Why the Next Fintech Wave in Latin America will focus on B2B

Latin America’s Fintech industry is booming, with more than 1,166 Fintech startups creating more inclusive financial systems and boosting economic growth in the region.

MÁS INFORMACIÓN →

According to the recently published report Fintech in Latin America 2018: Growth and Consolidation, by the Inter-American Development Bank and Finnovista, the number of fintech startups in the region rose 66% from 2017 to 2018.

Latin America’s #Fintech industry is booming, with more than 1,166 Fintech startups creating more inclusive financial systems and boosting economic growth in the region

There are a number of factors driving Latin America’s Fintech growth. For one, the region is one of the fastest-growing in the world for mobile usage. With an increase in smart devices also comes an increase in mobile Internet usage, which has led to a demand for more mobile financial services. An estimated 70% of consumers in Latin America are unbanked or underbanked, having been excluded from traditional financial services because they could not provide the appropriate documents or information to open an account or obtain credit.

But it’s not only consumers who face these challenges in Latin America. The region’s small and medium-sized enterprises (SMEs) are notoriously underserved when it comes to financial services as well. SMEs represent approximately 90% of all businesses in Latin America and the Caribbean and are the leading creators of new jobs in the region. Widespread Internet penetration is making it easier for more and more people to start their own businesses; however, traditional financial institutions have not kept up with the demand for digital solutions that fit the needs of today’s SMEs. As a result, many Fintechs in Latin America are now filling this gap, providing lending, credit, and financial management solutions that help the region’s SMEs save time and reduce costs.

While consumer-focused Fintech companies are still attracting the lion’s share of investments, here’s a look at why the next wave of Fintech innovation in Latin America will focus on solutions for SMEs.

Demand for alternative lending options

SMEs create approximately nine out of every ten new jobs in emerging markets. However, these businesses face a number of roadblocks when it comes to securing capital to grow and sustain their operations. The resulting SME funding gap is estimated to be around $5.2 trillion globally.

In emerging markets around the world, it’s difficult for SMEs to secure credit from a traditional financial institution or bank. Depending on the size and formality of the business, the company may be unable to produce the necessary credit ratings or assets to qualify for a loan. When a bank cannot verify the creditworthiness of the business, they often determine it too risky for their investors.

Fintechs are rising up in the lending space to solve this problem in Latin America. According to the Inter American Development  Bank (IADB) and Finnovista 2018 report, lending solutions represent 60% of the total business models of Fintech startups in the region, whether they are balance sheet or peer-to-peer, crowdfunding solutions (30% of the total), or factoring solutions (10%). And while consumers are still the primary target market for these lending solutions (68% currently focus on consumers and 32% on businesses), it’s clear there are still plenty of opportunities to seize. Fintech startups are using advanced analytics and machine learning to analyze a wide range of data and other factors to determine a business’ creditworthiness.

In Latin America, #Fintech startups are using advanced analytics and machine learning to analyze a wide range of data and other factors to determine a business’ creditworthinessCLICK TO TWEET

A need for cross-border payment solutions

Traditionally, the only way to perform cross-border transactions was through banks. However, a lack of transparency surrounding currency conversion costs and transaction fees are just a few of the many challenges SMEs face when using these traditional services. Today, there are numerous solutions to execute cross-border payments within seconds. Fintechs are helping businesses ensure the best exchange rates and removing innumerable barriers to transact, track, and settle cross-border payments in real-time.

MercadoLibre, for example, is an online marketplace based in Latin America with more than 166 million active e-commerce users. The company is leading Latin America’s digital payments revolution with its focus on innovative, mobile-first financial services that not only help its millions of sellers obtain credit but also help them process cross-border payments painlessly. PayPal recently invested $750 million into the company, confirming the tremendous opportunities for digital payments solutions that help businesses in Latin America buy and sell across borders.

Mandatory electronic invoicing

Latin America has long been a global leader in electronic invoicing, accounting for 15 billion of the world’s 36 billion e-invoices created in 2017. E-invoicing has many advantages for both governments and businesses. For one, governments can track and tax transactions more appropriately when all invoices are filed electronically. Meanwhile, businesses can tackle the tax process more efficiently when they have all their invoices accounted for and organized in one place.

Several countries in Latin America are now making e-invoicing mandatory, which is creating many opportunities for Fintechs building products or services based on the accessibility of this data. More data to analyze means less risk for lending startups and lower interest rates for the businesses they are serving.

Fintech’s next wave in Latin America

Going up against the traditional financial institutions in Latin America is not without its challenges. Dealing with frequent political and economic instability, slow regulatory systems, and complex markets in each country is a significant undertaking for any Fintech targeting its solutions to the region’s SMEs. Still, the current lack of solutions on offer presents a great opportunity for those up to the task. SMEs are the backbone of the economy in Latin America, and they are increasingly looking for digital solutions to help them operate and optimize their businesses.

Why the Next #Fintech Wave in Latin America will focus on B2BCLICK TO TWEET

Puntuación
Posición en Iberoamérica
1
Juan Esteban Saldarriaga
Vice President at Alianza FinTech Iberoamerica | Co-Founder Rapicredit | ColombiaFinTech.co
24.4
5
2
Edwin Zácipa
Executive Director at Colombia FinTech | Managing Partner MiBank.co | Founding Member FinTech IberoAmérica
20.4
17
3
Diego Molano
Consultor internacional en temas de TIC e innovación
19.4
18
4
David Velez
Founder and CEO at Nubank
17.0
27
5
Martin Schrimpff
Co-Founder of Zinobe | Founder of PayU | Founder Pagosonline.net
15.6
32
6
Ángel Sierra
Director Ejecutivo en Asociación FinTech e InsurTech de Chile | Member of Alianza FinTech Iberoamerica
14.8
39
7
Paula Cardenas
Business Manager at AEFI | Founder Member FinTech IberoAmérica
14.5
42
8
Clementina Giraldo
FinTech & AgTech in Latin America
11.8
60
9
Juan Francisco Schultze-Kraft
Board Member – Vicepresident at Colombia FinTech | PayU Legal
11.4
63
10
Daniel Rojas
CEO & Co-Founder at Rocket.la
10.1
69
11
Alan Colmenares
Digital Transformation Enablement – Latam at Microsoft
7.3
89
12
Laura Gaviria Halaby
Global Head FinTech Acceleration at Citi | Chief Acceleration Officer at TheVentureCity
6.3
101
13
Diego Alejandro Guzman Guevara
CEO and Co Founder at Bankity
6.2
104
14
Andres Ramirez Sierra
CEO at Banlinea LATAM
6.2
105
15
Daniel Navarro
CEO & CoFounder at NIMMÖK
6.1
109
16
Fernando Sucre
CEO at ComparaMejor
5.9
110
17
Andres Villaquiran
Founder & CEO Alkanza
5.3
119
18
Carlos Castañeda Olaya
Open innovation leader at Accenture | Country Manager at Wayra
5.2
123
19
Marisol Camacho
Director of Corporate Relations at Bancóldex | Director of Mindset at iNNpulsa Colombia
4.6
131
20
Felipe Valencia
Partner at Veronorte
3.7
143
Conoce más de estas Fintechs
Las opiniones compartidas y expresadas por los analistas son libres e independientes, y de ellas son responsables sus autores. No reflejan ni comprometen el pensamiento u opinión de Colombia Fintech, por lo cual no pueden ser interpretadas como recomendaciones emitidas por la Asociación. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista sobre el ecosistema Fintech.