The outlook is promising for fintech companies in Latin America, and yet there are a series of challenges and conditions that still need to be overcome before innovation, technology and entrepreneurship can realize their full potential and offer more and better services, and create a more inclusive financial environment.
The figures for Latin America hint at an ideal scenario where banks and other financial service companies can revolutionize the way money circulates. According to a study by the consulting company eMarketer, Latin America has 400 million smartphone users. A study on the mobile economy by GSMA estimates that by 2020, over 80% of smartphone users will have access to a 3G connection or higher.
Elsewhere, the firm BSLatAm calculates that 52% of adults in Latin America have at least one bank account.This scenario is endorsed by declarations by institutions like the Global Partnership for Financial Inclusion (GPFI), who highlight technology as a key tool for the advancement of the financial industry and the provision of better services.
In a post published by the Inter-American Development Bank, Greg Da Re, head of the Strategy and Innovation Division at the Inter-American Investment Corporation, mentions five reasons why fintech companies represent an opportunity for growth and improvement for the financial sector: “Fintech companies make it easier for SMEs to find funding, they promote the growth of the banking sector, they generate useful data on their customers, they analyze the credit risk of innovative developments, and offer liquidity with more flexibility and efficiency”.Similarly, according to Asobancaria, in Colombia “the decrease in the cost of processing, storage and operation and the new ways of ascertaining the identity or the credit capacity of customers are the key features that have allowed fintech companies to design more affordable products for low- income homes and companies, which –if it weren’t for these innovations– would not have access to financial products and services”.
The shape of the fintech landscape in Latin America is still under development, but there are some initiatives that offer a glimpse of the growth in the sector. One example is the FinTech Radar by Finnovista, which rates the growth of fintech startups in Colombia as “spectacular”. They identified at least 70 innovative companies in sectors such as payments and remittances, loans and financing.In Brazil, the Reporte FintechLab has over 130 enterprises on its radar in areas such as financial management, loans, financing, insurance, bitcoin and blockchain, a decentralized system for registering information that guarantee security in a range of different transactions. According to the FintechLab radar, 50% of the companies they mapped in 2016 had a turnover of more than 280,000 dollars, and 1 out of every 5 had over 20 employees on the payroll.
The shape of the fintech landscape in Latin America is still under development, but there are some initiatives that offer a glimpse of the growth in the sector
The challenges for the growth of fintech in Latin America
Elkin Garavito is the general director of Zentrífuga, a company that together with the World Bank, Banca de las Oportunidades, the Superintendencia Financiera de Colombia (Colombian Financial Superintendency), the Ministry of ICT and the Swiss Embassy in Colombia, recently organized the Hackathon Fincluimos Reto Colombia, aimed at consolidating technological products focused on sustainable financial inclusion.
According to Garavito, “the banks and the financial sector are becoming increasingly aware of the need to invest in technology and new services for users on different platforms in order to reach a new public”. He also mentioned some key challenges for promoting the development of fintech in the region:
More open information: we need to have a more accessible data flow so we can create a foundation on which to develop more services.Financial service providers must lose their fear of doing things they have never done before.
A better understanding of the complexity of the financial sector: the fintech entrepreneur needs to have detailed knowledge of the sector in order to be able to spot opportunities for innovation and compete more confidently with companies that may have a greater size and trajectory.
Clear and up-to- date rules: we need to devise regulations that are more conducive to the generation of entrepreneurship and innovation.
Specialization: this enables the creation of synergies between the different actors in the sector and allows the generation of knowledge in order to advance towards the reinforcement of the fintech sector.
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