Technology

Jordan King-Lacroix

March 17, 2017
8:36 am

Latin America is Showing Strong on the FinTech Radar

“The digital transformation of the financial sector has transcended borders in Latin America.” [i]

Latin America is embracing FinTech in a strong way, especially the nations of the Pacific Alliance (Peru, Mexico, Chile, and Colombia). According to the co-founder of Finnovista – a Mexico-based start-up that helps to accelerate the development of technology companies – there are now over 570 FinTech start-ups[ii] across Latin America. For reference, in 2015 the USA and UK[iii] combined have a total of 4,000 and Asia sits at a comfortable 2,500.

Colombia alone is a promising tech hub for the region, boasting 1,800[iv] software development and IT service companies, becoming the third largest[v] Latin American provider of IT services after Brazil and Mexico. That makes it a $2.4 billion USD industry.

“One of the main conclusions is that Colombia is a country where the entrepreneurial ecosystem [in] Fintech is emerging at a dizzying speed,” Communications & Community Engagement Manager of Finnovista, Jessica Pleguezuelos, said in communication with PulsoSocial[vi].

“In the mapping that we have done together with the collaboration of our Network of Mentors, we have identified 70 Colombian Fintech start-ups that are changing the rules of the game.”

Increased usage of smartphones[vii] and internet access has enabled entrepreneurs in the region to fully explore the possibilities of the medium. Latin America is the world’s second-fastest growing mobile region, with 414 million[viii] unique mobile users by the end of 2015. There is also strong internet penetration in the region, with 66.7% of people[ix] connected by mid-2016, and growing.

In 2016, FinTech dominated as the leading sector of investment in Latin America, with 40% of overall capital raised[x] going towards it. This is up from 29% in 2015, representing almost $143m USD.

One possibility for fields of FinTech flowering in the soil of Latin America is that traditional banking in the area is heavily concentrated into just a few big banks, whose services only extend to about half the region’s population. With the increase in FinTech services, more people are being reached. These services generally operate faster, and these banks need to adjust by absorbing FinTech ideals into their business model, or start haemorrhaging customers.

However, without public sector (i.e. Government) interest, an issue is all too often not taken as seriously as it should be. That’s why governments in Latin America are starting to realize the possibilities of technology in the region, and are investing in its future. The Chilean Government is banking on the country becoming the technology hub[xi] for the region. It has invested in start-up programs which encourage potential entrepreneurs, as well as having an economy that has grown at one of the highest rates in Latin America, at 5.5% per year on average since 1985.

“The role of the public sector is vital because it demonstrates that [an] issue is being considered seriously,” Gabriela Andrade, Financial Markets Senior Specialist at the Inter-American Development Bank (IADB), said in an interview with Americas Quarterly.

“The whole world is still in the process of learning and experimenting with FinTech regulation [and] I think that [in Latin America] there is this new perception of ‘what do we need to do now?’”

The Chilean start-up scene is, in a word, “magical”[xii]. The sector has emerged with some breakthrough inventions, including a machine already being used in poor, arid regions of Chile capable of sucking moisture from the air[xiii] and dispensing it at the touch of a button. Chile is on the list of the Top 50 Emerging Stars in FinTech[xiv], alongside long-time dominator China, as well as Israel, and the Philippines.

On top of that, the Government has invested $290m USD into building an enormous solar plant[xv], which will benefit the country immensely, moving it towards increasingly sustainable development. They have also invested $70,000 CAD[xvi] in FinTech start-up Paradigm Ark. The company is creating an AI program that sifts through and analyses financial material in an effort to save both time and money.

“There is a significant amount of time and resources being wasted on very manual tasks,” Murray Love, founder of the Kitchener, Ontario-based start-up said.

Brazil is also experiencing a local FinTech boom[xvii], as well as cementing itself as one of the world’s fastest growing economies[xviii]. With the 5th largest number of mobile phone and internet users on Earth, this had led to an increase in investments in the FinTech sector.

While 85% of its people[xix] live in cities, 40% remain excluded from the traditional banking systems. This leaves the market ripe for a wide array of FinTech innovators to grow and thrive in Brazil, tapping into a market where there are about 80 million more phone activations[xx] than there are people. As of this year, there are 244 FinTech companies in Brazil, 60% of which[xxi] focused mainly on Payments, Financial Management, and Loans. These companies have received investments totalling more than 1 billion Brazilian Real.

The future of the financial industry in the nation is in mobile. That much is clear. There are 55 million adults in Brazil with no bank accounts, so putting focus on the mobile banking experience is an important step to making the whole nation financially included.

Despite its incredible and continued growth, the economy is struggling due to corruption[xxii], as well as problems post the 2016 Olympics[xxiii], which need no further explanation. The nation went into somewhat of a recession as a result, with a negative growth rate since 2015.

The good news is that the nation is recovering. It is being perceived as “undervalued”[xxiv] and “an attractive investment destination” due to a recent upturn in the economy. This upturn means it is re-establishing itself as one of the strongest emerging economies at the moment.

Throughout this period of change, the United States remains a major player in the FinTech industry, alongside the UK and China. This means that Latin American start-ups will still need to measure up to what’s coming out of Silicon Valley, as well as securing American investment money.

“The U.S. continues to be a dominant player in fintech with strong levels of capital continuing to flow into U.S.-based start-ups, driven by both established companies and emerging disruptors,” said Annie Armstrong[xxv], co-leader of KPMG’s Fintech practice in the U.S.

President Trump would do well to take note of the success of the United States’ southern neighbours, especially leading up to trade talks with Mexico[xxvi]. The nations of Latin America are banding together and looking after each other. It’s clear that Latin American nations are taking to heart the words of Colombian President Juan Manuel Santos from his trip to Peru.

“At these times, the way to proceed is reaffirming the internal strength of the alliances that produce well-being for our populations,” Santos said.

Not everywhere is like the United States, however, and there is a strong hope that President Trump hasn’t burned the bridges to Latin America for the rest of the world. The Australian-Latin America Business Council (ALABC) is just one of the organizations loudly proclaiming, “He doesn’t speak for us!”

With the amount of growth being seen in Latin America, nations and corporations would be remiss not to invest in the area, or follow its example. Australia is also opening a new embassy in Bogotá, Colombia[xxvii], and it will be interesting to watch as the relationship between Australia and Latin American nations continues to strengthen.

“The establishment of an Australian Embassy in Bogotá is part of the single largest expansion of Australia’s diplomatic network in over 40 years,” a statement from the Australian Minister for Foreign Affairs, Julie Bishop, read.

“Australia’s total trade with Colombia is worth $500 million annually and our investment in Colombia is valued at more than $3 billion. […] We already have strong education and people-to-people links with Colombia, which the new Embassy will seek to enhance.”

[i] Finnovista, “Fintech Radar Chile“, June 15, 2016.

[ii] Rachelle Krygier for Americas Quarterly, “Startups from Brazil to Mexico Are Giving Banks a Run for Their Money“, January 26, 2017.

[iii] Falguni Desai for Forbes, “The Fintech Boom And Bank Innovation“, December 14, 2015.

[iv] Conrad Egusa for TechCrunch, “Colombia is One of Latin America’s Most Promising New Tech Hubs“, November 22, 2014.

[v] ProColombia, “Investment in Software and IT Services“, accessed March 10, 2017.

[vi] Joze Martin for PulsoSocial, “The unmissable map of Fintech startups in Colombia“, March 18, 2016.

[vii] Jacob Poushter for Pew Research Centre,Smartphone Ownership and Internet Usage Continues to Climb Among Emerging Economies“, February 22, 2016.

[viii] GSMA, “Mobile Internet Users in Latin America to Grow by 50 Per Cent by 2020, Finds New GSMA Study“, September 20, 2016.

[ix] Internet World Stats, “Internet Usage and Population Data (June 30, 2016 Data)“, accessed March 12, 2017.

[x] LAVCA, “Investment Trend Watch: Mid-Year 2016 VC Analysis“, October 3, 2016.

[xi] Stanford School of Engineering and Computer Science, “Technology Trends in Latin America: Chile“, accessed March 10, 2017.

[xii] LAVCA, “Chilean Startup Scene on the Rise“, December 29, 2016.

[xiii] Fresh Water Solutions, “Fresh Water“, accessed March 12, 2017.

[xiv] H2 Ventures & KPMG, “2016 FinTech 100: Leading Global FinTech Innovators“, 2016.

[xv] Clean Technology Business Review, “Mainstream secures approval for 245MW solar PV plant in Chile“, February 9, 2017.

[xvi] Peter Nowak for Canadian Business, Fintech startup Paradigm Ark promises more accurate audits using A.I.“, February 14, 2017.

[xvii] Guillermo Parra-Bernal for Reuters, “Brazil’s Creditas gets $19 million amid boom in local fintech financing“, February 21, 2017.

[xviii] Stanford School of Engineering and Computer Science, “Technology Trends in Latin America: Brazil“, accessed March 10, 2017.

[xix] ‘Sofia’ for Let’s Talk Payments, “Brazil’s FinTech is a Carnival of Innovation in Latin America“, February 18, 2016.

[xx] Tech in Brazil, “Status of Mobile Payment in Brazil“, August 20, 2015. 

[xxi] FinTech Brazil, “There are already more than 244 FinTechs in Brazil!“, February 17 2017.

[xxii] Kenneth Rapoza for Forbes, Brazil Struggling to Compete Thanks to Government, Corruption“, September 28, 2016.

[xxiii] Jeff Swicord for VOA News, adapted by Mario Ritter for VOA Learning English, “As World Follows Rio Olympics, Brazil’s Economy Struggles“, August 14, 2016.

[xxiv] Josh Rudnik for Seeking Alpha, “Buy Brazil: Still massively Undervalued“, February 17, 2017.

[xxv] PR Newswire, “KPMG and H2 Ventures Announce The World’s 100 Leading FinTech Innovators for 2016“, October 24, 2016.

[xxvi] Javiera Quiroga for the Australian Financial Review, “‘Challenging times’: Pacific Alliance bands together against Trump“, March 11, 2017.

[xxvii] Minister for Foreign Affairs, the Hon Julie Bishop MP, “New Australian Embassy in Colombia“, March 10, 2017.

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