Winter Is Coming (?)

If we were trying to forecast a world crisis a few years ago, we would have been told that for it to happen, at least two of the following components would have to occur: a war, a pandemic, inflation going through the roof, the debt level growing exponentially with no ability to pay and/or giant public companies turning out to be fraudulent. [1]

We’ve experienced all of the above components at the same time: the hangover caused by COVID-19, the collapse of companies such as Evergrande, high inflation, the accumulation of high-interest debt with no balance of income and the war in Europe with huge consequences for the world economy. However, human beings have the capacity to adapt to the different situations that occur, which results in our evolution. If a pandemic like COVID-19 had occurred a hundred years ago, the world and human beings would not have had the tools to control it at the level at which it was controlled in our time and, if in a few years something similar happens, the new generations will have the ability to control it at a higher level than ours did, thanks to the knowledge acquired and the tools developed during the previous event. This means that every situation we face makes us evolve as a species and innovate in different sectors to cope with different situations, thus creating "emerging markets."

"Winter is coming.” That is what we read and hear in many forums where people mainly talk about crypto and fintech and, yes, we are probably facing a major economic crisis. At the same time, we have new tools and innovations that will allow us to take this crisis as an opportunity for growth and evolution. Let's not forget that both crypto and fintech emerged precisely to address adverse situations. Financial inclusion has been a crisis since currency was invented, financial democratization did not exist before the emergence of fintech companies and controlled and linear inflation was born with Bitcoin.

So, although the crisis will probably affect the global economic situation in a major way, today, we have new emerging markets that are keeping multiple sectors growing. If today, as in 2008, the only financial sector was the "traditional" industry, the crisis would probably have a greater impact on the general population; however, commodity-style investment alternatives, such as Bitcoin, which open up new financial safeguard opportunities, and new business models, such as fintech, allow new capital opportunities mainly for SMEs and new investment vehicles that attract wealth to the region, which help grow GDP, as can be seen below:

The fintech market’s evolution in recent years has been extraordinary. It has had a transcendent impact on the financial sector in Latin America, maintaining, on average, a growth of 112 percent (increasing from 1,166 platforms to 2,482) between 2018 and 2021, led by Brazil (31 percent), followed by Mexico (21 percent), Colombia (11 percent), Argentina (11 percent) and Chile (7 percent).

This is due to multiple reasons, among which is the sector’s acceleration due to the COVID-19 pandemic, the need of the population to obtain greater satisfaction in the supply of financial products and services, which were biased in the "traditional" sector, the need for democratization and financial inclusion, and the culture of digitalization and innovation driven by the new generations. This has allowed fintechs, thanks to their ability to adapt to adversity and their efficiency in taking action, to consolidate themselves in the financial sector with massive adoption of clients.

Likewise, if we look at investment data in the financial sector, led by fintechs, we can see that they accounted for 39 percent of the amount invested in the region. On average, about 10 percent of fintechs received financing for more than US$5 million, 27 percent received more than US$500,000, while 63 percent raised more than US$100,000, according to the Inter-American Development Bank/Finnovista), resulting in an investment of more than US$8 billion in recent years.

Fintech companies are born and live thanks to their ability to face adversity, which makes them always attentive to any situation that arises. This should lead us to think that, in the face of a crisis, there is no better vaccine than the existence of this type of model and that, at the same time, investment in their development must continue to grow in order to accelerate their capacity to resolve such adversities. Let us remember that fintechs were not ready for the pandemic but they used it to accelerate their growth and were the first to meet the expectations and needs of the population in such a situation.

Fintechs will not "freeze" when the crisis arrives but, with their resilience, we will see how new ones are born and how those that already exist are strengthened, turning the crisis into opportunities to innovate and attack the needs that arise, as they did during the pandemic.

Therefore, if we consider that innovation comes with adversity, there is no better place to quickly incubate innovation and fight against adverse situations than with fintech.

[1] INTER-American development Bank/Finnovista