The rise of fintech has been on a steady and steep trajectory in Latin America (LATAM) over the last few years, with the sector raising an astounding $2.66 billion in venture capital investment 2019.
However, like virtually all tech sectors, fintech was impacted in a number of ways by the COVID-19 pandemic. Many fintech app users were hit economically, creating heightened uncertainty for those providing them with financial services. Furthermore, the crisis resulted in a slowdown in venture capital investment across the region, which was in keeping with global trends.
Despite this, fintech apps and the flexibility and access to vital financial services that they provide to much of LATAM’s population have proved invaluable during the pandemic. Here are some of the ways fintech apps are providing relief right now and why this is exactly the reason the sector will continue to grow.
Electronic payment systems power small businesses
Many LATAM communities and economies are built upon small independent businesses. Yet so many of these businesses — be they corner stores, bike repair shops, or hair salons — don’t have the necessary infrastructure to support costly payment terminals. As contactless payments became vital to reduce the spread of COVID-19, businesses looked to fintech solutions to help them avoid cash transactions.
For example, fintechs like Clip (Mexico), Billpocket (Mexico), and Nequi (Colombia) provide ways for customers to pay electronically via transfer or QR codes, while keeping their distance and avoiding physical contact with the vendor. While these solutions are extremely important during the pandemic, there’s no doubt that they will contribute to the digitization of payments for small businesses further into the future.
Fintechs offer vital lending solutions
In addition to providing electronic payment platforms to small businesses in LATAM, fintechs are also making micro-lending services available for consumers to use in-store. For example, Mexican startup YoFio, which was recently accepted into 500 startups, is providing micro-lending services to corner stores. Customers simply use the YoFio e-wallet to purchase goods at the store, and then pay the amount in weekly installments directly from their account. Not only is the consumer able to buy necessities and pay incrementally — reducing some of the financial burden for many of the LATAM citizens that live week-to-week — but the vendor is also able to sell more goods during tough economic times with this flexibility.
There has also been increased demand for micro-lending services across the continent: Fintech startup Yotepresto reported a 15-20% rise (Spanish source) in loan requests during the month of May. While this startup and many others are reevaluating how they deliver credit while customers are less able to prove financial security, the pandemic has undoubtedly resulted in a growing need for alternative financial solutions for small businesses. Looking ahead to the long-term, the demand for such solutions is only set to grow as they continue to fill the gaps of traditional financial institutions.
Neobanks bring banking to the unbanked
In LATAM, it’s estimated that 51% of adults have bank accounts at a formal financial institution. This leaves almost half of the eligible population without formal access to basic financial services that are necessary for so many daily actions. Not to mention, during quarantine — which is still ongoing in many LATAM countries — people were severely limited in their ability to go out and buy what were considered non-essential goods.
Under COVID-19 restrictions, LATAM citizens have turned to neobanks such as Brazil’s Nubank or Argentina’s Ualá to help them make online purchases and access other financial services. In fact, some neobanks reported an increase in new accounts of up to 400%. Now with access to current and savings accounts, payment transfer services, and financial education, all within a mobile app, millions of users across LATAM are able to access a whole world which was closed off to them before by the demands and restrictions of traditional banks.
Neobanks are here and they’re here to stay. But, if they are to maintain the momentum gathered during the pandemic, they must continue to keep users at the heart of what they do and provide value where LATAM citizens need it most.
Fintech is making waves in LATAM, and as the pandemic further laid bare the cracks in how the region’s financial systems serve its citizens, the most innovative startups were there to fill them. But that’s not to say that this expansion is only temporary. By staying true to addressing the needs of the individual contexts of LATAM populations, fintechs operating in the region will find there is endless room to grow and thrive.