The Fintech ecosystem in Latin America is booming and for good reason. Not only is almost 70% of the Latin American population unbanked, but also smartphone usage is increasing dramatically, reaching over 70% of the population. By this year it is estimated that 90% of all internet connections in Latin America will come from mobile devices, leaving the door open for digital financial service providers such as Fintechs.
In addition, SMEs account for around 90% of all businesses in Latin America, but face many obstacles in raising capital to grow their business. This has resulted in an SME financing gap of around $900 billion, according to the IDB study “Expansion of Digital Financial Tools to Boost SME e-Commerce in Latin America” published last year.
The growth of the sector is manifested not only in the number of companies that have emerged, but also in the degree of interest that the Fintech industry has generated in the regional policy agenda.
Among the main trends identified, we highlight, on the one hand, the rapid growth in terms of start-ups and the interest of foreign and local investors, which translates into increasing levels of investment.
On the other hand, we find as a trend the emphasis on the provision of services for SMEs and segments ignored by the traditional financial system, which confirms the potential of Fintech to boost development and financial inclusion in the region.
Finally, another trend observed is the increased presence, activity and collaboration of Fintech companies with traditional players in the financial services industry (banks, payment agencies, insurance companies and stock exchanges, among others).
Based on IDB figures, the weight of Digital Payments in the region’s Fintech ecosystem is confirmed. The main segment of the Fintech sector in Latin America is Digital Payments and Remittances with almost a quarter of the total number of companies. This is followed by lending companies (almost 20% of firms) and Enterprise Finance solutions (15% of the total number of firms engaged in this segment).
Looking at the data in more detail, payment gateways and aggregators are the most numerous sub-segment in the region, pointing to the latent need for less costly and efficient payment solutions at a time of booming e-commerce.
This is closely followed by the sub-segment of mobile payments and e-wallets, reflecting the growth of mobile devices for transactions such as person-to-person money transfers, mobile purchases of products and services, and debit and credit card transactions.
Five countries dominate the Fintech ecosystem in Latin America: Brazil, Mexico, Colombia, Argentina and Chile.
To highlight some country cases, in Brazil Nubank is a neobank that issues, manages, processes and transfers payments related to deferred payment credit cards and equity investments in other entities. It is the largest Fintech in Latin America with more than 20 million customers and 1500 employees.
To clarify this concept of “neobanks”, they are companies that represent an upgraded version of a traditional bank, without actually having a banking licence. They have a non-bank e-money licence, use websites and mobile applications instead of physical branches to provide their customers with banking services. In other words, “neobanks” are non-bank entities that use the “Fintech philosophy” to provide a wide range of financial products. Since most of these entities are not formal, the deposits they receive are not subject to deposit insurance in many countries, which creates uncertainty in adverse contexts.
Learn more about the different FinTech cases in Latin America and the circumstances of each country where they take place by listening to our latest episode of Ur.