What are the challenges that fintech companies have to be an economic driver in Latam?

Fintech venture capital startups and even traditional banks are starting to seize growth opportunities in the region.
What are the challenges that fintech companies have to be an economic driver in Latam?
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This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.
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Despite the health emergency, financial inclusion in Latin America made progress in 2020, thanks to the fact that the fintech sector is helping to transform the economic landscape in the region.

Despite the fact that part of the continent still does not have access to any banking service, this historical trend has declined, thanks to the disruptive technology of fintech companies, which, with their ability to bring services to a sector of the population neglected by banks traditional, has made giant strides in financial inclusion

Mexico, Brazil and Colombia are the main fintech markets in the region, which during 2020 raised more than 3 billion dollars in capital, which represented a 100% growth in M&A transactions.

Finnovista data reveal that until 2020, Mexico registered 441 fintech companies, Brazil 377, Colombia 180; while Chile and Argentina have 112 and 110 companies, respectively. In Peru there are 47 companies of this type, in Ecuador 31 and Costa Rica reports at least 25 firms of this type.

In this context, new fintech venture capital firms and even traditional banks are beginning to take advantage of growth opportunities in the region.

Thus, it is estimated that the Latin American financial market will exceed 150 billion dollars in 2021, predicts the global Risk Management consultancy, Marsh.

By investing in the region and working to solve the area's unique financial challenges, there is the potential for Latin America to become a key player in the global economy.

Fintech companies solve new problems as their technology advances, which in turn allows them to expand. For example, those related to means of payment and access to credit appeared first, then more specialized ones came, with more specific solutions. Now there are neobanks, trading, crowdfunding, insurance and personal finance, among others.

Image: Depositphotos.com

Regulation and digital agenda, pending at the regional level

Although in Mexico, since 2018 there is already legislation to increase the level of financial inclusion and improve the conditions of competition in the country's financial system, the truth is that the region needs to strengthen the legal framework for the operation of the sector, competition loyal between companies for the benefit of users and promote good practices around financial technology.

The study “ Entrepreneurship in Fintech Latin America ”, carried out by the Inter-American Development Bank (IDB), recommends the creation of temporary regulatory test benches in which fintech companies can operate, evaluate their business models and offer their products in monitored environments. , as well as allowing a smooth transition for enterprises and their control entities towards adequate regulation and supervision.

Given the speed with which fintechs are developing, countries in the region that have clearer and stronger regulation will have greater potential and greater opportunities by having a reliable and synergistic ecosystem to increase financial inclusion.

With a digital agenda, there would be an inclusion policy that incorporates and directs those most disadvantaged sectors of the population towards the benefits that technology brings to improve their quality of life.

Fintech into the future

The consolidation of fintech companies will enable digital businesses in other industries, as soon as they assume their role as facilitators for other sectors to better sell their services. Not to mention the aforementioned benefits for users of digitally accessing financial services more quickly in the procedures.

We can foresee that in Latin America the conditions are ripe for the arrival of more investors in financial technology; However, the development of the fintech ecosystem will largely depend on a combination of visionary companies, the creation of seed capital programs, a digital agenda, and the right regulations.

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