Fintech investment in Latin America has been rising steadily and reliably over the last five years. In the past year alone, Fintech deals increased by a huge 20% within the region, raising US$600 million in 2017, and funding for this sector has grown a whopping 12.5 times between the years of 2014 and 2016. Naturally, it’s projected that these statistics will only continue to rise. Here’s what you need to know about the state of Fintech in Latin America.
The Importance of Fintech in Latin America
The banking and finance sector of Latin America has faced numerous challenges, even in recent years. In fact, up until the year 2016, more than half of all Latin Americans did not have any access to a debit card, or a bank account. Naturally, this means that even less of them had access to any credit at the time – only 11% of them, in fact,
Although Fintech is gradually becoming more accessible in Latin America, this is still a particularly worrying statistic, as a 99% of the region’s private sector is made up of MSMEs – or micro, small, and medium enterprises. This means that proper financial inclusion is crucial to many businesses and the lack of such inclusion can pose a challenge to the development of the region’s economy.
However, the lack of access to Fintech hasn’t halted the Latin America’s banking sector nearly at all. If anything, this sector of the region is actually stronger and more profitable than many other parts of the world. In fact, even the recession of 2008 didn’t particularly affect Latin America, as the banking sector’s growth was boosted by 3.8% in 2010 following a small drop of 2% the previous year. Meanwhile, American and European exports dropped by 10% in the year following the recession and failed to recover for many years after, and Latin America benefited from this by keeping up domestic sources for loan growth.
Access to much of Fintech in Latin America, especially credit, remains a very bureaucratic system that is very formalized, resulting in the isolation and exclusion of multiple MSME business owners. This trickles down into the rest of the population as MSME business owners employ, at minimum, 67% of the Latin American population. As such, it’s vital that the inclusivity in Fintech accessibility is improved on.
Still, the past 10 years have seen many improvements in Fintech in Latin America thanks to the advent of more accessible Internet and increasingly modernized facets of technology. With a huge percentage of Latin Americans using smartphones and plenty of opportunities arising for financial services to be easily supplied to MSMEs.
Fintech Opportunities in Latin America
Latin America in its current Fintech state has become optimal for those looking to introduce new and innovative technologies that can provide mobile banking facilities and services in an accessible manner. As a matter of a fact, there are currently 700 Fintech-related startups scattered across Latin America, and more than half of these were first set up somewhere between the years of 2014 and 2016.
With more than US$186 million being received by the Fintech sector in total venture capital funding in 2017 – and around a third of that total amount being directed to startups – it’s no secret that as of right now, Latin America’s Fintech revolution has more than begun thanks to the boosts in accessibility to technology and the Internet.
The Fintech industry of Latin America has a number of trends that indicate the ways in which they are heading quickly towards a revolutionized and modernized sector. Mainly, this involves digital banking, blockchain technology, electronic invoicing, electronic factoring, digital authentication processes, and even smart contracts. These tools, put in place correctly, have allowed Latin Americans to feel more safe and secure in their Fintech activity and consumerism while ensuring that those who do receive credit are at a financial state where they are most eligible for it.
Different countries in Latin America have been rising in Fintech in different ways. Here are a few of them.
Fintech in Brazil
Brazil is certainly the country at the forefront of Fintech activities in Latin America. When economic issues resulted in traditional banks resorting to withdrawing themselves from a number of services, an empty need arose that needed to be filled. Fintech companies and startups began to rush in to fill the void, and as a result of their development, the regulatory landscape for Brazil’s Fintech payments is much more established than in other Latin American countries, causing it to become increasingly attractive to potential investors. As a result, companies based in Brazil are responsible for raising nearly 90% of all capital investments in 2017 for Latin America’s top deals.
56% of all Fintech deals made in Latin America in 2017 were made by Marketplace Lending companies and Payments & Remittances companies – but 1/3 of all of them were done with the involvement of companies based in Brazil. Investment in the region has also shot up since 2016 in total, and a large part of the driving force behind this trend is Nubank, a startup found in 2013 and based in São Paulo that is focused on providing credit card and mobile banking options for those in Brazil without access to their traditional versions. So far, in all its years as a company, Nubank alone has raised more than US$377 million in this area.
Other interesting Fintech companies in Brazil include Creditas, an online lending platform that is highly secure and allows for lower costs of borrowing for more efficient systems for lending, and GuiaBolso, the only personal finance platform currently in Brazil that users can use to completely bring their bank accounts to integration. GuiaBolso boasts more than 3.3 million users and has raised more than US$67.2 million. Verios, Triunfei, and Iugu are some other FinTech companies in Brazil of note.
Fintech in Mexico
Mexico is another country in Latin America that is at the front of the progress lead, Mexico has slowly been falling in its shares of these deals. In fact, after starting strong with 37.7% of deals involving Fintech corporations from Mexico in 2014, 2017 saw that percentage drop to 15% due to its market maturity.
Still, all is not lost as many Mexican Fintech companies continue to go strong. A startup called Kueski wound up raising more than US$ 35 million in 2016 in its mission to provide achievable smaller loans for those in the middle-class, and Konfio is an online lending platform that has also been going strong in its efforts to ensure creditworthiness even in the underserved. There is also Clip, which raised US$8 million in 2016 and makes for easy small business cashless payments, and other smaller companies like ComproPago, Bitso, Kiwi, and Conekta.
Fintech in Colombia
The deal activity leap in countries other than Mexico and Brazil in 2017 was led by Colombia, which took up 25% of those deals – a large upward spike from just 12% in 2016. This may have been thanks to an SME lending platform called Sempli, which managed to raise US$3.6 million – the largest one made in the country. Colombia is also home to Epayco, an E-commerce provider that caters to both SMEs and individuals, as well as companies like Mesfix, Prestamela, and Banlinea.
Fintech in Argentina
Argentina is another country that has participated in the the Fintech movement in this region, and it does have several impressive standout companies. In fact, it has one of Latin America’s most prominent facilitator that makes use of blockchain technology: the Ripio Credit Network. The P2P lending service managed to raise US$37 million for its initial coin offering and it was the only one of its kind that took place in 2017. It now has 130,000 users registered in both this country and in Brazil and may expand to Mexico shortly.
Argentina is also home to Afluenta, a marketplace lending company that is the only one in Latin America to offer its services to both SMEs and individuals in over just one country – it also works in Peru and Mexico and will likely be expanding out to Brazil and Colombia. It also has other notable Fintech companies like SeSocio, Wayniloans, and ComparaenCasa
Fintech may be on the rise in Latin America, but it still has a long way to go. Thankfully, this progression is moving at a steady pace, promising tons of untapped potential waiting to be discovered. As of 2016, 26% of investments in the Fintech sector are made between international and local venture capital firms, indicating that many international organizations and corporations are beginning to spot this potential and embrace it. Thus, it is the perfect time for potential investors or business-owners to consider expanding Fintech services to Latin America, effectively seizing the opportunities that present themselves.
Extra tags #ecommerce #fintech #latam #startups #venturecapital
Jorge Jimenez is a Fintech and E-commerce enthusiast and blogger in Latin America. Read more at www.jorgejimenez.co