Where are the next fintech opportunities in LATAM?

LATAM has been a hotbed for fintech in recent years, thanks to its large and receptive population, favourable regulation, and rapid digitisation, which have driven innovation and uptake of new bank and payments services. There is now substantial competition across most categories. So, where will future fintech growth come from? 

Figures out in June show that the LATAM fintech sector grew 340% in the six years between 2017 and 2023, now surpassing 3,000 startups. Financial innovators have been operating in a dynamic market, driven by a huge, relatively young, and underserved population, combined with slow incumbents with little will to innovate. Governments have also been supportive, but with regulations in flux, new players have a chance to help shape the environment going forward.

Consequently, adoption has grown significantly over recent years. According to an Atlantico report, between 2017 and 2021 the percentage of the banked population increased from 55 per cent to 74 per cent across the region. Plus, according to McKinsey, in the last two years, debit cards have replaced cash as the preferred method of payment, while mobile payments are also gaining ground.  

The region boasts some significant success stories. Brazil has nurtured 24% of the region’s fintech ventures, including the neobank Nubank, which is valued at $70bn and recently surpassed 100m customers. South America’s largest market is also home to Pix, created by Banco do Brazil, which is now more widely used than cash, credit, or debit cards for transferring money in the country.

Second to Brazil is Mexico, with 20% of Latin America’s startups, including spend management company, Clara, which raised $60m last year and has seen rapid transaction growth. Colombia, Argentina, and Chile have also seen substantial fintech activity in recent years.

So where are the growth opportunities for startups and VCs? 

Despite impressive fintech innovation in the region, as a VC, there are still gaps for smart entrepreneurs to fill, or areas where they can improve or enhance what is currently on offer, to grab market share.

Honing B2C experience and entering new markets 

Thanks to success stories such as Nubank, global entrants such as Revolut, plus numerous credit card companies, the B2C sector is relatively well developed. It’s a similar story with point-of-sale solutions, such as Mercado Pago, Pix, DLocal, Kuszki, plus global players such as Stripe. From here, the key challenge is to further improve the customer experience and functionality of these services, which in many cases still fall short of Europe or the US. This will be vital for driving market share and increasing revenue per customer.

There are also opportunities to provide deeper consumer lending services, making loans accessible to underserved groups. Alvos is one up and coming provider that is offering urgent personal loans in Mexico, where the market is still unregulated.

Finally, there are less developed markets such as Ecuador, Peru, Uruguay, and the Dominican Republic, where digitisation has been slower, and populations remain hugely underserved by financial services.   

Growth opportunities in B2B payments 

As in Europe and the US, the business banking market has been slower to evolve, and this is where the opportunity it more acute for new businesses and solutions, particularly in the payments space.

Business payments infrastructure is less developed in LATAM than Europe and, with multiple currencies across the Americas, cross-border payments are slow and challenging, which can significantly hinder international trade. If a provider can integrate into local payment networks, like PIX, to enable businesses to move money instantly, that will add a lot of value to businesses on the continent and offer a significant growth opportunity. We’re seeing some interesting players emerge in this space such as Koywe, which is using stablecoin rails to streamline payments, currently across five countries.

Banking as a service and credit scoring infrastructure 

Financial infrastructure is another big growth opportunity in the region, in particular banking as a service (BaaS), which enables non-financial companies to embed financial products into their offerings. Currently this is underdeveloped in the region but, given the success of other B2C fintech services, looks to have a promising future.

Also on the infrastructure side, data for credit scoring currently poses a significant challenge with a large proportion of unbanked customers and many more who lack a formal credit history. Companies offering alternative credit scoring using non-traditional data have a huge opportunity to fill the gap and facilitate the growth of lending, credit cards and other financial products amongst these underserved communities. For example, Mexican fintech, Finvero is one of the leading players in this space, offering a platform that optimises every stage of the credit lifecycle.

While regulation has been relatively slow to develop, progress is being made. Banking licenses are starting to be awarded, for example to Revolut in Mexico, and Nubank in Colombia, and with numerous others in the pipeline. On the crypto side, Brazil is in the process of formulating a regulatory framework, Chile approved a FinTech law in 2023, including a category for “crypto assets”, and Argentina introduced regulation earlier this year.

A rapidly developing market and huge appetite for fintech, combined with relatively shallow customer adoption, LATAM is perfect for fintechs to scale. Find the right niche and further growth beckons.