Foreign fintechs tapping into LAC marketplace
With Latin American fintech entrepreneurship growing at an annual rate of between 50% and 60%, startups from outside the region are beginning to show keen interest in entering various markets in the region, particularly Mexico and Brazil, according to the latest Fintech Radar report from research firm Finnovista.
The firm's first report focusing on "foreign startups" - defined as fintechs based outside of Latin America - identified 86 such firms operating in Latin America.
According to the report, 65% of the foreign startups active in the region hail from Europe, largely the UK (38% of the European firms), Spain (31%) and Germany (9%); while 31% come from the US and Canada, of which 30% were from California and 19% from Florida; and only 4%, or three firms, are based in Asia.
The study indicated Mexico represented the most active Latin American country for foreign fintechs with 74% of the identified firms in the study operating there. This was followed by Brazil, where 46% are operating, Peru with 35%, Colombia with 33% and Argentina with 27%.
There are seven countries with an average presence of foreign Fintech startups, according to the report: Chile, where 22% of the identified startups are offering their services; Ecuador, with 15% of the startups operating in the country; Guatemala, destination of 14% of the startups; Uruguay, Costa Rica and Dominican Republic, each of them being the destination of 12% of the startups; and Panama, with 11% of the startups offering their services in the country.
Finally, there are some countries with a minor presence of foreign Fintech startups (below 10%): Venezuela, Bolivia, Guyana, Surinam, Haiti, El Salvador, Honduras, Nicaragua, Paraguay, Belize, Barbados and Jamaica.
The firms are moving into markets where locally created fintechs are already showing significant growth.
The main markets in terms of Latin American Fintech startups, according to Finnovista, are Mexico (238 startups), Brazil (219), Colombia (124), Chile (75), Argentina (60), Peru (47) and Ecuador (31).
"As we can see, these countries are also the markets with the highest offer of foreign fintech services; however, it is important to highlight that Chile, the fourth largest market in terms of Latin American fintech startups, is not among the five most appealing markets for foreign companies, while Peru, the sixth largest Fintech Latin American market, positions itself as the fourth most appealing market for foreign Fintech startups," said Finnovista.
The report also identified the four principle segments among the identified foreign Fintech startups operating in Latin America as the following:
- Payments and remittances, accounting for 35% of the identified startups
- Enterprise technologies for financial institutions (ETFI), with 16% of the startups
- Lending, as well accounting for 16% of fintech startups
- Scoring, identity and fraud, with 12% of foreign startups.
A detailed Finnovista infographic of the ecosystem and key areas of focus is provided from the study below:
The study also cited the business potential tied to boosting financial inclusion as a key attractor of foreign fintechs to the region. The firm cited World Bank data showing 49% of Latin America's adult population continues to lack access to a bank account, just above the world average of 42%, but far exceeding the 6% seen in high-income OECD countries.
"Given this situation, fintech services represent the most important driver to improve financial inclusion due to [their] capacity to optimize costs and improve the supply of products and services, and a great market opportunity as it has the capacity to reach a segment of the population that was previously unattended by traditional financial services," said the firm.
"In this sense, Latin America represents a great opportunity for Fintech companies from around the world that are looking to address this market through the massive adoption of mobile technology," added the report. "In 2016, the region had already 450mn smartphones and ... this penetration is expected to increase up to 76% of the population within three years."
The study said the rapid tech adoption contributed to the region seeing the largest increase in digital banking accounts worldwide, climbing to 10mn accounts at year-end 2016 from only 1mn in December 2011.
The firm added that demand for tech-based financial solutions has begun to drive governments to act on fintech regulation, further motivated by fintechs' potential in fighting poverty and stimulating economic growth. However, the firm said work must be done to develop "clear and homogenous regulatory systems that permit the development of a favorable ecosystem for entrepreneurship and innovation."
Further potential barriers to foreign startups include "the political instability in countries like Venezuela or the economic volatility in countries like Mexico due to the uncertainty brought about by the trade policy with the United States."
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