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Brazilian Fintech Startup Neon Raises $94M USD in Latest Round, Banks Navigate Latin America's Turmoil, Colombian Stock Exchange Launches Crowdfunding Platform for Start-Ups, and more from LatAm

Other featured stories include: How Mexico’s Informal Economy Has Created a Productivity Problem, Bra
LATAM Business Weekly
Brazilian Fintech Startup Neon Raises $94M USD in Latest Round, Banks Navigate Latin America's Turmoil, Colombian Stock Exchange Launches Crowdfunding Platform for Start-Ups, and more from LatAm
By dataPlor • Issue #45 • View online
Other featured stories include: How Mexico’s Informal Economy Has Created a Productivity Problem, Brazil’s Leading Role in the Latin American Fintech Revolution, dataPlor featured in Latin American Reports article “The Startup That Puts Latin American Micro-Businesses on the Digital Map”, and more…

Brazilian Fintech Startup Neon Raises $94M USD in Latest Round
Brazilian digital bank Neon has reportedly raised $94 million in funding in a round led by Banco Votorantim and General Atlantic, according to a news report from Brazilian publication Estadao
The three-year-old startup says it currently has nearly 2 million active accounts, according to the article
According to Crunchbase data, Washington, D.C.-based Quona Capital, Propel Venture Partners, Omidyar Network, and Monashees also participated in the round, which brings Neon’s total raised since its inception to over $121 million
In May 2018, Neon’s $22 million round marked San Francisco-based, fintech-focused firm Propel Venture Partners’ first investment outside of the United States.
At that time, Propel said its investment in Neon was a testament to a “fintech revolution” taking place in Brazil, which is known for extremely high interest rates and limited banking choices for consumers (Crunchbase News)
Neon plans to use the new capital to triple the number of its customers in 2020. 
Neon Co-founder Pedro Conrade told Estadao that “most of the new capital would go toward hiring people. He said he expects the company will have about 600 employees by year’s end, triple what it had in early 2019. He added that Neon will also explore expanding its product portfolio” (Crunchbase News)
The company has already began expanding its offerings. New products include credit and investment services. In July, the startup revealed it was developing a personal line of credit.
Banks Navigate Latin America's Turmoil, Eager to Protect Lending Relationships
While political crises, weak economic growth and social unrest have heightened investor anxiety in Latin America in recent months, banks are committed to maintaining a strong presence in the region. 
Although investor’s behavior has triggered shifts in the equity and bond markets, corporate lending has remained stable. This is largely dependent on the fact that banks’ deep-rooted relationships with borrowers has become such an integral part of lenders’ business that banks are willing to stay put, despite unrest throughout Latin America. 
“All year long and quite recently with turbulence in parts of Latin America (and around the world), it’s incredible that even with sustained volatility, our markets are fundamentally open for business… People are learning how to navigate around these things,” said Geoffrey Hunter, managing director and head of emerging markets at Citigroup (Reuters). 
In July, the International Monetary Fund cut its expectations for Latin America’s economic growth in 2019 by more than half to 0.6%.
The lending market, however, has weathered the storm. According to Refinitiv LPC, Latin American syndicated loan issuance at the end of the third quarter of 2019 was US$41bn, already the same level recorded through 2018. 
“We take a wait-and-see approach, and see if there’s a way to mitigate, because once you pull out of a corporate, they’ll remember that and it’s very hard to make it up again, especially if we have a presence in that country,” the senior banker said.
Mergers and acquisitions are often the first sector to fall victim to geopolitical market uncertainties. Although M&A activity has slowed globally, Latin America has held stable with the Americans fueling 71% of the market share of M&A in 2019 through the third quarter (Reuters). 
“Brazil was healthy and Chile, Colombia and Peru were kind of the three other jurisdictions where we’ve seen M&A happen. Mexico traditionally used to be also a very strong market, but with the political situation, the M&A activity hasn’t been as strong as before,” said a New York-based attorney focused on M&A in the Americas (Reuters). 
Despite turmoil in the country’s political landscape, Mexico’s bank market has remained robust. As reported by Reuters, Mexican borrowers made up more than half the total syndicated loan issuance through the third quarter of 2019 with US$22.7bn, the highest on record for any country in the region during the same period. In 2018, total volume from Mexico was US$16.1bn, according to data from Refinitiv.
“It’s a huge economy and Mexicans are used to some level of political uncertainty, so Mexico continues,” said another New York-based attorney focused on capital markets in the Americas.
Latin America is growing increasingly competitive as new, capital-rich market participants, such as private equity firms and Chinese foreign direct investment, are eager to deploy investments throughout the region, which still offers a healthier return than many others. 
“Banks that previously had only gone south of the Rio Grande on an offsite or something are now in the region. These are emerging, growing markets. There are not a lot of growth opportunities globally, and so people very much want to be there to create market share. If you’re there in the long game and have the stomach for it, it’s worth it,” the capital markets attorney said.
Colombian Stock Exchange Launches Crowdfunding Platform for Start-Ups
On Wednesday, Colombia’s stock exchange launched an online crowdfunding platform to help small businesses and start-ups fundraise from the public. 
The “a2censo” platform will allow people to make investments from 200,000 pesos (about $58 USD) in exchange for company bonds which will offer returns with interest, the exchange said in a statement. The platform is backed by the commerce ministry, the Inter-American Development Bank and other organizations.
“The initiative is meant to create an alternative source of financing for the more than two million small and medium-sized businesses via a technology tool that will allow companies to gather their financing needs with the savings that people want yields from,” said exchange president Juan Pablo Cordoba
“Start-ups and small companies need financing “at rates adjusted to their needs and on a timeline that coincides with their projects,” Cordoba said (KFGO). 
Santander Pivots to Americas as Growth in Europe Stalls
For Banco Santander chairman Ana Botin, the future of banking isn’t in Europe.
According to American Banker, Botin plans to generate more of her company’s earnings in Latin America and is reportedly “ready to grow” in the United States after missteps that landed the bank in regulatory trouble.
“We need to allocate our capital in a better way to the more profitable growth… You’ll see good results in the coming years,” Botin said in an interview with Bloomberg Television.
In the United States, this will mean providing more financial support for clients who want to do business in Mexico and Brazil, launching a new remittances program for Mexicans who want to send money home, and creating a new online platform that can gather bank deposits nationally. 
Botin also wants to underwrite more mortgages in Brazil and Mexico, where the Spanish lender is among the biggest banks. As reported by American Banker, Botin “remains bullish on Argentina”, which in its return to leftist populism has dumped its pro-business president 
Unlike other European bank leaders, Botin has a choice. Santander has the biggest banking business in Latin America, generating roughly 30% of its profit in Brazil and 8% in Mexico. Concurrently, the bank’s earnings are flat-lining in Spain and declining in the U.K., due to negative interest rates and the ominous threat of Brexit.
According to economists’ forecasts, these underlying conditions won’t adjust anytime soon. American Banker reports that forecasts see growth in Latin America accelerating to 2.7% in 2021 while Europe and the U.K. are stuck at 1.5% or below.
Botin said investors are needlessly concerned with the European market’s capital levels and refuse to recognize that the company, Europe’s third-largest bank by stock market value, has doubled profit over the same period and raised its dividend.
“We’re not happy with the share price. We should be much better than that,” Botin said. 
One clear obstacle that faces the bank’s plan to integrate into American market is scale. Although Santander has $147 billion of assets and 17,300 employees in the U.S., these figures are tiny compared to those of financial giants like JPMorgan Chase and Bank of America. Botin stated that Santander doesn’t need to buy a U.S. bank and does not plan on acquisitions elsewhere.
“We have scale in number of customers, we have scale in terms of technology investment. Our global expansion will come through the digital platform. We do not need to buy physical assets,” she said.
That digital platform referred to above, called Openbank, is the largest of its kind in Europe. 
Santander has been expanding the Openbank business beyond its 1.2 million customers in Spain, and arrived in Germany in September. According to Botin, Portugal and the Netherlands are next, with Argentina, Mexico and the U.S. coming in the near future. 
Openbank will be faced with plenty of competition, especially in the United Stated. Goldman Sachs built a digital bank called Marcus, and has partnered with Apple to offer credit cards. Last week, Citigroup announced a plan to sign up new checking-account customers via Alphabet’s Google Pay app.
Rappi Arrives in Ecuador as Company Continues Latin American Expansion Initiative
While Rappi launched in Ecuador two months ago, the company revealed the big news on November 7 during a brand presentation. 
The SoftBank-backed company’s decision to launch operations in Ecuador reinforces Rappi’s determination to simplify users’ lives through unrestricted access to supermarkets, restaurants, pharmacies, and other multifaceted services. 
“Ecuador joins the eight countries in Latin America where users live with more time to do what they want and not what they have to do… We are very happy to arrive in this country where the growth opportunities of the new startups are booming. In addition, our application adds to the offer of services that facilitate the life of the user,” said Alejandro Freund, Country Manager of Rappi Ecuador during a brand presentation on November 7 (Contxto). 
Some reports have said that Rappi Ecuador already has approximately 1,300 delivery partners between Quito and Guayaquil. More impressively, the business contends that it already has about 100,000 customers. 
In Ecuador, Rappi will compete with the Ecuadorian last-mile delivery app Parallevar. Glovo from Spain and Uber from the United States also operate in the country. 
Ecuador is the latest initiative of Rappi’s plans for regional expansion. The company has gradually invested over US$1.4 billion throughout nine Latin Americam countries since 2017. Today, the “super-delivery” app is active in more than 50 cities.
“Based on these figures, Rappi has also created over 2,500 direct jobs for its famous Rappitenderos, in addition to collaborating with north of 20,000 affiliated partners” (Contxto).
How Mexico’s Informal Economy Has Created a Productivity Problem
Mexico’s workforce, largely comprised of an informal economy, is a main factor suppressing the 
country’s economic growth. 
Although Mexico tops the 36 OECD nations for hours worked, it is the least productive. Similar to other countries that got stuck in the middle-income bracket, Mexico ranks about halfway down the Drivers and Disrupters index for productivity: the key to unlocking long-term growth.
Photo Courtesy of Bloomberg
Photo Courtesy of Bloomberg
Mexico’s economy has grown at just 2.4% a year over the past 25 years, which is half the emerging-market average. This year will likely be worse, with growth forecast at 1% or less (Bloomberg).
According to Manuel Molano, director of the Mexican Competitiveness Institute, for the nation to reach growth rates anywhere near the 4% that President Andres Manuel Lopez Obrador is targeting, higher productivity is essential. 
“To lift productivity, Mexico needs three things: Institutions, institutions, institutions,” Molano said.
The country’s excess of cheap labor means there’s very little incentive to innovate.
“Mexico is basically a dual economy. Some enclaves are globally integrated. And then there’s the countryside, with low levels of human capital and education, violence, where productivity growth has been zero for 50 years,” said Alberto Ramos, chief Latin America economist at Goldman Sachs (Bloomberg). 
The twin problems of informality and tax evasion leaves the Mexican government short of resources to tackle poverty and build infrastructure.
Mexico’s collects about 16% of GDP in taxes, less than half the OECD average. And to get even that amount, the country is more dependent upon corporate taxes, and less on social security contributions, than its OECD peers.
Brazil’s Leading Role in the Latin American Fintech Revolution
As the fintech sector booms throughout Latin America, Brazil- the region’s economic powerhouse- is leading the revolution. 
Finnovista reported that in May 2019, there were 380 fintechs operating in Brazil. According to EY, about two-thirds (64%) of Brazilian consumers can be classified as “fintech adopters”: a rate that is level with the global average, and higher than the majority of G7 countries’. 
Various factors have established a prime environment for innovation across the financial services industry, including: 
1.A large underserved population
According to Business Insider, roughly 45 million Brazilians do not have access to or have not used a bank account in the past six months. 
2.Demographics
Brazil’s median age is 32, therefore providing the country’s fintechs with a large, youthful, and tech-savvy consumer base that is more likely to be receptive to digital financial solutions.  
3.Smartphone and internet penetration
Three-quarters of Brazilians used smartphones in 2017, which is expected to tick up to 86% by 2025. Both of these figures are the highest across Latin America (Business Insider). 
4.High fees charged by incumbents 
Brazil’s four largest banks control almost 80% of the country’s deposits, with similar concentrations in credit and assets.
5.Supportive regulation
Brazil’s fintech-friendly regulatory agenda aims to stimulate competition in financial services. 
How Medellín, Colombia Became “The Smartest City in the World”
For Colmbians living in poor mountainside communities once known as favelas on the outskirts of Medellín, the gondola system serves as both a lifeline and potent symbol of an impressive urban transformation led by technology and data.
As reported by Newsweek
“When experts get together to discuss the “path to smarter cities, Medellín often comes up as a standard against which any city’s vision for transformation should be measured—including the judges of Newsweek’s Momentum Awards.”
While the majority of smart-city ­initiatives are geared towards a population’s tech-savvy and “well-resourced” demographic, Medellín’s transformation has (for the most part) been focused on people who have the least.
“Smart-city efforts tend to be centrally planned, with change driven by tech companies… Medellín looked for initiatives that are inclusive of every facet of society, and they were driven by the communities themselves,” said Soledad Garcia-Ferrari, an urban development researcher at Scotland’s University of Edinburgh (Newsweek). 
Home to more than 2 million people, Medellín had long-standing reputation as a center of narcotics-related crime, poverty and despair. In the mid-1990s, the Colombian capital city began its smart-city journey, more than a decade before “smart city” was a thing. 
Today, Medellín’s homicide rate is one-twentieth of what it was in 1993, while nearly two-thirds of people living in poverty have emerged from it. Virtually everyone in the city- including the majority of those that had access to few basic services a decade ago- now has full free access to education, health care, transportation and an array of cultural, economic and online services, (most of them being free).
“This was all about innovation… But it was also about a shared vision of social innovation,” Said Carlos Moreno, a Medellín-born urban researcher at Paris’ Panthéon-Sorbonne University.
Experts agree that the key driver of Medellín’s transformation is it’s perspective: the city looked beyond technology as an end in itself. Medellín found opportunities to integrate technological and social change into an “overall improvement in daily life that was felt in all corners of the city—and especially where improvement was most needed” (Newsweek). 
“Medellín’s vision of itself as a smart city broke from the usual paradigms of hyper-modernization and automation… It replaced them with a more anthropocentric vision of the city’s future,” said Robert Ng Henao, an economist who heads a smart-city department at the University of Medellín.
dataPlor: The Startup That Puts Latin American Micro-Businesses on the Digital Map
This week, dataPlor was featured by Frances Jenner in Latin America Reports. Our CEO - Geoffrey Michener - discusses how accurate small business data helps enterprise customers grow in LATAM. 
The U.S.-based startup collects data on small businesses in Mexico and Brazil, so that large companies can provide them with the tools to grow.
Brazil is geographically and economically the largest country in Latin America, but 89 percent of its micro and small businesses don’t have a digital footprint. This means it’s impossible to find any data on them online, including addresses, opening times, or even what they sell without going in-person to the business and asking. 
In 2016, Geoffrey Michener spotted this gap in the market and created Dataplor, a company that indexes micro-businesses and sells the information to larger companies. At first, he intended for his business venture to be based in the United States, but soon discovered that the market for collecting data is much bigger in emerging economies such as Latin America. 
Companies really need good small business data,” he told Latin America Reports. “[The region] is literally a blank spot on the map.”
Currently, it’s extremely difficult for a small tienda, or corner store, to create a digital footprint in Latin America, as many business growth services are targeted at U.S. audiences and charge upwards of $1000 a month for a website, which is often too costly for micro-businesses. 
According to Seu Negócio No Mapa, a Brazilian company that also helps small businesses get online, 85 percent of small and micro-businesses in Brazil  believe that the internet is “highly important” for their startup. However, due to a lack of time or resources, they are frustrated in their attempts to put their company’s information on the internet.
If large companies only have 10 percent of micro-business’ data, then they can only effectively market to that proportion of the market. But with information acquired from Dataplor, these larger companies are better able to create marketing campaigns that target the needs of small Latin American businesses and help them to grow.
For example, explained Michener, companies could offer cost effective ways for them to accept credit cards, provide a website service for a small subscription fee or help them develop their social media presence. 
Michener said that more and more data companies are entering the market, making it more competitive and forcing them to deliver high-quality services for Latin American businesses. 
“It’s providing a lot more opportunity for small businesses to step up to the digital forefront,” he said. 
To collect the data necessary, Michener’s business relies on employees on the ground. Dataplor  currently operates in Brazil and Mexico, and employs 120,000 “explorers,” or paid contractors that go to businesses to collect information. This data is then verified using Artificial Intelligence and call centers.
Explorers in Mexico are making around $5 an hour, said Michener, whereas the current minimum wage in the country is closer to $0.70 (although this rises to $1.13 within the free trade zone close to the U.S. border). 
“At the end of the day, we need good, loyal contractors, and the best way to do that is to treat them right and pay them well,” he said. “It’s mutually beneficial, we take care of our people so that they take care of us. It’s a win-win.”
Next, Michener plans to extend Dataplor’s reach into Colombia and Peru, and hopes to consolidate its presence throughout the region in 2020.
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