In recent years, Latin America has been a fertile ground for fintech investment. This industry has flourished, driving more attention and competition between local and international businesses. 

With the rise of mobile access, payments players and other fintechs are thriving in the region. And with the expansion of more accessible digital solutions, fintechs offer consumers even more financial inclusion. Read on to learn more about why fintech has boomed in Latin America and how Blankfactor has played a role in its continued growth.

The rise of fintech in LATAM 

Consumers and investors might think of the United States and Europe when they think of fintech. European fintech firms, in particular, are very attractive for investors. In the aforementioned Tech.eu report, the €3.52 billion raised by European fintech companies in 2018 ballooned by 150% in the following year. And according to the amount of investment reported in 2020 and 2021 — €6 and €19 billion, respectively — that growth has only continued, as Finch Capital reports.

The Latin American region has also experienced an accelerated growth in fintech startups, even though this process started later than in other regions. From 2017 to 2019, fintech investment almost doubled. Although the Latin American market still represents a small percentage of the global total, its growth has been exponential.

In 2018, 1,166 startups were operating in the region; most focused on digital payments, transfer services, and alternative financing or lending platforms. The financial sector in Latin America covers many more services, however. Financial management, crowdfunding, digital banking, and scoring and identity fraud are some of the many services fintech startups offer. 

“Just three or four years ago, you only had a couple of companies or institutions responsible for payment platforms and connected to one payment processing network such as Visa or Mastercard. This has now changed, and most payment systems include multi-brand payment processing“, says Fernando Byrne, Lead Consultant for Blankfactor.

The world of payment systems

One in every four startups in the region provides payment-related services. In an Inter-American Development Bank (IDB) report from 2018, 55% of these startups were based in Brazil or Mexico, though countries such as Colombia and Argentina closely followed suit.

What has made payment systems so popular? Much of the boom in payment systems is attributed to internet penetration, as the region currently counts over 450 million users. Just in South America alone, the internet penetration rate (the relationship between the total population and the number of Internet users) was 75 percent.

As the number of users has grown, so has the experience of creating user-friendly digital payment services. A good example is Billetera Móvil (BiM) in Perú, a standardized e-wallet launched by the private sector in 2016. With BiM, users could transfer money, top-up mobile airtime, and many other services. 

However, operational issues and low internet coverage hindered Billetera Móvil’s initial reach and usefulness. Despite such issues, BiM remains one of the country’s most popular financial platforms and currently competes with services like Yape and Tunqui.

Even though the Peruvian market is relatively small compared to México or Brazil, platforms such as BiM are a good example of how digital payment platforms have grown significantly in past years. This is mainly because mobile phone technology has allowed banks and non-banks to reach the population in remote areas and provide a wider range of services.

Investment means opportunities for financial inclusion

More investment in fintech endeavors offers the possibility of greater financial inclusion in Latin America. This way, millions of people may now have access to the formal financial sector through low-cost financial services. 

According to the Dawn of Fintech in Latin America report, as of 2019, 41% of fintech startups in the region reported serving unbanked or under-banked consumers or small and medium-sized enterprises (SME). Such data provides a strong indicator of some of the effects of fintech tech in the region. However, more research (and time) is needed to observe any substantial results. 

There is also an opportunity for collaboration between fintech firms and financial institutions, known as “fintegration.” Both entities may benefit, as banks can adopt new technologies and fintech firms can scale and build their brands. A great example of this is Glim, a fintech solution enabling employees to save their salary in digital dollars. 

Blankfactor + Glim: A fintech success story in LATAM 

Through our partnership with Glim, Blankfactor is proud to play a role in building up fintech in LATAM. 

Glim offers not only employee-facing financial tools that take advantage of stablecoin technology — it helps employees protect their salary from the impacts of inflation in the region. Originally designed for the challenging realities of currency devaluation in LATAM, Glim has since expanded its focus to the international market. 

Blankfactor worked to design and build the product from end to end. Leveraging our financial know-how and expertise in blockchain technology, we created a fully independent proprietary core-banking-like ledger system along with employer and employee-facing financial platforms. Together with Glim, our work is helping to power financial inclusion for employees and innovative solutions for employers in Latin America — and around the world.  

Considerations and challenges for future development

So, what are the potential risks and challenges for fintech in the region? 

“The second step (and challenge) is to open the competition and allow other companies to enter the market,” says Byrne. Throughout the region, Latin American legislators have responded quickly to the sudden rise in fintech to balance the preservation of financial stability, market and financial integrity, competition, and consumer protection. 

The success and speed of this response depend on several factors, including the size of the industry, the existing legislation, and the approach to regulation. Mexico, for instance, created a set of comprehensive fintech-specific laws to provide more legal certainty while ensuring transparency and competition. Their provisions include electronic money services, crowdfunding and peer-to-peer lenders, and cryptocurrency. 

Central banks in different countries have also noted limitations on the supply and demand side, ranging from contracting, the ability to penetrate in rural areas, infrastructure and connectivity, geographical complexity, and the lack of trust in both financial institutions and technology. 

Despite this, Latin American fintech is off to a strong start, and the use of payment platforms and other services may significantly improve the financial and social conditions of the region.

Tackle fintech innovation in LATAM with Blankfactor

Fintech innovators in LATAM need not only expertise in financial services technology but an understanding of the region’s unique challenges and opportunities. With our office in Colombia and our experience developing unique financial solutions made for the realities of LATAM employees, we’re proud to continue supporting the growth of fintech in Latin America.

Looking for a digital solutions partner that will drive impact through engineering expertise? From data engineering to full-stack product development to enterprise AI, Blankfactor can design and deliver the complex solutions you need to turbocharge your business — in LATAM and beyond. Contact us today for a 60-minute solution session. 

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