The Fintech industry is redefining the way we engage with finance and banking, and has found an ideal breeding ground for growth in LATAM. In this special series, we’ll take a look at LATAM’s Fintech market, its impact in LATAM’s different countries, and the tax landscape of the main markets in the region. In this first report, Raimundo Díaz, Global Head of International Corporations, shares the keys that have made LATAM an outstanding player on the global Fintech scene.

There are many ways to quantify Latin America (LATAM): a region of contrasts, a melting pot of cultures, not to mention a global market full of opportunities with more than 600 million inhabitants. The region’s also a vibrant and dynamic adopter of new technologies, particularly in the Fintech sector. Statista reports, “As of November 2021, there were 10,755 fintech (financial technology) start-ups in the Americans, making it the region with the most fintech start-ups globally. In comparison, there were 9,323 such start-ups in the EMEA region (Europe, the Middle East, and Africa) and 6,268 in the Asia Pacific region.”

In recent years, LATAM countries have invested heavily in technology and infrastructure, leading to recent and current achievements. According to the GSMA (Global System for Mobile communications Association), more than two-thirds of Latin America’s population is now connected to a mobile network. 70% of the regional population were unique mobile subscribers in 2020 (that’s around 440 million users), and the mobile industry contributed 7% to LATAM’s overall GDP in 2020. Around 93% of LATAM is now covered by a mobile network, and Statista reports, in 2019, 69% of all mobile connections in LATAM were smartphones – a share expected to increase to 80% by 2025.

GSMA also reports that, despite economic uncertainty from the pandemic, regional service operators are investing some US$99 billion before 2025, aimed at infrastructure rollouts to support those c. 300 million people in LATAM with no mobile connectivity.

All of this shows that LATAM is ripe for innovative mobile internet or app-based solutions.

But what really sets LATAM’s tech boom apart from others? Technological innovation in LATAM aims for inclusion rather than disruption. The goals seem to be to help the most people – an endearing purpose in today’s thoroughly capitalist society and, when looking with an investment-realist eye, one that definitely ticks ESG boxes.

But it’s true. The most successful companies in the LATAM tech boom are generally aiming to find solutions to help the populace, with financial gain being secondary. Indeed, there are a great many success stories of firms who’ve recognised a problem and are using digital technology to make people’s lives easier.

In recent years, LATAM countries have invested heavily in technology and infrastructure, leading to recent and current achievements.

Some of the biggest winners are just that – entrepreneurs and developers who’ve seen a regional need and provided a digital solution, which has made them multilatinas almost as a by-product. For example, two LATAM unicorns:

  • Nubank: Launched in 2013, after co-founder and Colombian entrepreneur, David Vélez, had a six-month wait to open a bank account in Brazil, Nubank offers personal and business accounts, loans, insurance and investment products, and a credit card with no annual fees – all run and managed from a smartphone app. Nubank has grown exponentially and now has more customers than any other standalone digital bank in the world (40 million across Brazil, Mexico and Colombia). The company is eyeing a U.S. IPO after an August 2021 valuation of $30 billion.
  • Rappi: Started by local entrepreneurs in 2015, this app-based business now operates in nine countries and 250 cities across LATAM. Initially focused on delivering beverages, Rappi has expanded into meals, groceries, tech goods and even medicines – desperately needed in COVID lockdown. Rappi also offers a cash withdrawal feature, allowing users to pay with cards and then receive cash from one of their delivery agents. Today, the company says its app allows consumers to “order nearly any good or service.” Rappi was valued at $5.25 billion in August 2021.

Private equity and venture capital funds have recognised the opportunities, with LATAM tech start-ups attracting recent attention from tech-focused investors with deep pockets, like SoftBank. In September 2021, SoftBank announced a second dedicated LATAM tech fund to add $3 billion to the $5 billion raised in its initial 2019 fund, which is now reporting over 100% internal rate of return.

And Fintech has dominated incoming foreign investment. As ECLAC states in its 2021 FDI report, “In 2020, Brazil captured 58% of venture capital investment ($2.385 billion), followed by Mexico ($831 million), Colombia ($469 million), Argentina ($222 million) and Chile ($136 million). These resources were mainly focused on financial technology (Fintech) (40%) and e-commerce (12%).”

Further, LAVCA reports that the Fintech sector received 42% of the $10.3 billion total incoming private funding in the first half of 2021. “Investors continue to support accelerating digitalisation trends in underserved industries like education, financial services, healthcare, real estate, and retail.” The social benefit aspects of these trends further reinforce the image that this boom is more about inclusion than disruption.

This focus on inclusion is having a measurable effect. Mastercard reported that the pandemic saw a massive surge in LATAM consumer demand for digital banking. Thanks to COVID-related social benefit programmes aligned with the state-owned digital banking tool (Caixa Tem), Brazil reduced its unbanked population by a massive 73%. This is reflected in other countries of the region, albeit to a lesser extent or at slower pace. LATAM’s consumers are quickly becoming aware of the benefits and control digital banking provides – no long queues at inefficient or far away branches, instant access, the ease of digital transactions, etc. – and they want more.

According to the Stack Overflow’s Annual Developer Survey, Brazil is now in the Top Ten list of the most coders, and they have an average of 11 years of experience. This is reinforced by KoreFusion’s LATAM Fintech Report 2020, which shows that Brazil has the most Fintech start-ups in the most categories and receives the most FDI across the five biggest LATAM economies (Brazil, Mexico, Chile, Argentina, Colombia). KoreFusion’s report also highlights that funding is disproportionate and mainly targets three sectors: payments, lending and digital banking – which leaves other Fintech sectors ripe for .

A recent addendum to KoreFusion’s LATAM Fintech Report 2020 covers foreign Fintechs now operating in LATAM and shows that 10% of companies operating in LATAM’s ecosystem are foreign, and those foreign companies are mostly focused on payments/remittances.

LATAM’s Fintech boom does hold some challenges, though. LATAM’s digital infrastructure varies greatly across the region and needs investment and regulation. There are still high percentages of the population requiring financial inclusion (KoreFusion reports that 54% of the region has a bank account, but 17% of these accounts have been inactive for 12+ months.) There are high levels of informal employment due to high social taxes and sluggish economic performance. The region has a traditionally high use of cash, and there’s uneven regulation; some is half-formed, some obtuse, some still in discussion.

The way is open, though, for foreign Fintechs. KoreFusion’s Managing Director, Javier Guerrero, says: “They are strongly positioned; they are deploying five times as much capital as their local counterparts’ funding and this allows them to attract top talent, invest in stronger marketing, and most importantly, engage regulators with their success stories abroad. They are also comparatively stable because they have deep funding to draw from, if required, and have the acumen and flexibility granted by a diversified geographic revenue source and success at home.”

LATAM is ripe for all kinds of development, and Fintech is perfectly placed to have a huge social impact – which is why it warrants taking a closer look at this exciting sector. We will share the tax and regulatory benefits and options available in some of the most relevant jurisdictions in upcoming reports in our LATAM Fintech series.

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Raimundo Diaz
Senior VP, Head of International Corporations

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

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