FinTech LATAM, the Industry’s Next Global Hub
The majority of our discussions about the financial services industry highlight the US.
There’s also a fertile landscape of growth and innovation across 18 countries to the south. The fintech ecosystem in Latin America continues to gain traction (even in a downturn) as the financial needs of consumers & businesses are served by emerging startups.
Similar to the US, the pandemic pushed the accelerator on digitization of banking activities, especially payments and transfers. Online and mobile adoption rapidly increased to satisfy demands not met by traditional financial institutions. Other verticals (such as lending and insurance) also emerged as popular options across the region. Here’s a quick dive on investment, growth, and trends throughout LATAM.
New Frontier of FinTech Unicorns from latam
Funding in financial technology firms (early to late stage) companies was trending upward until about a year ago. In this growth trend for funding, Latin America shined bright as the global region with the most investment in the shortest timeframe. Going back to 2016, billions of funding poured into LATAM companies — attracting foreign leaders such as Tencent and SoftBank to become active participants.
In 2021 alone, over $20B was invested into startups (more than 300% in year-over-year growth). This gave the continent over 20 unicorns focused on bridging the gap in financial services with tech-driven innovation. One of the leading names in the last 3 years is NuBank, the largest challenger bank in Latin America. Valued over $45B, NuBank raised $750M over a year ago — then went public in December 2021.
Investments are focused in major hubs (such as Mexico and Brazil), but slowly spreading towards the rest of Central and South America.
digital and mobile GROWTH in LATAM
The digital revolution is alive in Latin America and the Caribbean. Over 450M mobile users fuel the growth of fintech platforms across the region. More then 2.4K fintechs were active in 2021 (110%+ jump from 2018).
Demand is historically for payments and remittances (about 1/4 of the market), but other sectors show increasing growth as well. Emerging developments in regulation for Mexico and Brazil are supporting new verticals. Crowdfunding, lending, business technology, and corporate expense management sectors account for nearly 60% of market share.
Insurtech (similar to the US) is also on the rise with new platforms offering custom insurance products through mobile. Of new LATAM startups surveyed back in 2020, 70% include an insurance offering.
In terms of coverage by countries, the latest growth in the region for active fintech projects is coming from Argentina, Colombia, Chile, Peru, and Ecuador.
USER DEMAND FOR NEW FINANCIAL SERVICES in latin america
Besides mobile usage, fintech startups are also taking advantage of the vacuum in customer service from traditional financial institutions in LATAM. These incumbent players dominate with market share, but lack the digital user experience and support standards from fintech.
The pandemic exposed how vital payment options were in everyday financial services. Many users switched to e-commerce for the first time and found immediate success with fintech apps. As the world moves past COVID-19, users in LATAM still prefer online purchasing versus in-person shopping.
The most compelling factor for future growth remains that over half of consumers in Latin America are unbanked AND large gaps in income equality. Traditional banks targeted high earning households with standard banking products. This left the door open for emerging platforms to deliver products for the underserved at low (or no) monthly cost.
OUTLOOK in LATAM
Financial technology is flourishing in Latin America, By delivering innovative banking services to low socio-economic demographics that are digitally native, new fintech platforms are experiencing tremendous success. Besides Brazil, Mexico, Argentina, and Colombia, other countries such as Peru and Chile are gaining traction.
As the region transitions from being cash-heavy to card-based for purchase transactions, fintechs will furiously compete for wallet share. Custom rewards, cash back, and other unique perks are early differentiators. Newer financial products that continue to be digital only AND cheaper than traditional banking options will continue to grow in LATAM.
Platforms adding secondary products such as credit, savings, and crypto will pave the path as market leaders. Financial innovation and access will spread from banking to lending, insurance, purchasing real estate, and wealth management over the next decade.
The market opportunity plus growing fintech scene (from supportive regulation and industry hubs) and investment dollars is setting LATAM to be a global leader in digital financial services.
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