“Those moneylenders applied up to 280% of the original value of money credited in 24 hours, which is extortion,” says Eduardo Montañes Silva, CEO of Bogotá-based consultant LiSim International. “In the legal system, it’s around 2.5% monthly. So fintechs became a suitable option for millions of people.”
While a traditional bank can take five days to approve a loan, fintech startups have found a practical way to lend money in two hours.
The Colombia Association of Fintechs has around 200 members, but estimates the country has 300 fintechs in all. Many are small operations with little investment, making growth difficult in the short- to medium-term. In this scenario, Montañes foresees, it will take a wave of mergers and acquisitions to develop the business.
“If two small companies join, they together can have more clients and attract more investments,” he says. “Colombia is an opportunities country and foreign investments are very welcome.”
Argentina poses greater difficulties, due to high inflation and a lack of circulating money. Fintechs there are focused on means of payment and investing in services that help customers protect their money, such as Mercado Pago, a digital wallet and payments platform, and Ualá, a mobile app used for managing Mastercard prepaid debit cards.
Regulations focus on the means of payment, banking transfer, and new technologies for mobile banking. “Both banks and fintechs are unable to offer credit, so they have to think about other services,” says Fausto Spotorno, director of consultant OJF & Asociados and director of UADE Business School.
Improving Regulation
Regulation makes a significant difference in Latin America, notes Finnovista’s Fontao, and countries are at different stages of development in this respect.
Mexico is a standout with its 2018 Fintech Law, the first in the region to lay out a clear legal framework, facilitating innovation and the entry of new players into the market.
“This law focuses on the widespread adoption of open banking and creates a safer environment for consumers and businesses,” Fontao says. “Countries like Chile and Peru are taking a more gradual and consultative approach, with recent efforts to strengthen fintech regulation and improve competitiveness in the sector.”
The pros of investing in fintechs in Latin America, he adds, are a strong talent pool, increasing access to technology, a young and adaptive population, and continued interest from investors themselves. “However, there are still some challenges to face in the region, such as the underfunding of the ecosystem compared to, for instance, the US; economic uncertainty; lack of access to funding in some regional markets; and political volatility.”
That said, Latin America’s fintechs are robust and growing, despite economic, political, and regulatory barriers. With appropriate investment, technological innovation, and a proper regulatory environment, the sector expects to continue positioning itself as an important agent in the region’s economy.
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Publish date : 2024-10-14 10:22:00
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