LATAM FinTech: The Future of Finance
The LATAM (Latin America) region is expected to be at the forefront of global growth in the FinTech industry. In Latin America, five countries have been recognized as particularly prominent in FinTech development: Argentina, Brazil, Chile, Mexico, and Colombia.
One of the major drivers for this growth is the enormous migration from less wealthy countries to more wealthy ones. LATAM is home to a large portion of the world’s 12 million expat workers, annually sending $26 billion worth of remittances back to their home country (LaBITConf).
With an increase in wealth and an increasingly connected global workforce, LATAM has seen an evolution in consumer finance options. In 2015, more than 7 million registered users were on crowdfunding platforms in the region, with Brazil and Mexico boasting 2.1 million and 1.4 million members, respectively.
Banking Sector Growth Potential
While the LATAM banking sector has experienced slower growth than other regions (such as Asia), there is still plenty of room for innovation and development within the Latin American financial industry. Since 2014, a 118% increase in VC investment has been observed (LaBITConf).
Much of this growth is being driven by peer-to-peer lending services and the rise of alternative credit platforms. 11 out of the top 15 most innovative companies in Europe from 2015 were based in LATAM (LaBITConf).
To give a proper sense of growth, since 2012, the number of mobile money accounts across these 37 countries has grown by 205% and the number of users has increased by 97%. This is expected to continue as more people in LATAM can access these services (LaBITConf).
Particularly interesting is the rise of digital banking in the market. These digital banks can increase client acquisition by working with merchants and consumers to offer rewards, promotions, and services to incentivize people to use the service. This will result in an increasing market share for digital-only banks in LATAM, and specifically Mexico, home to such advances in the region(LaBITConf).
The rise of P2P lending platforms makes it possible for entrepreneurs from emerging markets to have access to financing. In Mexico, credit penetration is relatively low and can benefit significantly from the growth of P2P lending platforms (LaBITConf).
There are several examples where banks in LATAM are working with FinTech companies to launch innovative products and services—- Banco Interacciones has worked with Kueski to offer a digital loan to be paid back in installments. This gives users access to small amounts of credit that would not have been available to them otherwise (LaBITConf).
UPI in India and BHIM in LATAM
In both regions– India and LATAM– there is talk of integrating UPI payments into their current payments systems. This move makes sense as it will:
Expedite the payment process and reduce costs for businesses and individuals (operators do not need to maintain their infrastructure for funds transfer). Bharat Interface for Money (BHIM) has been developed by the National Payment Corporation of India (NPCI). In LATAM, BHIM has also been developed by NPCI.
In LATAM, for a long time, Bancolombia was not accepting cash deposits. Because of this, they lost points with consumers and businesses. Now, Banco de Bogota SA invested in technology that would allow them to accept cash deposits in their branches (LaBITConf).
In LATAM, Vantiv has introduced B2B payment processing services through a partnership with Alianza Cooperativas de Ahorro y Credito (ACOtec), the largest network of credit unions in Mexico. The company hopes to process around $30 million worth of payments annually for ACOtec members and other non-bank financial institutions (LaBITConf).
In both regions, some P2P lending platforms are becoming increasingly popular. In India, Lendingkart has issued over $300 million in loans since 2014 and expects to increase this amount to $500 million by the end of 2017. The platform is expanding into the UAE and also looking at regions in Southeast Asia, LATAM, and Africa (LaBITConf).
In LATAM, Lending Club has had a 24% growth since 2013. In 2016 the company’s assets under management were $5 billion compared to just $2.7 billion in 2015 (LaBITConf).
The growth of digital banking will drive this. It is estimated that by 2020, there will be around 90 million digital customers in LATAM and India (LaBITConf).
This trend has started in India with Paytm, an app-based payment platform. Since 2009 they have seen a 30,000% increase in their registered users. They are also active in digital banking and have partnered with ICICI Bank, Bhartiya Mahila Bank, and the National Bank for Agriculture and Rural Development (NABARD) to offer various financial services, including P2P lending. In addition, Paytm is also launching its credit card in India. What’s more, they are looking at expanding into LATAM by partnering with Banco de Bogota SA (LaBITConf).
Paytm has already started working in the LATAM region by signing many partnerships with banks to offer online financial services to their customers. They have partnered with Banco Banesco SA, Sumaiam, and Credimex to provide: Credit card facilities; Travel booking facilities, Deposit and withdrawal services. (LaBITConf).
These developments show a growing opportunity in both markets for FinTech businesses to reach customers, primarily digitally savvy mobile-only customers who do not have access to traditional financial services.
PayPal’s entry into LATAM
In 2015, PayPal partnered with Banco do Brasil and Itaú Bank to enable their customers to pay using various payment options, including Debit cards; Email money transfer, PayPal balance; Credit card, Check. In addition, PayPal is also looking to invest in local payment solutions such as PagPop (LaBITConf).
PayPal has partnered with Banco Santander Chile and Grupo Suramericana de Fomento (GSF) in LATAM to provide their customers with an online payment solution using a secure and accessible platform. Customers can now pay for purchases on eBay, AliExpress, and Facebook easily (LaBITConf).
PayPal has partnered with Banco de Bogota SA to provide customers who do not have access to the traditional banking system with a safe and convenient way to manage their money through their mobile phones. Customers can deposit cash using one of PayPal’s partner retail agents directly from their mobile app into their PayPal account (LaBITConf).
PayPal also enables customers to pay for transactions online and in-store, including utilities, telcos, and subscription services through its payment platform Paypal Here. This will provide access to convenient and secure payments for customers in LATAM (LaBITConf).
The partnership with Banco de Bogota SA is the first mobile deposit service of its kind in LATAM. The new service expects to increase financial inclusion for over one million customers who do not have access to a bank account and will allow them to transfer money and pay bills online through their mobile phones (LaBITConf).
The news from Paypal at LaBITconf shows that there is a growing opportunity in LATAM for FinTech businesses to reach customers. This growth in LATAM and India is also underpinned by other developments such as the increase in Internet technology, the growth of e-commerce, and smartphone adoption (LaBITConf).
Conclusion:
The trend of mobile penetration and innovative payment solutions will continue to increase in LATAM. Paytm has proven itself as a tenacious company in India and recently launched an IPO (initial public offering), raising $1.7Bn. This shows their belief and confidence in the future of this company.
However, increased competition and the threat of new players in the market will continue to pressure these companies. Still, there is a good chance that they can maintain their dominance by continuing to add innovative services. (I feel like since you’re referring to LaBITCONF at every para, maybe include it as a source at the end one time instead?)
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