Publication

Latin America's fintech sector reaches maturity

February 21 2019
INCAE Executive Education

With record investment figures, the creation of 'fintech startups' in Latin America has gained great dynamism in the last year and already exceeds 1.100 companies. The figures confirm, little by little, the maturity of the sector in the region, with Brazil, Mexico and Colombia as the countries with the highest number of 'fintech' ventures.

The emergence of these financial ventures seeks to serve small and medium-sized companies and the segments that remain “underserved” by the traditional financial system.

This is what the report points out "Fintech Latin America 2018, growth and consolidation", of the Inter-American Development Bank (IDB) and Finnovista. According to the study, 'fintech' ventures already number 1.166 in the region, which represents a growth of 66% compared to 2017. 

Most of these ventures are concentrated in the segments of payments and remittances, with 285 companies (24% of the total); loans, with 208 (18%); and business finance management, with 181, (15%).

Three factors have led these segments to be the most developed in the region: the massification of mobile devices, which in 2017 reached 67% of the Latin American population; exclusion rates for financial services (The World Bank estimates that 45% of adults do not have a bank account); and limitations or inefficiencies in the supply of credit, which have left room for the emergence of new, more efficient and less expensive solutions aimed particularly at SMEs.

In the IDB's opinion, This confirms the momentum they have acquired and the dynamism and potential of the region's fintech ecosystem. The growth in the credit scoring, identity and fraud segments (which went from 7 to 47 startups), and digital banking stand out.

One of the low-growth segments but which according to the IDB and Finnovista will be key in the future of financial services is the personal finance management. It is the fourth most important segment in the region, with 90 ventures, and its potential lies in the help it offers the population to acquire the knowledge and financial capacities that allow them to manage different aspects related to their health in an adequate and intuitive way. financial

Five Latin American countries concentrate 86% of the 'fintech' activity in the region: Brazil (380 startups), Mexico (273), Colombia (148), Argentina (116) and Chile (84). It is followed by Peru, with 57 startups, and one of the countries with the highest growth in the last year, 256%.

According to the report, financial innovation is expanding its borders and entering new less mature markets with a wide range of opportunities to explore; However, the internationalization of Latin American fintech companies is still low when compared to their degree of maturity, since only 32% of the enterprises claim to have expanded their operations abroad. Of these, 40,5% have done so in Latin America and 59,5% outside the region, particularly in the United States and some European countries.

Regarding the degree of maturity, it stands out that 37% of startups are already growing and expanding, and 27% are ready to scale, while only 20% are in the early stages of development. 17% have already launched their product on the market. It is important to highlight that the mortality rate of fintech companies in the region reaches 12%.

Finally, the report points out as the main challenges for this sector scaling the ventures, achieving the launch of the product and accessing sources of financing.

The technologies on which the development of the products is based are mobile and applications (21%) 'big data' and analytics (19%), application programming interfaces (API) and open platforms (17%). 

"The new needs of consumers, who demand simpler and more instantaneous services and greater transparency of information, makes it necessary to bet on collaboration between 'fintech' ventures and corporate entities, so that both manage to cut their learning curve, reduce costs and avoid risks when going to the market with its own innovations ”, highlights the report.

Excerpt from published article through the bbva.com site 

 

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