In this article, guest author Nathan Lustig, Managing Partner at Magma Partners, discusses how the Application Programming Interfaces (API) wave is moving beyond Silicon Valley.
As the API wave sweeps Silicon Valley, Lustig argues that Latin America is next.
“APIs are the building blocks
that make it possible for both consumer and B2B startups to function. These APIs are increasingly essential to the infrastructure layer that supports technology businesses, especially in fintech and insurance tech” (Entrepreneur
In the U.S., startups like Checkr, Plaid, and Stripe have become invaluable to both technology startups and traditional businesses that have realized the advantages of automatic integration of background checks, financial tools, or payments systems, without having to develop proprietary software. This year, Stripe became one of the world’s most valuable API-focused startups, worth $35 billion
and backed by big-name investors like Andreesen Horowitz
and Sequoia Capital
Today, Latin America has room — and a significant need — for APIs that can meet these needs locally.
While in the U.S. there are already software-as-a-service (SaaS) and API-based products available to fulfill the back-end needs of larger companies and startups, many companies in Latin America still face challenges to get contracts signed in front of notaries, or to deposit money in physical banks.
“In Latin America, there can be hundreds of disparate data sources, many with unstructured data, that make creating these companies even harder than in the US. But those that win will likely have an outsized impact on the region.”
International investors are starting to take note of startups in Latin America that are becoming the “indispensable building blocks” for the next generation of businesses. Over the next few years, Lustig anticipates that the battle to provide back-end, API-based services for the region’s startups and traditional businesses will become increasingly valuable, particularly in the following areas:
Authentication and Identity Verification
is one example of an authentication-as-a-service startup. The company provides a universal online identification and authentication platform for web and mobile applications and became Argentina’s fifth unicorn
last May. Auth0 helps companies save time and money by “rapidly implementing dozens of authentication services, including single-sign-on, fraud detection, and universal login structures.”
Similarly, Colombia’s Truora
solves identity authentication but does so offline with automated background checks. Truora uses a smartphone to scan an ID card and provide results within minutes, creating a database that marketplaces like companies like Uber, Rappi and more can use to vet contractors and that fintechs can use as part of their loan approval process.
Processing Online Payments
Many countries in the region have locally-focused companies like Stripe, but none of them have been able to unite the entire region under a single platform. The startup that succeeds in doing so will likely win the race to become known as the “Stripe of Latin America,” but that race will be a tough one.
“Latin America is consistently one of the fastest-growing
regions for e-commerce, and at least prior to the current COVID-19 crisis
, economists estimated that in excess of 155 million
people would shop online in Latin America in 2020. Yet many traditional payments gateways still reject international cards, use clunky authentication processes and struggle to process recurring payments. As a result, new startups are competing to streamline online payments for businesses across Latin America, but no one is dominating the region just yet.”
Improving Access to Financial Data
Lustig emphasizes that one of the other essential API building blocks for the entrepreneurial ecosystem will be a Latin America-focused service that allows consumers to connect their bank accounts to apps, like Plaid or Yodlee.
There are currently a few small players in the Latin American market. In a region where less than 50 percent
of people have bank accounts, a Plaid clone will be essential to constructing the foundation for the many fintech startups that are serving Latin America’s unbanked middle class.
Bringing Business Operations Online
Many companies in Latin America still record their transactions on paper, requiring expensive and slow notaries, lawyers and accountants. Meanwhile, growth for new startups is often slowed by these expenses and barriers.
Startups will be the early adopters of APIs that can solve internal administration problems with a single click.