Why Does Latin America Have So Many Fintech Unicorns?By Karin Dilge | Wed, 11/09/2022 - 18:31
Despite Latin America’s constant political turmoil, expanding social unrest and shifting government economic policy, the region’s entrepreneurs continue to rise and excel at business development, reaching the desired Unicorn label. The most common trend in this wave of entrepreneurs has been fintech development, which has become one of the most popular products in many developing nations as regular banks struggle to attract more clients.
Until recently, Latin America was an untouchable region for investors due to social and political instability and lack of technological development. Nonetheless, the capital today for fintech projects is fluent and abundant, said Bárbara González Briseño, Mexico Country Manager and CFO, Bitso. Good ideas and talent emerged in part thanks to the possibility of remote work, which opened opportunities for many entrepreneurs, she added.
“The financial services sector has been notoriously slow to evolve. Still, the pandemic forced incredible digital acceleration, becoming a tipping point for institutions, SMEs and even the government to embrace fintech and invest in infrastructure,” according to Silicon Valley Bank.
Consumer behavior has also become an incentive for developing this new financial branch. In 2021, 56.7 million Mexicans aged 18 to 70 years old, representing 67.8 percent of the population, had some type of formal financial product such as a savings account, credit, insurance or Afore, according to INEGI’s National Financial Inclusion Survey (ENIF). While this figure is similar to 2018’s indicator, it decreased by 3.3 percentage points in the case of women.
Due to a lack of competition and historically stringent credit requirements, Latin American banks typically only served affluent individuals, which is the sector’s modus operandi is changing, said Sergio Almaguer, Founder and CEO, Yaydoo. Financial inclusion in Mexico and Latin America has grown slowly, creating opportunities for disruptors. Fintech, which seeks to provide access to economic services in a simpler way than banks, continues to gain popularity.
Between 30-50 percent of the population of major countries in Latin America remains underbanked, according to Silicon Valley Bank. This means there is a large overlooked market waiting to be addressed, said Álvaro Rodríguez Arregui, Co-Founder and Managing Partner, IGNIA Partners. In addition, “there are many conditions for these unicorns to be born, including the size of the market, the highly neglected segments and the many entrepreneurs to take advantage of the opportunities to close gaps,” said Almaguer.
Furthermore, the quality of Mexican entrepreneurs has proven to be world-rate and the country is becoming more sophisticated, another reason why investors are choosing to come to Latin America and Mexico specifically. “Latin America is producing entrepreneurs with a lot of potential, who are also committed to solve important issues,” said Vincent Speranza, Managing Director, Endeavor México. Nevertheless, the ecosystem needs to work on inclusion, diversity to expand its horizons and reach a wider public beyond Mexico City, added Speranza. Moreover, the sector needs to work on profitability and ESG, create healthy companies that foment success for everybody and address the mental health issues of founders, who usually struggle with stress and burnout.