The most promising fintech opportunities in LatAm

While placing an order through Mercado Libre, I was thinking that it is already very easy to pay on any e-commerce platform, no matter how big or small it is. This is because there are more fintech companies offering multiple payment solutions.

This sector has been buzzing for more than 10 years, Rubén Galindo, CEO of CapitalTech, told Contxto. However, in 2017 we started to hear the word “fintech” more in Latin America, because more startups with financial solutions began to emerge, which various industries and people adopted, according to Finnovista’s Evolution of the fintech sector in LATAM.

So far there are more than 1,500 companies that make up this sector, which is getting stronger in the region. The report detailed that while in 2020 they obtained $4 billion in venture capital, this increased almost twofold in 2021 with $7,5 billion.

Not all fintech means payments

Fintech companies might be synonymous with tech-based businesses that provide payment solutions. 

However, the Finnovista report groups them into four ecosystems within the region: there are 691 paytech companies (payments), 491 lendtech (loans), 222 wealthtech (investments) and 210 insurtech (insurance).

Both Fintech Mexico and Galindo divide them by the services they offer:

• Means of payment and transfers: e-commerce platforms, international payments and transfers.
• Infrastructure for financial services: banking APIs, aggregators, big data and analytics, business intelligence, cybersecurity and electronic contracting.
• Digital credit origination: companies that offer credit on electronic platforms.
• Financial solutions for companies: those offering accounting and financial management software.
• Personal finance and financial advisory: offering financial management and advisory services, financial product comparators and distributors, and financial education.
• Financial markets: digital brokerage services for securities, financial instruments and currencies.
• Crowdfunding: services that help to obtain financing, beyond what is usually granted by traditional institutions such as banks.
• Insurtech: technology applied to services in the insurance sector.
• Cryptocurrencies and blockchain: developers of blockchain-based solutions, intermediaries and digital asset markets.
• Disruptive financial institutions: banks or other financial institutions that are 100% digital.

The potential beyond payments

Paytechs are dominating the sector. However, Galindo explains other fintech companies will have great growth in the coming years. 

Among them are crowdfunding companies, specifically those focused on real estate, which is regulated by the country’s Fintech Law. Galindo also mentioned fintechs that offer credit services to companies, such as Clara, which provides a credit card and expense control service to companies. Clara is growing 2x monthly and already has around 1,000 customers, according to a report by Forbes.

Galindo also sees great potential in those that offer information validation services, digital footprint, aggregators, data analysis, digital transformation, and artificial intelligence.

“Today, we are seeing business models that were expected by 2025. That’s why there are many companies that are growing so much,” Galindo noted.

He said that the pandemic accelerated the transformation and emergence of more fintech companies and that “in 18 months we fast-forwarded five years of digital transformation.”

Rewriting “the rules of the game” is allowing many small companies to leapfrog in terms of competitiveness and innovation so they can compete with the industry’s incumbents.

Where is the fintech sector headed?

Galindo explained that although everything could change in the current economic environment, the fintech industry in countries such as Mexico, will enter a process of consolidation in the next five years.

Open finance and open banking will be more solid, there will be new regulations, consumer services will improve, and people will demand and eventually become owners of their data.

In this sense, the Finnovista report highlighted that these trends will make “fintech become a new technological wave” that will have a significant impact on society. 

This will lead the sector to expand beyond current solutions, thus contributing to the “democratization of basic financial services, since technology is within everyone’s reach”.