Over the past four years, investment in Latin American startups has more than quadrupled
. Growth rounds are become increasing larger and more common, as notable international investors including Softbank
, Tiger Global Management
, and Naspers
pour capital into companies looking to disrupt markets like Brazil, Colombia, and Mexico.
The rapid growth in Latin America’s startup ecosystem signifies that there are still entrenched problems to be resolved.
, a Managing Partner at Magma Partners
, said his firm “invests in Latin America is to help build technological solutions to these issues that our team, entrepreneurs, and peers face every day, including the unfairness of the banking system, the bureaucracy of bill pay, and the challenge of renting an apartment in metropolitan cities” (NASDAQ
According to Lustig
, the institutions that people in the U.S. take for granted- such as online payment gateways and escrow- present opportunities for startups who could win the space in the Latin American market.
The five traditional industries that Latin America will likely see disrupted in the next two to three years include:
1) Online Payments
The frustration of not being able to pay for things online is a pervasive problem across Latin America. Legacy payment processors built by banks lack the necessary capacity to keep up with increased demand for online payments
as e-commerce grows. Even established, well-known apps like Cornershop, Rappi, and Cabify don’t always accept credit cards from the US.
Various barriers are keeping Latin American companies from processing payments online, including lack of authentication technology, limits to cross-border transactions, and low financial inclusion. Up to 65%
of adults in the region still don’t have access to formal financial services, meaning they have no credit, debit cards or bank accounts, and are therefore unable to pay online.
“…The recent success
of Brazilian ‘Stripe clone’ and unicorn, Ebanx, provides optimism. Startups like Ecuador’s Kushki
and Mexico’s Conekta
are also among the first to expand across borders in Latin America, helping startups and corporations easily integrate online payments that do not bounce, redirect, or reject international cards” (NASDAQ
Latin American banks are highly bureaucratic. Many Latin American have less than ten banking institutions, so these players are therefore unmotivated to compete to provide lower prices or improved services for their customers.
“Financial products from these institutions can occasionally border on predatory, with hidden fees and costs that leave customers feeling cheated and used by the industry.”
This climate is creating a growth opportunity for challenger banks- also known as neobanks- to capture new clients with mobile (and feeless) cards, allowing them to access financial services without visiting a physical bank.
As reported by NASDAQ
, Brazil’s neobank, Nubank
, is the most-downloaded
and most valuable digital bank in the world, valued at $10B
after successive funding rounds led by China’s Tencent. Argentina’s neobank Ualá
was so popular that users downloaded the app in every province of the country within two weeks of its launch, leading to their $150M round led by Tencent and Softbank. Mexican neobanks albo
also raised significant Series A rounds from US investors in 2019.
3) Paying Bills
Considering the majority of Latin America’s population lacks access to a bank account, most people still have to pay for their utilities in cash at banks or convenience stores.
Few startups have been able to successfully confront this issue. Mexico’s Saldo.MX
, Chile’s Servipag
, Colombia’s Nequi
, and Peru’s Yape
are working to make it easier for Latin American customers to pay their bills online. However, there remain open opportunities to provide a simple service to the large portion of the population that has access to the Internet, smartphones, and debit services, but is still forced to wait in line to pay their bills.
4) Buying and Selling Property
to entry surrounding access to real estate- including finding a property, getting a mortgage, and sorting out escrow- are higher in Latin America than many other regions around the world. Most Latin American nations use notaries instead of escrow, don’t have any centralized listing service (MLS), and do not require exclusivity for brokers. Mortgages are also only available for the wealthy and carry high interest rates (NASDAQ
Many of these services are only available in big cities, while medium-sized cities and rural areas are left with antiquated real estate systems that present potential for fraud and corruption. Colombia’s Suyo
is working to tackle the issue of property formalization in underserved rural and urban areas, although Brazil, Bolivia, Ecuador, and Colombia still struggle significantly with land right concerns.
in Latin America is notoriously difficult. Microloans- which reached Latin America in the 1990s to supposedly support low-income families- often carry staggering interest rates, between 50-120%
or as high as 500%, entrapping consumers in debt.
Today, online microcredit startups in Latin America are taking the place of these small lenders, allowing people to access credit through their smartphones. However, as reported by NASDAQ
, the risk models are still basic, meaning that interest rates have to stay high for these startups to be profitable.
However, Latin America has a competitive advantage in the development of invoice-backed lending, with almost 80% of worldwide electronic invoices originating in the region. These electronic records can provide detailed data on businesses’ transactions, debts, sales partners, and tax payments and can act as the basis for more sophisticated risk models. For example, Colombia’s OmniBnk
uses such information to disburse small business loans up to $1M in as little as one hour.
also provides SMB lending services based on electronic invoice data. Both Konfio and OmniBnk have managed over $200M in debt financing to disburse these loans quickly. In addition, Mexico’s Credijusto
- which recently raised a $42M Series A
round co-led by Goldman Sachs PSI
and Point72 Ventures
- provides asset-backed loans and equipment leases to SMBs. Brazil’s Creditas
is working to reduce borrowing costs for Brazilians by increasing the efficiency of lending systems using electronic data.