Latin America’s Growing Fintech Ecosystem

I would like to begin by clarifying that I am, by no means, an expert in this topic. However, after dedicating most of my summer at FinTech Collective to gaining familiarity with it, including a trip to three countries in the region, I have a few observations that I would like to share.

In a region that, despite macroeconomic complications, is currently energized by a surging middle class and a high degree of mobile penetration, fintech has emerged as a powerful tool of deepening financial inclusion and access to basic services. Brazil remains king – both in VC dollars captured and addressable market size. Its entrepreneurial ecosystem is yielding PayPal style “mafias” of accomplished entrepreneurs moving into other ventures after successful exits, and it consistently grabs headlines –as well as SoftBank’s attention – via massive funding rounds (think Creditas or Nubank this summer). Its local funds (including KaszeK or Monashees, among others) are becoming increasingly active in other Latin American countries, addressing funding needs particularly evident in the Series A/B space. Meanwhile, the Central Bank consistently speaks of lowering prices and increasing competition.

Nevertheless, positive signs are also clear in other countries. Mexico’s government is in the process of fully enacting a Fintech Law which, despite arguably raising barriers to entry in certain sub verticals, embraces the power of these new solutions. Its local funds are growing and gaining prestige, with fintech interest palpably increasing among Ignia, Dalus or ALLVP, among others. As the second biggest market behind Brazil, it is the chosen expansion target for most startups in the region, in part due to cultural and linguistic similarities. Simultaneously, the number of fintech startups in Colombia has nearly doubled in the past twelve months. Helped by agile regulatory changes – including the creation of a startup sandbox – improving conditions have granted the Andean country status as the third biggest fintech market in LatAm, ahead of the likes of Argentina or Chile. Nevertheless, for as long as family offices effectively act as the primary source of seed capital, the need for more robust local institutional options grows more pressing.

Sector wise, banking/lending/payments has generated the most noise to date. As the vertical has grown crowded, startups face the lower end of the pyramid frontier, which poses distribution challenges that will be hard to overcome. Insure tech has emerged as a promising space, as the need for such products parallels rising middle class affluence. Reg tech opportunities should also materialize as legislation settles and regulatory burdens require out sourced assistance. Lastly, as high fraud prevalence remains an endemic regional problem, integrated solutions in the digital identity space will be attractive. As corporates prove inflexible, these startups might even prefer API-ready peers to legacy customers, in terms of clientele.

In summary, an abundant supply of talent is finally meeting the necessary conditions to become more realized. After decades of insufficient product offerings from traditional banks and prohibitively high rates, a different light shines on customers in one of the most urbanized regions of the world. Vibrant communities are emerging around fintech ecosystems, drawing inspiration perhaps not only from the United States, but more so from East and Southeast Asia.

About Carlos Alonso, WG'20

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