Latin America is known for its mambo and salsa dance styles, but there’s something else shaking up the region — fintech. According to Crunchbase, the continent has just given birth to more than 20 unicorns. The report reveals that venture capitalists are flooding the area as well. Startup funding reached $20 billion last year. That’s a 320% increase from 2020! Not to mention, the highest amount to date. Let’s put the dancing shoes aside and find out what’s fueling this demand for innovative banking tools.
The increase in capital throughout 2021 was largely driven by later-stage funding rounds. One of the biggest financiers is Nubank — the largest fintech in Latin America. They raised $750 million in pre-IPO financing last June, before going public six months later. Today they’re valued at over $45 billion. Yes, that’s billion with a “b”.
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A Region On The Rise
Head of International Investment at QED Bill Cilluffo points to a distinguishing factor igniting the boom: “You have this laboratory of consolidated competition in incredibly profitable markets with really poor customer service. This creates a wonderful opportunity for people to come in and challenge the status quo.”
QED Investors — parent company of 23 unicorns including Nubank — specializes in seed money or series A round funding. The company currently has 37 investments in Latin America alone. It’s their most significant piece of business outside of the United States.
Let’s not forget the coronavirus effect. With the pandemic restricting physical contact, millions of Latin Americans turned to e-commerce and online payment methods for the very first time. It’s also worth noting that more than 50% of Latin America’s population is overlooked, underbanked and non-funded. The continent has the highest levels of income inequality in the world. These contributors drove a thirst for breakthrough technologies and innovative banking tools. But traditional banks did what they always do, they stayed traditional. The industry was ripe for disruption.
Fintechs began reinventing banking services all over the world. In Latin America, these platforms have found huge potential with targeted demographics. Especially in Brazil, Colombia, Argentina and Mexico. With digitally-native infrastructures and highly-personalized experiences, fintechs grew exponentially. They are able to introduce financial products to the market quicker and cheaper than the traditional institutions while removing the friction.
Fintechs Are At The Forefront Of Financial Inclusion
Latin America has become the new breeding ground for fintech unicorns. Startup founders and venture capitalists alike are advocating for the potential of tech-driven innovation. They want to scale massively to the masses. And with 20 countries in need of access to capital, it sounds like a solid move.
“Fintech has made tremendous progress at simplifying the lives of folks, specifically in Latin America. Historically, the region has been known as a very high friction place to do banking, buy real estate or make investments,” Cilluffo continued. “They haven’t always been very user friendly and technology’s come a long way toward removing a lot of that friction.”
Latin America is poised to become a global leader in digital banking. There are certainly challenges to overcome in order to achieve this goal since the region has long been associated with wealth inequality. However, increased investments and mobile-first successes in other emerging markets around the world prove conclusively that financial inclusion can finally be a reality in Latin America.
Five banks control over 80% of every financial product in Brazil. Combined these banks have become the most profitable in the world. If you see the interest rates and fees consumers pay for these products it’s extremely expensive. Therefore fintech will continue to bring financial freedom to the region. Unicorns rejoice. It’s time to do the tango.
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