Latin America has been attracting attention from investors looking to invest Venture Capital in Latam Fintech Startups. Latam stills in the early stages of fintech development, and startups are turning traditional financial systems on their heads, creating a unique opportunity for long-term potential for investment in Venture Capital.
In this article we are going to discuss:
- Highlights of the socioeconomic factors driving the demand for fintech in LatAm
- Unbanked population
- Post-pandemic growth in e-commerce
- Increasing adoption of mobile and 5G technology.
- Why to invest in Venture Capital in Latam Fintech
- How many fintechs are there in Latam
- Fintech trends and Investments in Latam
- Regulatory changes and innovations in digital payments and blockchain technology that are contributing to the growth of fintech in LatAm.
Let’s dive in it:
Why invest Venture Capital in Latam Fintech
The COVID-19 pandemic has accelerated digital adoption and increased demand for financial products in Latin America, with 10.8 million people making their first online purchase during confinements, according to KPMG.
Regulatory policies and fintechs targeting underserved markets have also contributed to the industry’s growth, with small businesses a major target for digital payment solutions.
Brazil and Mexico are at the forefront of fintech growth in Latin America, with unbanked populations, urbanization and younger demographics driving growth, according to SVB.
The talent pool is expanding and the ecosystem is attracting international investors. SVB has even launched a $30 million debt fund for growth-stage technology companies in the region.
How many Fintechs are there in Latam?
The fintech industry in Latam has experienced tremendous growth in recent years, with the number of fintech platforms doubling over the past three years. According to a study by the Inter-American Development Bank, there were 2,482 fintech platforms in Latin America and the Caribbean in 2021.
Brazil is the leader in the region, with 31% of the total fintech platforms. Mexico, Colombia, Argentina, and Chile follow Brazil, respectively, in terms of the total number of fintechs in the region.
According to Statista, Brazil has the highest number of fintech startups in Latin America, followed by Mexico and Colombia.
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Explaining the hype for venture capital in the LatAm fintech industry: What’s next?
The fintech market in Latin America has been dominating headlines for some time now. From digital payments to credit lending to blockchain technology – the most popular startups in the region are fintech. In Brazil alone, there are 504 active fintech companies right now.
And the growth continues: despite the current trend of lower investment figures, fintech companies in Venezuela, Mexico, Brazil, and the greater region are still receiving an outstanding share of investment.
And there’s more good news: The growing supply of solutions is far from meeting demand. Some 70% of the Latin American population remains unbanked or underbanked, and 58% of point-of-sale purchases are still paid for in cash. In addition, the enablement of crypto payments adoption offered by startups such as Agrotoken for agricultural industries, as well as embedded banking technologies, are gaining momentum. In addition to crypto, startups like INI are solving the challenge of delivering payments in areas with limited or zero internet coverage.
Combined, these are excellent factors for investing in venture capital in Latin America. But where exactly should investors look to identify long-term growth in the markets? Let’s see what happens next for fintech markets and Infrastructure in Latin America.
Recommended Lecture: Fintech Infrastructure
What’s driving demand for fintech in LatAm?
The exorbitant demand in Latin American fintech markets is driven by several socioeconomic factors. On the one hand, many people in the region have been underserved and excluded from financial freedom for years. In Mexico, for instance, only 10% of households have a credit card.
For this reason, many LatAm companies and small businesses, especially in the e-commerce sector, experience problems with reliable and secure payments. Small business owners or family entrepreneurs have traditionally been a part of the Southern economies, providing 66% of jobs in the region. But they mainly sell their handicrafts, food, and other goods through cash.
However, post-pandemic demand for digital commerce is growing at an accelerated pace in the entire continent. And the increasing mobile adoption (smartphone adoption will reach 81% by 2025), and spreading 5G reach in LatAm are massive enablers for new payment systems as well.
A good example of new payment systems facilitating digitized commerce is the Brazilian central bank’s payment system Pix, which has helped boost the digital market in a region where almost half the population didn’t have a bank account. The instant payment system paved the way for more than 150 million people to shop online for the first time during the pandemic.
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On top of all, embedded finance, which is already widely popular in the USA and Europe, is still in its infancy in South America. These bank-like services enable companies, regardless of their size, region, or industry, to offer financial services such as digital accounts and cards to their customers.
So far, provided only by giants like Rappi, ifood, and Mercadolibre, embedded finance represents significant potential for future innovation and venture capital Fintech investments in Latam.
Fintech Trends in Latam
1. Digital Banking is on the Rise
Digital banking is becoming increasingly popular in Latin America, with consumers looking for convenience and ease of access. In addition, traditional banks are struggling to keep up with the pace of fintech innovation in the region. This has created an opportunity for fintech companies to offer digital banking solutions that are tailored to the needs of Latin American consumers.
2. Neobanks and Digital Payments are Leading the Way in VC Investments
Neobanks and Digital Payments are leading the way in venture capital investments in the region. Because they are targeting the underserved population in Latin America, who have traditionally been excluded from the formal financial system.
3. Insurtech is Gaining Interest
Insurtech is becoming increasingly popular in the region, as consumers look for more affordable and convenient insurance solutions. Those companies are also targeting the underserved population in Latin America, who have traditionally been excluded from the formal insurance sector.
4. Interest in SPAC Mergers, Cryptocurrencies, and Blockchain
SPAC mergers are becoming increasingly popular in Latin America, as they provide a quicker and more efficient way for fintech companies to go public. Cryptocurrencies and blockchain are also gaining interest, as they offer consumers a more secure and decentralized way to conduct financial transactions.
5. Governments are Supportive of Fintech Regulation
Governments in the region are aware of the potential of fintech to transform the financial landscape and are taking steps to create a regulatory environment that supports innovation while protecting consumers.
Recommmended Lecture: 5 Fintech Trends in Latin America
Fintech Latam Investments
The fintech industry in Latin America has experienced tremendous growth in recent years, attracting significant investment from both local and international investors. In this section, we will take a closer look at the current state of fintech investments in the region.
- Funding Raised by Fintech Companies
- Types of Fintech Companies Receiving Funding: Digital payment solutions, lending platforms, and personal finance management tools are among the most popular fintech products and services in the region.
- Fintech Companies by Country: Brasil,México, Colombia, Argentina, and Chile mainly.
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Regulations enabling fintech innovation in LatAm
With growing investment and demand for fintech in the region, governments and local regulators are revising their laws to keep pace with innovation. Mexico, for example, has successfully passed a «Fintech Law» that creates a framework for fintech companies to offer new services within the Mexican regulatory system legally.
Brazil recently introduced the «Regulatory Sandbox,» which allows for more reliable growth. The new regulations are designed to help fintech companies make smarter financial decisions and hedge against losses. This, in turn, helps regulate the market and gives investors more certainty.
In Argentina, cryptocurrency startups and leaders from the industry have recently met at the national crypto summit. At the event, the industry stakeholders discussed where the industry is headed to, and explained the insatiable hunger for blockchain technology in the region.
The LatAm population is also excited to see central banks in the region experimenting with CBDCs (Central Bank Digital Currencies) and legalizing crypto payments. Indeed, the adoption of web3 and cryptocurrencies is comparatively higher in Latin and South America than in other regions of the world.
Why? One important reason is that Latin American countries are used to high inflation and unstable economies. People are very interested in discovering alternatives to their national currencies.
An example of a startup that made headlines in Argentina, where inflation has been causing tremendous financial insecurity for more than a decade, is Belo. The startup provides a digital cryptocurrency exchange where Argentineans can buy and sell cryptocurrencies, save money and get cashback on every payment.
Fintech Companies Latam
Defi bank focus on improving the financial inclusion for the GenZ. Financial industry doesn’t know anything about Genz and there´s a 2.5B billion market worldwide.
Ubanku, starts being the first step of the financial life for them, with a frictionless marketplace that can save money with a cashback of products and services of the university life, access to micro loans, all this, while they learn about finance, this allow us to create an innovating score system to connect GenZ with other financial products.
Creditop is a loan aggregator that processes any credit request by centralizing lenders and connecting customers with their ideal loan.
We have disbursed +$7.5M in mortgages, car and personal loans with a profitable pricing model in each transaction.
Our mission is to improve life quality through credit efficiency in LatAm. Founders:
Ini, a SaaS and white label fintech platform that allows any -wannabe fintech-company to scale their own payment network and expand their ecosystem into new markets and territories without losing the core focus of their businesses even when there is no connectivity access.
Inipay ́s IP tech (POS terminals + alternative connectivity) is also an enabler to reach new markets and niches such as events, concerts, stadiums, national parks, tourism and hospitality.
Aviva is an AI startup following a unique approach to unsecured and productive credit for the underserved communities in Mexico.
Now imagine you are an unbanked person and all that you need to do for getting your first loan is having a face-time call. They have a great experience building Konfio (Mexican Unicorn). Founders:
A digital financial services platform for Bolivia, Paraguay, Ecuador and Peru; where the vast majority don’t have access to financial services or are drastically underserved by traditional banks.
Koban allows users to perform an array of financial services including online and offline payments, money transfers, budgeting tools and credit solutions, among other services for consumers and SMBs in the region.
Zenpli is an infrastructure focused SaaS working on putting a stop to the KYC and fraud challenge in LatAm.
Through 1-single integration, LatAm fintechs and other digital innovators seamlessly onboard more good customers by accessing best-in-class data across all domains and running accurate end-to-end identity decisions supported by advanced models that are hard to spoof.
We’re rolling our product with Mastercard in Mexico in Q4 2022 with the potential to generate ~500k in ARR over the next 12-months.
We’re backed by The Fintech Fund, Ralicap, Amador, Newtopia and world-class angels and advisors from C-level and VPs at Socure, EPAM, Konfío, R2 and Bureau.id.
Kashin (YC S22) is Square with working capital for micro-merchants in LATAM.
We control risk with collaborative credit scoring and our vision is to become the primary financial platform for the masses.
Before Kashin, the founders led Cabify, the largest regional Uber competitor, and grew it from 0 to $50m in annual revenue.
Buy now, pay later without credit cards.
WIBOND is a digital payment method to pay in small installments and without the need of a credit card.
It shows the best payment options according to each customer’s possibilities so they can enjoy their favorite products.
Tapi is a Fintech B2B. Next-generation API-first network for billers, partners and their clients to re-envision the way bills get paid in LATAM.
Z1 is the Brazilian Gen Z neobank, where teenagers and young adults can begin their journey to financial independence.
Through Z1’s banking app, users can send and receive money from parents, employers or clients from their side gigs, as well as spend the money through a physical and virtual card.
BOTIN is an investment super app and a one stop shop to trade traditional and non-traditional assets; its vision is to make the wealth generation tools of the 1% available to all.
Through its Neo broker stock trading app gives users a simple and direct access to invest in different assets across multiple industries and territories (e.g., ETFs and stocks from USA, real estate, crypto, tokens, and others).
BOTIN is focused in helping 300 million people in Spanish speaking Latin America to protect their savings and have an option for retirement.
YUNO wants to bring to Latin American companies an easy online checkout solution that solves the pain point of managing multiple payment methods, as well as fraud detection tools, which can be costly and painful to manage.
What’s next for venture capital in LatAm?
Looking at trends in the startup ecosystem, fintech in Latin America is not yet at its peak. It’s just at its beginning.
The adoption of intelligent payment methods, access to credit for the underserved and underbanked, the use of web3 technologies, and the overall advancement of digital payments will only increase in the coming years. Moreover, as cell phone penetration and 5G reach continue to increase in the region, they will become more popular, opening an enormous market to tap into.
To summarize, fintech represents a unique opportunity with long-term potential for investment in venture capital in LatAm because:
- Startups are turning traditional financial systems on their heads
- A new generation of consumers looking to invest
- Populations are keen to grow their savings via alternative saving models
- Central banks across the region encourage fintech innovation.
While financial markets worldwide have been an efficient avenue for investors, the current recommendation by investment managers is shifting to emerging markets. With that in mind, one of the most promising venture capital investments in fintech destinations is definitely Latin America.
Are you ready to invest in LatAm’s next unicorn? Let’s get to know our portfolio at Netwopia.VC.