FinTechs are beginning to bring financial services to underserved populations and into markets where banks don't dare to tread.
For much of the past decade, FinTech startups have pushed the envelope in the financial services sector. In doing so, they’ve posed a significant challenge to incumbent institutions.
That challenge has now turned into a growing market share for FinTech businesses that looks like it’s only going to increase with time.
And all across the world, innovative FinTech products are beginning to bring financial services to underserved populations and into markets where traditional banks don’t dare to tread.
Nowhere is this truer than in Latin America. According to the World Bank, about 50% of the population there lacks a bank account, and many more lack access to common financial services the rest of the developed world takes for granted.
In fact, there’s been so much FinTech activity in Latin America of late, experts are now calling the region the next capital of the FinTech world. For investors, that should be more than enough reason to sit up and take notice.
To help them understand what’s happening, here’s an overview of the FinTech activity in the Latin American market and why they should be paying close attention to it.
Just a few short years ago, the Latin American market was being all but ignored by traditional financial institutions. But today, the situation has radically changed.
Since 2017, there’s been an explosion of FinTech activity all across the region. At last count, at least 1,166 fintech initiatives were operating there, spread across 18 countries. What’s more, two out of three of them report being in the advanced stages of development.
And the venture capital world has noticed. In 2019 alone, VC investment in FinTech startups in Latin America totaled USD 2.1 billion. That number represented growth of 690% over the past five years.
And although the market faced setbacks in 2020 due to the coronavirus pandemic, there’s every reason to believe that it’s going to bounce back in 2021 to its pre-pandemic performance levels.
It isn’t just the yawning gap in financial services access that’s making the region so attractive to FinTech startups. It’s also the fact that the countries in the region have an above-average rate of home internet penetration – 66% – and that mobile internet use is also common among about three-quarters of the population there.
And that has not only increased potential consumer access to FinTech products but also helped improve access to educational attainment among the local labor force.
Internet availability has increased upward mobility and increased access to international high-level degree programs. Both factors have created a rising, highly-educated middle class that’s become the founders of many of the regional FinTech startups.
Those founders understand the markets they’re operating within in ways that outsiders could not, and are thus building services custom-tailored to local consumers’ needs.
At this point, informed readers may have noticed that the conditions on the ground in Latin America are hardly unique. The same conditions can also be found throughout much of Southeast Asia.
But Latin America has one more ace up its sleeve that’s helping to fuel its FinTech boom. It’s that banking regulators and central banks in the region are bending over backward to embrace new financial technologies.
In Mexico and Brazil, regulators have moved to drop barriers to entry that had prevented FinTech operators from getting things like bank charters and lending licenses.
And their laissez-faire approach also extends to cryptocurrencies and blockchain technology, producing a corresponding boom in that sector as well.
And on top of all of that, central banks in the region have done their utmost to push businesses and citizens toward digital payment options and away from cash – often driving them right into the waiting arms of FinTech operators.
The Bottom Line
All of these factors add up to a red-hot FinTech market in Latin America that bears all the hallmarks of a long-term success story. As investment opportunities go, it doesn’t get much better than that.
So, with that in mind, now would be a great time for global investors to start digging into the multitude of FinTech startups and established firms in the region.
That’s because, despite all of the activity, there’s still plenty of room for growth – and that means plenty of opportunities to profit for those with the foresight to do their due diligence soon.