Latin America’s fintech ecosystem has gone from strength to strength thanks to a blend of unprecedented market opportunities, digital transformation within the financial sector, and surging investor interest throughout the region.
Today, the Americas are home to more fintechs than any other region, with its
13,100 registered businesses outpacing the 10,969 situated in second-place Europe. Key Latam economies like Brazil and Mexico have formed a driving force in accommodating innovative new startups locally.
Additionally, forecasts suggest that Latin America isn’t resting on its laurels for fintech growth. While the Latam fintech-as-a-service industry size is estimated to reach $26.9 billion in 2024, it’s expected to rally to a value
of $1.59 trillion by 2034 at a CAGR of 19.3%.
It’s these impressive forecasts that have drawn more global attention towards the region’s sprawling fintech landscape, and with favorable regulatory conditions throughout Latam, it’s reasonable to expect a significant portion of this growth to be driven
by international interest in the unique market opportunity Latin America holds.
Blueprints for Growth in Brazil and Mexico
Brazil has garnered a reputation as the heart of Latam’s thriving financial and technological innovation center. With five of the top 10 largest banks in the region hailing from Brazil, it’s unsurprising that the nation also commands
40% of Latin America’s VC deals and 70% of VC dollar share compared to its neighboring nations.
There’s also plenty of evidence that Brazil’s fintech ecosystem is gaining momentum on a global scale. The jewel in Brazil’s fintech crown is Nubank, a challenger bank that’s managed to rally to a market capitalization of more than $72 billion, making it
larger than traditional counterparts like Santander, UniCredit, and PNC Financial Services at the time of writing.
Brazil is home to the most unicorns of any Latin American country and the largest neobank in the world with Nubank, and David Velez, the firm’s founder and CEO has attributed much of the fintech’s growth to Latin America’s status as one of the ‘largest and
most profitable’ financial markets worldwide.
Likewise, Mexico has undergone significant fintech growth in recent years, with investors likening the innovations sweeping the nation to Brazil five years ago. Both regions have shown significant growth potential due to their passionate network of entrepreneurs,
the improving availability of capital, and regional success stories like Nubank.
Perhaps most importantly, the perfect storm of an underbanked population, smartphone penetration, and a prosperous regulatory landscape has combined to accelerate fintech growth throughout much of Latin America. Crucially, these regional trends are helping
to facilitate innovative startups beyond the sector’s leading two local nations.
Latam’s Positive Regulatory Frameworks
Latam nations have sought to build conducive fintech frameworks that support the development of innovation hubs and regulatory sandboxes.
These frameworks can foster more regulatory collaboration between innovators and their compliance obligations, while the use of sandboxes is helping more businesses to develop their products under the supervision of regulators.
As a result, more fintech firms have the freedom to allow companies to operate under a specific set of rules to reduce red tape and regulatory costs in bringing new products to market.
In Brazil’s vibrant fintech landscape, innovation hubs like the Brazilian Laboratório de Inovação Financeira e Tecnológica (LIFT) have been developed to
test technological readiness to accelerate the development of new fintechs, promote the creation of new products, and facilitate the introduction of new market players.
Other Latam nations like Mexico and Colombia have experimented with sandboxes, with various supervised innovation competitions designed to improve the quality of products launched in local markets.
Elsewhere, other Latin American countries are also following the lead of Brazil, Mexico, and Colombia in launching sandboxes and conducive regulatory frameworks for innovation. In Caribbean nations like the Dominican Republic, it’s possible to take advantage
of a
more productive compliance landscape to grow into Latam markets while retaining close proximity to the United States, for instance.
Driving Financial Inclusivity
According to World Bank data, much of Latin America remains unbanked, and this can provide a unique opportunity for fintechs to reach an untapped market.
Although the percentage of Latin Americans with bank accounts accelerated during the pandemic from 55% in 2017 to 27% in 2021, data shows that
26% of the region still doesn’t have access to banking services. For context, this amounts to around 122 million unbanked citizens.
This wide market opportunity for fintechs is driving international interest in opening into Latam markets.
Despite 26% of the regional population having no access to financial services, GSMA data suggests that
80% of people in the region have a smartphone, while 65% have access to mobile internet. This evidence of greater and growing smartphone penetration means that challenger banks in particular could benefit from Latam’s growing market should they choose to
expand in the region.
Tapping into a Fresh Talent Pool
Latin America is also attracting global fintech attention due to its high wealth of industry-relevant talent. With many nations boasting a range of skilled software specialists and data scientists, there’s plenty of opportunity for ambitious fintech firms
to open up shop in Latam while taking advantage of cost-effective salary expectations and cheaper regulatory expenses.
By utilizing Latin America’s technological talent pool, international startups can boost their technical credentials and drive greater competitiveness globally by setting up their business in the region.
Unlocking the Potential of Latam
Latin America features a strong blend of low-cost talent, market opportunity, and conducive regulatory frameworks that can help drive fintech innovation long into the future.
For challenger banks, open banking firms, and fintechs with diverse USPs, Latin America is a region that’s brimming with opportunities for expansion.
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Publish date : 2024-09-27 10:24:00
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