art digital technologies. In
this aspect, the Fintech sector represents an
important example of the countries’ capacity
to develop and use technology. In this respect,
the Fintech sector is having an important
contribution to the promotion and adoption
of digital innovation in the financial sector.
The Fintechs offer web-based platforms or
Apps stored accessible on computers and
mobile devices. Most Fintechs are applying
combinations of Artificial Intelligence to
support data analysis. Almost 60% of the
Fintechs use predictive data models, over
40% uses robotics and 30% is using machine
learning. These forms of AI are sometimes
combined with image recognition, natural
language programming, and deep learning,
To support data storage, and different from
the traditional software sector, almost all
Fintechs are operating cloud-based systems
and the Cryptocurrency providers are already
using more advanced decentralized computer
networks and blockchain.

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Figure 22: Digital Technologies used by Fintech companies in Paraguay 2019
Figure 23: Perception of the current regulatory framework for Fintech services
Figure 24: Preferred regulatory framework for Fintech services
Source: Authors
Source: Authors
Source: Authors
4.7. Towards an effective regulatory framework
A localized regulatory processes
Considering the regulatory environment for the Fintech sector in Paraguay, more than half
of the Fintechs are currently operating in services that are not regulated. For the rest of the
regulated companies, most consider the framework under which they operate adequate and
appropriate. Six companies consider the regulations to be excessive.
Companies that offer non-regulated services or who disagree with the current regulation call
for a specific set of regulations for their Fintech activities while others consider auto-regulation,
banking, or securities-based regulations.
To address the need for a clear regulatory
approach and alignment between Fintech
companies and regulators the sector is to
decide on an appropriate and participatory
regulatory process. This process can be set up
as a stepped process based on the following
principles:
Cross-sectoral spaces: To advance the
Fintech sector in Paraguay in general there
is a clear need for an open and constructive
discussion about how to promote and grow
the Fintech services sector. For this, both
Fintech companies and regulators suggest
prioritizing inter-sectoral discussion spaces
for the Fintech sector with the participation
of Fintech companies, financial institutions,
telecommunication operators, and key
regulating bodies. Considering the focus on
financial inclusion and business innovation
these discussions can be coordinated by the
Ministry of Industry and Commerce and the
Paraguayan Chamber of Fintech.
The process is to contribute to a sector
that seeks to expand financial inclusion and
the access to credits in Paraguay, needs
to safeguard the interests of investors and
consumers and at the same time provides
space for experiments and innovation.
Furthermore, the process is to produce clear
priorities for the Fintech sector in terms of
specific areas in which regulation is needed
and in which areas regulation is not needed.

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Specific regulation or Sandbox: Once Fintech
categories are defined the key stakeholders
in each specific area can decide whether to
work directly towards a specific regulatory
framework or to make use of an open Sandbox
approach.
Innovation Hub: Furthermore Fintech
companies have indicated the need for regular
technical and regulatory consultations with
regulators. For this, the BCP can set up an
Innovation Hub for consultations on Fintech
related issues.
Generic regulations for Fintech
Most Fintech companies and interviewed
regulators agree that there is a need to
develop and approve a series of cross-cutting
regulations to facilitate the development of
current and future of the Fintech services
sector. This applies in particular to the
following generic regulations:
• Data Protection Regulation: As most
Fintech companies depend on data
analysis they need a clear Data Protection
Regulation, where possible based on the
most recent available regulations such
as the 2018 General Data Protection
Regulation of the European Union.
• Data Access Regulation: Many Fintech
services are requiring access to public
data to enhance Fintech as a key driver of
their digital services which requires clear
regulations on the mechanisms for the
exchange and usage of public data.
• Digital and Electronic Signature: Digital
and Electronic Signatures are essential to
facilitate and legally sustain fully automated
digital processes without the necessity of
paper-based and direct physical human
interaction.
• Open Banking/ APIs Regulation: With the
implementation of Open Banking, users
will “own” their financial information and
this will allow them to share it with other
financial institutions, when seeking financial
services or products. This results in greater
efficiency for financial institutions and gives
them a clearer picture of clients’ financial
history.
Regulation for Digital payments
The larger providers of digital payments
consider current specific regulation for
Electronic Payment Entities to be adequate
and appropriate for their activities. The first
mobile wallet in Paraguay was released in
2008, however, it wasn’t until 2014 that the
sector was regulated. Regulators allowed
the sector to test their business models and
develop, before implementing a framework.
This allowed them to assess the impact these
innovative services had on financial inclusion
and the appropriate regulatory actions.
In March of 2014, the Central Bank of Paraguay
approved regulations for electronic payments
including the licensing conditions for
Electronic Payment Entities (EMPE) (Sanín,
2015). In 2019, the BCP issued regulations
that allow the creation of a clearing house
for digital payment providers enabling the
interoperability and transactions between the
different virtual wallets (BCP, 2019). Providers
of digital payments that are not EMPE´s are
to interconnect their services through one or
more licensed EMPE´s.
Smaller digital payment providers see the
regulatory framework as excessive and too
strict and hampering the entry to this type
of service. To secure future innovation and
further development of this service, it is
important to see how the sector can be open
enough to new local and foreign operators.
The majority of platforms consider that they
should be supervised and regulated by the
Paraguayan Central Bank (BCP). Therefore
the BCP suggests that newcomers seek active
advice and participate in future adjustments
to the specific EMPE regulatory framework.
Regulation for Digital lending
The companies active in lending are divided
over an appropriate regulatory framework
and coordinating agency. This is partially a
result of earlier experiences with regulatory
obstacles in 2017 and 2018 when some of the
companies have been prohibited to operate
in Paraguay and have stopped operations
(Krogt & López, 2019).
The lack of an appropriate regulatory
framework has been a great obstacle for
companies to advance in the sector. Balance
sheet based digital lending to business and
consumers operate under current credit
regulations, which is considered too strict to
enable the development of digital services.
Recently a bill to regulate Factoring and
Invoice Trading was passed with specific
guidelines and requirements to be defined by
the BCP in the following months. A regulation
for P2P lending is currently developed by the
National Securities Commission.
Similar to other countries the Digital lending
sector requires a basic set of guidelines that
can provide a basic level of guarantee for
both investors and lenders without limiting
innovation and access to retail investors and
lenders.
Regulation for Crowdfunding
There is currently no regulation of the
four Fintechs that currently offer equity or
donation-based crowdfunding. In line with
policies in other countries and given the
current limited level of operations it can be
suggested not to develop any regulatory
framework for reward and donation-based
crowdfunding. If the subcategories of equity
and real estate crowdfunding reach a larger
market, specific regulations for these activities
can be developed in the longer term.
Regulation for Technologies for
financial institutions and Innovative
services for business and consumers
Most of the Fintech services offered to financial
institutions, businesses, and consumers do
currently not operate under a specific regulatory
framework. A majority of the companies
indicate that there is currently no regulation
of their services, four for which indicating that
this is not needed for their particular service.
However, as indicated, these services do need
to apply clear generic regulations on consumer
protection, data protection, and access to
public and private data via APIs.
Similarly to other countries, these services
can operate under the standard commercial
or financial regulations without recurring to
a specific regulatory framework. However,
more advanced foreign exchange and savings
services are to comply with standard banking
regulations. Financial services such as digital
Wealth management, Social trading, Stock
market solutions, and Robo-advisors are to
comply with securities-based regulations.
Four of the Fintech companies have regulated
services and only one considers the regulation
to be excessive and too strict.

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Regulation for Cryptocurrencies
Cryptocurrencies are currently not regulated in Paraguay. In the last
year the government, specifically the Secretary for the Prevention
of Money and Assets Laundering (SEPRELAD), has been working on
a draft to establish guidelines for the regulation of crypto assets.
The companies working in the sector have expressed the need for
an adequate regulatory framework. Without this, it is very difficult to
develop both mining and exchange services in this highly international
service. They prefer a sector-specific regulation that considers the
particularities of the sector.
The companies are divided over the choice of regulating body,
indicating a preference for the set up of a specific public entity, a specific
private entity, or the National Securities Commission. Experiences in
other countries suggest seeking to integrate cryptoassests regulation
into the Securities-based regulatory framework.
5. List of Fintech companies
6. References
The following list includes all Fintech companies that have participated
in the survey and interviews.
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