Why I am betting on LATAM’s Fintech Boom

Latin America is having a moment. Every week, I read about something incredible happening with a new Fintech in the region. Whether it is Bitso with its new unicorn status in Mexico, Kushki, with its latest Series B round, or Nubank with its latest investment from Warren Buffet’s Berkshire Hathaway, teams are hard at work looking for new ways to serve consumers.

Here are a few reasons why:

LATAM is home to some of the most connected consumers in the world. Its population is huge (double the US), young (~60% between 15–65), and loves to chat (95% of people with internet access in Brazil use Whatsapp). Innovators, like Rappi, have created access to products within a few taps, and consumers are now expecting the same experience from their financial institutions. Companies that haven’t been able to adapt are now being challenged by new players that are providing value through mobile-first solutions.

Banking in Latin America is highly concentrated in a limited number of players. In Colombia, for example, there are only 25 banks that cater to over 50 million consumers. Little competition has kept fees high and removed the need to improve onboarding. Banks cater mainly to the affluent and, consequently, about 40% of the population in LATAM remains unbanked and underserved.

Being underbanked keeps marginalized communities, marginalized. Without access to credit or savings, people continue to have poor financial wellness, and inequalities continue to grow. Arcus reported:

According to the FDIC, in 2019, nearly 95 percent of U.S. households (approximately 124 million households) were banked. In Mexico, and according to the Payment Methods Trend Report published by Minsait, the banked population over the age of 18 is 36.9%.

Additionally, existing banks have one size fits all products. Challengers are focusing on niches and catering to specific segments. For example, in Mexico, two fintechs are focused on specific segments: Mozper on children and Jefa on women.

Financial authorities are searching for new ways to support technological innovation while minimizing their risk. Deregulation and updates to existing laws are enabling new players to enter the market at a faster rate and we are seeing many firsts. For example, Mexican authorities recently approved the first fully digital onboarding Fintual within 6 months.

A few years ago, to launch a company you not only had to think about your product, but you also had to build the infrastructure around it. For an e-commerce company, it wasn’t enough to build the app, you also had to develop online payment, delivery systems, etc.

New tech infrastructure has made it easier to launch fintech products in every market. The rise of new B2B Fintechs is powering new D2C Fintechs and allowing companies to scale. We now have:

  • Belvo: the Plaid for LATAM
  • Pomelo: the Marqeta for LATAM
  • Rapyd: for cross-border payments
  • Stripe: for payment processing

As Angela Strange from A16Z stated:

“New fintechs are poised to take advantage of these efficient rails and make money work for consumers and businesses in the region.”

In other words, LATAM is just getting started.

Tech “Mafias” have existed in the US for many years. A clear example is the Paypal Mafia. Ex Paypal-ers went on to build incredible companies like Square, Tesla, Palantir, and Space X, just to name a few.

The success of Latin American unicorns has created new regional “mafias” of people who understand how to build successful companies that scale. These “mafias” are now teaching others how it is done. They are becoming advisors, such as Brian Requarth from Viva Real with Latitud (shoutout to LF3), investors, such as the Mercado Libre founders at Kaszek, and early employees. What was once a gap in talent, is now an incredible group of go-getters that want to help the next generation of entrepreneurs succeed.

Success has also led to an increase in capital flow and investment in the region. Latam is no longer a hypothesis, it is a validated market.

The main reason to bet on Latam is the people. Latin America has some of the most resilient people I’ve met. We have lived political difficulties, currency devaluations, expropriations, poverty, and we still power through. We keep on finding ways to get better, to learn from those around us, and to improve. We take the best things from around the world and make them our own. We don’t sit and wait around, but we adapt and we build.

We also establish powerful relationships as we go. When we meet, we ask what people did during the weekend, we discuss parenting tips, we discuss fútbol. We bond over personal issues and create genuine connections. These relationships get people extra excited to collaborate and motivate each other to keep on building.

I am excited to build the future in LATAM and be a part of this evolving ecosystem by building products that enable consumers to grow their wealth by investing, saving, and learning. Join me on this ride and follow me on Twitter or Linkedin to learn more.

Building something new to promote financial well-being starting in the 305. ex Visa & Penn grad. For spanish content check out www.penzinialcuadrado.com