The Latin American Fintech Ecosystem
By Mauricio Zuluaga
The financial-technology start-ups, commonly known as ‘fintech’, have gained popularity over the last decade. Today, Latin America is an important hub for those companies looking for new solutions in the financial and banking sector. The demand for the services by fintech companies rose by 128% in South and Central America in the last year. Brazil, Mexico, and Colombia are the top three countries dominating Latin America's fintech ecosystem. Just the Colombian start-ups working on this segment represent 13% of all the fintech in the region, surpassing important countries such as Argentina and Chile.
The potential business in Latin America is enormous. Due to a large part of the population being unbanked - nearly 70% of adults in the region do not have credit or debit cards - people and businesses are constantly looking for new alternatives to make payments or transfer money outside the traditional banking system. This gap has been filled by fintech working on increasing access to financial technology and decreasing the system costs through innovative ways.
The social distance and lockdowns, due to the pandemic, have created an increased need for online shopping, demanding new solutions in the fintech segment. Considering that the lack of banking products and services is an obstacle to buy and sell through the internet, now is a good time to embrace disruptive digital technologies, expanding digital banking or creating new solutions that help fulfilling the challenge of creating more access to alternative payment methods.
On the other hand, cellphone penetration is over 100% in Latin America. The region now only follows Eastern and Central Europe, where this metric reaches 154%, and Western Europe, where it goes up to 129%. The use of smartphones is drastically increasing and it’s predicted that 90% of all internet connections in Latin America will come from mobile devices by 2022, leaving the door wide open for digital fintech providers.
Full access to the internet may create more new possibilities for financial intermediation. Technology firms can now compete or collaborate with traditional financial institutions to offer credit or payment services online. Today, 5% of the apps downloaded around the world are services provided by fintech. In Latina America, this index goes up 8.5%. There, fintech providing investment services are the ones with more demand, 36%. Digital banking services represent 26% and general financial services 21%.
The rapid growth in Latin America’s start-up ecosystem is a sign that there are still significant, entrenched problems to resolve in the region in terms of access to financial services, meaning that there is a momentum for this segment expansion. Talented start-ups leaders, accelerators, government leaders, and investors from across Latin America are building an ecosystem where investors around the world have taken part in. Canada’s Start-up Visa Program, which helps immigrant entrepreneurs to establish businesses in the country by allowing foreign business owners and their families to apply for permanent resident status, is an opportunity for those Latin American start-ups looking to scale their business globally.