A closer look at LATAM’s Fintech market

When we think of technology, we often think of Silicon Valley. However, Latin America is undergoing a major technological transformation that is driving innovation, entrepreneurship and research.

When considering ease of doing business in Latin America, we observe that their countries are becoming hubs for technology and innovation. In response, many international companies have begun to outsource operations to the region, a trend fueled by rising English skills, rising talent levels, accessible listings and relatively low labor costs.

Foreign investors have shown great interest in the Latin American fintech sector. Several investment firms from important markets – such as the USA, Europe and Asia – have noticed an increase in the number of success stories and a significant improvement in the regional talent pool.

According to a report presented by the Inter-American Development Bank (IADB), fintech companies registered a growth of 112% between 2019 and 2021 alone, with countries such as Colombia, Mexico and Brazil leading the industry regionally.

The fintech boom opened up products and services that were not well known in Latin America a few years ago. What follows is a closer look at the countries with the highest number of fintech companies. All these countries deserve careful observation.

Country Number of fintechs

Source: Finnovista and BID (2021).

Chile

Chile is known worldwide for its early adoption of technology, making it a regional hub for the fintech industry. As of 2021, there were more than 150 fintech companies in the country. More than half of them have expanded internationally, mainly financed by venture capital.

The fintech segments that show greater prominence in Chile are payments, EPM, lending and insurance. More than 35% of Chilean fintechs are considered large companies, showing a large market with great potential.

Colombia

Colombia has long been considered the new hotspot for fintech and is considered a market with enormous potential. Medellin in particular is seen as the potential Silicon Valley of Latin America.

Colombia is generally underrepresented in fintech banks, as more than 45% of Colombians have accounts in financial institutions rather than fintech banks. However, this will soon change.

Most companies experience problems in obtaining credit and funds from traditional banks. Fintechs, which tend to promote a model that is less restrictive compared to conventional banking, have become an attractive alternative. In addition, Colombia has shown a deep post-COVID interest in digital banking solutions to facilitate processes and communication between businesses and customers.

A Colombian fintech to watch is Bankity, the first personal finance control application that automatically records what the user pays for electronically without asking for bank codes.

Mexico

Mexico has experienced significant fintech development with higher inclusion and low credit penetration, giving international companies great opportunities. Public authorities made significant changes to push the fintech industry and shift the local cash-based economy towards electronic payments.

As one of the most attractive fintech markets in Latin America, the number of fintech startups has increased by more than 14% since the first COVID outbreak.

A Mexican fintech to keep an eye on is Fondadora, a digital platform that aims to challenge traditional banking. It offers a debit card with no annuity or commissions, which can be ordered in less than 3 minutes and delivered to customers’ homes in a maximum of 5 days.

Peru

The Peruvian fintech market is often forgotten. However, it has enormous potential.

Peru is in the early stages of its fintech transformation, but the industry’s influence in the country is high. With a huge informal and underbanked sector, a financial system dominated by a few legacy banks and a young population of digital natives, Peru is a fintech market waiting to happen.

Internet access in households is still low. However, it is growing rapidly, pushed by the fact that almost all Peruvians own a mobile phone. Peru’s most exciting fintech offers loans, house swaps and payments, and provides a good overview of market demand.

It is also important to note that the fintech transformation in Peru has led to changes in the organizational structures within the banking industry.

The biggest obstacles for LATAM Fintech

Although the fintech industry continues to consolidate and is one of the most attractive for foreign investors looking to do business in Latin America, many companies still face challenges in maintaining the growth of the market.

In 2020, slightly more than half of Latin American fintechs pointed to scaling as their biggest obstacle.

Cybersecurity is another major challenge facing the industry. Accelerated digitization means greater vulnerability and exposure to cyber attacks. However, according to a study, 63% of companies in the fintech industry in Latin America already have a system to prevent and limit cyber attacks, and 21% are working on the implementation of these security systems.

A shift from traditional banking to Fintech

Undoubtedly, a drastic transformation in the banking industry can be observed throughout Latin America. These changes were accelerated by COVID, which changed the needs of consumers and businesses. The need for new products, modern design and accessibility is in demand, and it is covered by fintechs.

Regional financial inclusion is also increasing thanks to fintech startups, as well as levels of resilience to external change. Very few fintechs felt the impact of COVID.

Countries such as Colombia and Mexico show faster transformations due to their specific circumstances and opportunities. However, Peru’s potential cannot be ignored, and companies may want to be part of the development.