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Huge growth of fintech activity in Latin America
3 July 2022Fintech market in Latin America is growing rapidly, as a new report shows us that the region met a 66{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} growth compared to 2017. In the last 12 months, the number of fintech startups in Latin America has grown from 703 to 1,166, according to the Inter-American Bank of Development (BID) study “Fintech in Latin America: Growth and Consolidation”.
The report also highlights that two of every three ventures are already in advanced stages of development, and that the Fintech activity grew from 15 to 18 countries in the last year. Following the trend observed in 2017, Brazil is the country that contributes the largest number of enterprises with 380, followed by Mexico with 273, Colombia with 148, Argentina with 116 and Chile with 84. What’s more important is that one in three companies declares that they have expanded their operations beyond national borders.
“While five countries account for 86{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of the Fintech companies in the region, ventures have been identified in each of the Latin American countries and a growing trend towards internationalization, which shows the opportunities that entrepreneurs perceive, but also the importance of continuing to strengthen dialogue and harmonization at the regional level, “says Juan Ketterer, head of the IDB’s Connectivity, Market and Finance division.
The 1,166 fintech companies identified are distributed across 11 Fintech business segments. Among them, the following three segments are positioned as the most representative of the Fintech sector in terms of number of ventures. The main business segment continues to be that of payments and remittances, representing 24{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of the identified businesses, followed by the loan segment (18{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}) and business finance management (15{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}). It also highlights a rapid growth in the digital banking segments and, mainly, credit scoring, identity and fraud.
As the report shows, one of the reasons why fintech is experiencing such a boom in the region is due to a general distrust of banks, especially after the financial crisis of 2007-2008. This sentiment is even stronger in Argentina, as their economic crisis in 2001 led to the “corralito,” where the government almost completely froze bank accounts and forbade withdrawals from US dollar- denominated accounts.
Fintech opportunity in the spotlight of the big international investors
“The growth and maturity of the Fintech ecosystem in Latin America during the last year is tremendous” says Andrés Fontao, Managing Partner of Finnovista. “The Fintech opportunity is already in the sights of major international investors, including Asians, and we have the first governments that are already adopting specific regulatory frameworks for Fintech.”
The importance of regulation in the development of the ecosystem is evident. According to the report, only 9{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} consider that a specific regulation is not currently needed, while 35{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} consider that if necessary and 35{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} consider that the current regulation is adequate, which reflects the progress made in certain jurisdictions in terms of regulation. In this sense, the report highlights advances achieved thanks to the dialogue between regulators and the industry to promote the search for a favorable framework for innovation.
The report also presents the first regional analysis on gender and fintech, examining the role of women as founder of companies Fintech, worker in the Fintech industry, and user of Fintech services. “We have found that 35{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e} of Fintech companies in Latin America have a founding woman or a woman in the founding team, a figure that is well above the world average estimated at 7{2b3fe3109f87c6f1c896babd3a2485fbf135a42141067a7771ef7eb1664b998e}”, highlights Gabriela Andrade, specialist in financial markets of the IDB.
