Taking into account that approximately 70%
of the Latin American population is unbanked or underbanked, the region’s fintech startups are introducing innovative solutions to bring this informal economy online.
According to Visual Capitalists
, the business opportunity that the unbanked sector represents in Latin America is estimated at roughly $34 billion.
Nubank’s digital banking offerings found an innovative way to tap into Brazil’s large, young consumer base with mobile-first banking services. With over 8.5 million
customers, Nubank is now the largest digital bank outside of Asia. The company recently raised a mega-round of funding ($400 million
) from U.S. investment firm TCV
, making it the highest-valued, private digital bank in the world.
In Brazil alone, there are approximately 224
fintech startups, although it is not the only Latin American country with emerging innovative banking solutions. This year’s funding in fintechs across the region has already surpassed
the total funding raised in Latin America in all of 2018 (Crunchbase
The key trends driving this digital banking boom include:
1.An Increased Focus on Small Business
In Latin America, mobile banking can help reach SMBs (small and midsize businesses) in rural areas, or simply provide them with a better way to access financial services without the need to visit a brick and mortar bank.
Access to credit has been a long-standing issue for SMBs in the region. Digital banks are able to use technologies such as machine learning to evaluate a business’ creditworthiness faster and more efficiently (i.e. Konfio
’s business model).
2.Regulatory Pushes In The Right Direction
Many countries throughout the region are introducing new regulations that aim to level out the playing field between traditional financial institutions and the new fintech companies.
For example, Mexico recently introduced a new fintech law
that provides a detailed framework on how financial services served through digital platforms are regulated. Regulatory initiatives are also in the works in both Chile
3.More Bank-Fintech Collaborations
Despite the clear benefits for banks to partner with fintechs, there is not yet widespread collaboration between the two entities in Latin America. This may change, however, as open banking
— or allowing bank customers to share their transaction data safely with third parties— is gaining traction.
In Chile, the fintech association FinteChile
is working to educate lawmakers
on the benefits of open banking. As more banks open their APIs to third-party developers, there’s no doubt it will advance digital banking innovation throughout Latin America.
4.China’s Growing Influence
China- arguably the world’s fintech leader, especially in mobile payments technology- is a leading example for what the future of banking will look like.
For more, read this Crunchbase News
article on how Latin American fintechs are finding inspiration from China’s mobile-first successes.
5.Latin America’s Race To Lead Digital Banking
Latin America is well-positioned to become an international leader in the digital banking space. The opportunities to attract unbanked or underbanked customers and integrate them into the system using mobile-first services are limitless.
An increasingly friendly regulatory environment, growing investments, and mobile-first successes in other emerging markets (such as China) prove that financial inclusion is a feasible reality for Latin America.