Fintech’s hottest market: Latin America

Latin America is the hottest fintech market in the world, here is why.

LatAm’s demographics and its lack of established advanced financial services are a huge opportunity. According to the World Bank, LatAm has a financial service market of $1 trillion a year, and an estimated 135 million people in Brazil, Colombia, and Mexico alone were unbanked in 2017.

At the same time, the region has massive mobile internet usage. In 2019, there were 343 million mobile internet users in Latin America. The number is expected to increase to 424 million by 2025. Brazil and Mexico are among the five countries where users spend the most daily hours on mobile apps (around 5!).

Poor financial services, huge unbanked population and high mobile app usage create the perfect environment for fintech adoption. Many new financial services users in LatAm are fintech natives. Teens and young adults represent 52% of the entire population, who are being rapidly onboarded onto fintech platforms, many having never used “traditional” banking. 40 million people in LatAm were banked between just May-September 2020 with online banking.

Government support and fintech-friendly regulation is also levelling the playing field for newer players. In 2018, Mexico created a framework for fintech companies (“Ley Fintech”) to compete with traditional financial institutions on regulatory requirements. Brazil approved its Open Banking project in 2019 and the first phase went live in early 2021, other countries, such as Peru and Argentina, are on their way too.

The fintech startup and venture scene is unsurprisingly booming. Funding has already reached nearly $6B invested in 2021, up almost 3x since last year and 24x since 2016, global investors are piling in to back the new successes in the region, more than 1,600 fintech startups are active in the region.

Funding for latin america fintech grows massively to almost $6B
VC funding in Latin America fintech startups

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LatAm fintech attracts international investors

Most of this is driven by megarounds which make almost 70% of the funding in 2021. But also the number of rounds is higher than ever.

Fintech investments in LatAm also account for a stunning 37% of all VC funding in the region, compared to 26% for Europe and 17% for the US. Fintech funding in Latin America is still smaller than in Europe and US, but it is growing faster and has even surpassed SouthEast Asia.

Global fintech investors have definitely taken note, 84% of the funding in 2021 came from the US, Asia and Europe. In detail, the US accounted for the most part, almost 62%, followed by 17% from Asia.

Funding for fintech startups in Latin America by investor source.
VC funding in Latin America fintech startups by investor source

Softbank entered the scene in 2019 and has participated in rounds totalling almost $2B this year. Softbank is doubling down on the region’s potential and recently announced its new $3B Latin America Fund II. Sequoia has notoriously backed Nubank since its seed round in 2013 and recently invested in Chilean FintualBut now all the heavyweights are coming for their slice of the pie: Tiger, A16Z, Tencent, Coatue have joined the frenzy.

Among local investors, the most notable is Kaszek Ventures, an early-stage pan Latin America fund that has participated in deals of almost $1B this year and holds an impressive portfolio comprising Nubank, Bitso, Creditas and Konfio. Sequoia has also been an LP in Kaszek Ventures since its inception.

Returns for investors are also materializing. Fintech exits have already reached more than $6B this year, and Nubank is preparing to go public at a $50.6B valuation.

Not just Brazil. All LatAm is booming.

Every country would deserve a dedicated blog in itself and we will once we deploy more of our ecosystems with local governments and other partners. As we can see below the fintech wave started to pick up in Brazil in 2018, followed by Mexico and Argentina the year after. Chile, Colombia, Ecuador, Uruguay and Peru are also all showing the first signs of an emerging fintech ecosystem.

VC funding for Latin America fintech startups. Brazil is leading followed by Mexico, but all other countries are starting to rise.
VC funding in Latin America fintech startups by country

What sectors are booming?

Banking, payments and lending has been showing the way. Now wealth management and crypto have also started to spread.
The fintech scene usually follows three steps of development:

  1. Banking the unbanked: bringing banking, payments and lending (digital payments, remittances, small consumer loans) to people excluded or heavily underserved by the existing financial system. Then expanding to wealth management and insurance.
  2. Expand to B2B offerings: B2B banking, SME business and trade financing, merchants payment processing etc.
  3. Building the infrastructure: API, open banking, BaaS, credit scoring and so on. This allows a further acceleration of the scene.

There is so much more going on in the Latin American fintech scene. Explore 1600+ fintech startups in Latin America.

1600 fintech companies in Latina America
More than 1600 fintech companies in Latin America

Getting the spotlight on Latin America: Nubank

Nubank has driven the world’s attention to the LatAm fintech scene like UiPath made it discover the potential of Central and Eastern Europe.

It is the largest challenger bank by the number of users, having reached 48.1 million users in Q3 and adding 2.1 million a month. It also lately turned to profit, which is rare than a unicorn for digital banks and will go public on December 8th at a $50 billion valuation, with a double listing in the US and Brazil.

Nubank financials information
Nubank official figures from F1 filing

Something less known? In 2016, when Nubank was only two-years-old, a new regulation was discussed to bring down repayment days to merchants for consumer purchases from 30 to 2. This would have crushed Nubank, but the Brazilian Central Bank recognized that the move would crush the competition and allow the country biggest banks to keep their dominance and kept the 30-day deadline allowing Nubank to become what it is today.

Fintech in Latin America is showing the first important signs of a bright future and we are looking forward to supporting the local startup scene with partners in the region.

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