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New business takes off the technofinances

Online investment applications, 100% digital banks or virtual wallets are some of the solutions developed by Latin America’s emerging techno-financial industry or ‘fintech’ that grows at leaps and bounds with a wave of new businesses.

The industry grew by more than 66% in the region since the last measurement of the Inter-American Development Bank (IDB) and Finnovista, reaching a total of 1,166 companies, according to the report “Fintech América Latina 2018: growth and consolidation”.

It concluded that Latin American” fintech “is focused on offering loans and collective financing or” crowdfunding ” (25%), payments and transfers (24%) and financial administration of companies and individuals (15%), making it almost two thirds of the industry.

Today its operations are concentrated in Brazil (33%), Mexico (23%), Colombia (13%), Argentina (10%) and Chile (7%), which together represent 86% of the total regional activity.

One of the highlights is that about 35% of Latin American” fintech ” have a founding woman or one on the founding team, well above the world average estimated at 7%.

“Latin America’s fintech industry is in a period of high growth and consolidation that shows no signs of deceleration,” Fintech’s connectivity, markets and Finance Division of the IDB responded to EFE.

Proof of this is that 25% of the total capital investment entrepreneur in the technology sector in the region in 2018 (estimated in US$ 2,000 million) was allocated to “fintech”, both in the number of operations as well as in dollar amount.

“This figure is going to grow “as SoftBank,” one of the largest fintech investors in the world, announced a$ 5,000 million fund dedicated exclusively to technology companies in the region, ” he said.

An unstoppable wave

Fintech is responding both to a growing demand for services and to the continuing financial exclusion in Latin America, while 45% of adults in the region are still excluded from formal financial services in the absence of an account.

Brazil is a leader in technofinanzas in the region with cases such as the Guiabolso application, the Digital Bank Creditas or the financial operator Nubank, one of the Brazilian unicorns.

Mexico has about 500 fintech companies and of these 200 operate under the Fintech law enacted in March 2018.

Colombia has at least 148 fintech companies, a figure that grew by 76% in 2018 compared to the previous year and places the country at the forefront of the region, according to KPMG.

The Argentine Chamber of Fintech accounted for 133 such companies in the country last year and almost all of them can be categorized as SMEs.

In Chile there are about 120 companies, a number that is expected to continue to grow between 15% and 20% per year thanks to venture capital and the increased appetite of investors, fintech executive director Ángel Sierra told EFE.

Peru has some 81 financial technology ventures, most of which are classified as payment and remittance platforms (27.2%).

Uruguay accounts for about 30 fintech companies, most of which have an average of ten employees each, although there are also about three or four large companies, in items such as consumer loans and payment systems.

On the other hand, the “fintech” in Paraguay have little projection given their recent insertion that goes back a little over five years and since then some 40 companies have been operating.

The shortage of cash, hyperinflation and the paralysis of banking services has prompted the emergence of “fintech” businesses as an alternative to the crisis in Venezuela.

In December 2018, the Fintech Venezuela Association was founded, which brings together more than 100 members and estimates that at least 10 such firms have emerged this year alone.

“The Venezuelan market is very receptive. When we ask people if they would be willing to use a method other than those offered by the banks, people respond that they do, as long as the commissions are inferior and are available 24/7,” Fintech Venezuela co-founder María Elena Machado told EFE.

Bolivia does not have a law governing the operation, authorization or control of “fintech” companies, The Economist member of the board of the Bolivian Central Bank, Abraham Pérez, told EFE.

The sector in Ecuador is still considerably behind other countries, while in 2017 only 31 such companies were registered.

Fintech is growing rapidly in the Dominican Republic, with a million users and an average of 12 million transactions per month.

And in Puerto Rico this expansion stems in part from the fact that since 2004 the number of physical bank branches has decreased from 546 to 304 by 2017.

A panorama promising

Although regulation remains a major challenge in markets such as Paraguay, Bolivia, among others, the fintech highway is clear in Latin America.

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