Contxto – The Association of Fintech Companies of Chile (FinteChile) released a coveted report involving the evolving industry on May 14. Entitled “The First Fintech Study in Chile: Challenges and Opportunities,” the document revealed new data about Chile’s malleable digital and financial ecosystems.
In Summary
The report defines how Chilean fintech enterprises are comprised of four pillars: Talent, Capital, Regulation and Demand. Accordingly, the document analyzes these attributes as they are pertinent to industry growth.
Another important aspect of the report is how it shows the lack of regulations creating uncertainty and risks in the sector. Pair this with underfunding and you have one conundrum.
That thin line between deregulation (allowing innovation but causing potential uncertainty) and too much regulation (strengthening laws but limiting new business creation) should be managed carefully. Nonetheless, this document marks progress.
Close to 70 of Chile’s 100-plus fintech companies participated in the study, all of whom are part of the country’s US$107 million fintech market cap. In the end, the findings position Chile as the second most attractive Latin American country for fintech investment.
Mexico ranks first while Colombia third, Argentina fourth, Peru fifth, and Brazil sixth.
Nonetheless, there’s much to be desired. That’s to say, only 50 percent of surveyed investors believe that Chilean fintech startups are ready to compete internationally. Fintual, Destácame and Khipu are some of the only ones that have managed to launch successful foreign operations, according to the report.
In-Depth
Financially, 65 percent of fintech respondents have raised accumulative capital worth US$107 million in their lifetimes. Only 29 percent of participants also possess formal valuation equating to a total of US$249 million. However, 71 percent of fintech startups said there are not enough funding opportunities for the Chilean sector.
To make ends meet, it makes sense how 61 percent of fintech startups have participated in an incubator and/or accelerator program to obtain capital. Around 40 percent also said that angel investors have played important roles. Specifically, these players help immensely with funding seed rounds, up until Series B.
Regarding talent, another 50 percent of participating fintech startups also reported having difficulties hiring the appropriate tech professionals in Chile. Another barrier to entry includes a lack of collaboration among traditional financial competitors.
Based on the findings, 40 percent of “traditional” banking entities are reportedly resistant to ecosystem change. Others included lagging technological and industry knowledge, low confidence, plus overall market size.
Regarding regulations, 63 percent of the fintech actors said it is challenging to comply with current Chilean regulations since they are more rigid than in other regions. This should tell speculators that changes may soon be necessary for proper development.
Although 96 percent of surveyed fintechs are legally constituted, 86 percent of them have not registered as legal financial institutions. Along those lines, Chile’s Commission for the Financial Market and/or the Financial Analysis Unit only regulate or supervise 17 percent.
Perhaps this is why so many Chilean fintech entrepreneurs are asking the government to support their endeavors.
-JA
