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Fintech in Latin America: Key Trends in 2023 and Beyond

Jan 15, 2024




8 min read

The fintech ecosystem in Latin America (LatAm) has seen tremendous expansion and established itself as a vital actor in addressing the region’s consumer financial demands and needs. Growing demand for online banking solutions, favorable demographics, and a sizable underserved population are driving the expansion of fintech activities. 

The pandemic catalyzed disruption. Post-Covid, the fintech sector is a driving force of FDI within the region. According to a research report by LAVCA, in 2022 fintech has emerged as the leading sector in VC investments, with USD 6.1 billion invested across 258 transactions, reflecting a 2x increase in deals and a 3.7x increase in capital invested compared to 2020. This growth pattern is further evidenced by the number of unicorns, which have risen from 21 at the end of 2021 to 32 by the end of 2022, of which 14 are in the fintech sector.

Against this backdrop, fintechs increasingly play a key role in promoting financial inclusion, providing access to sophisticated services for underbanked populations whose consumer preferences embrace fintech readiness.

Based on current developments, we expect the following four trends to shape the regional fintech ecosystem in the coming years:

  1. Neobanking

  2. Digital Payments and E-Commerce  

  3. Insurtech

  4. Embedded Finance and Open Banking

Let’s examine each of these trends in more detail below.

Our experienced fintech regulatory compliance advisors compiled this analysis, not freelancers, third-party agencies, or ChatGPT. We are global and LatAm regulatory compliance experts.

Fintech in Latin America Trends
Fintech in Latin America Trends
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1. Neobanks Continues to Lead LatAm’s Fintech Growth

By leveraging a mobile-first approach in a region with one of the highest percentages of smartphone penetration in the world, neobanks have experienced massive growth, with the number of customers more than doubling between 2019 and 2021 to nearly 80 million.

Traditionally, incumbent banks only served affluent individuals due to a lack of competition and stringent credit requirements, leaving large portions of the population underbanked. Simultaneously, interest rates have been historically unfavorable, enabling players like Brazil’s Nubank and Creditas to disrupt credit cards and secured lending.

Neobanks are on the rise at a time of fintech’s digital transformation

A Mastercard and Americas Market Intelligence report noted that LatAm neobanks successfully enabled a seamless digital experience while eroding incumbent banks’ entrenched hold on the sector with their focus on customer service. For example, Mexico’s Albo and Brazil’s Nubank have radically disrupted their countries’ banking landscapes by removing consolidated practices like high account minimums, high commissions and onerous account-opening requirements.

In 2023, neobanks continue to lead the fintech sector, showing astonishing growth. This is evidenced by Brazil, the region’s leader in terms of sector development and consumer adoption: out of the 52 regional neobanks, 24 are from Brazil, serving over 80% of the region’s total customer pool.

2. Digital Payments Revolution

The following factors drove the preference for alternative payment methods (APMs) across LatAm:

  • Low access to credit cards;

  • Lack of financial inclusion; and

  • High smartphone penetration.  

As reported by EBANX’s annual study, APMs’ share has reached 40% of the e-commerce volume in the region, jumping from 31% just two years ago.

Today, the key beneficiaries of this trend are instant payments and e-commerce solutions.

Instant Payments Leading the Way

Across LatAm, instant money transfers are boosting financial inclusion, reducing costs, promoting digital commerce, all in all making more innovation, competition and growth possible.  

In particular, Brazil’s IP payment provider Pix is a thriving force. According to Bloomberg, in less than a year since its 2021 launch by the Central Bank, Pix has enabled over USD 90 billion in transactions for 110 million customers. Recently, features such as offline transactions, cash withdrawals, and Pix Cobrança – which – supports QR-based transactions, have enhanced Pix.

Elsewhere, in 2019, Mexico’s Central Bank launched Cobro Digital, an instant payment retail platform running on a real-time gross settlements payment system with over 10 million accounts processing over USD 100 million in transactions.

In its latest annual LatAm study, business intelligence firm AMI projected that across the region, instant bank transfers and digital payments will grow more than 40% and 20% annually through 2026 respectively.

E-Commerce and Digital Wallets Growth Accelerating

At the end of 2022, AMI estimated that cash represented 37% of all formal retail payments in its top six markets, vs. 70% in the pre-pandemic era. This trend is set to continue as digital payments continue to become easier, cheaper, and faster.

Digital wallets are expected to represent a consistent 10% share of all online transactions in LatAm over the next few years. Several e-wallets and mobile money options are available in Latin America, such as the following:

The rise of digital payments, coupled with the COVID-19 pandemic, is fueling growth in e-commerce. Data company Statista estimates that 13 million people across LatAm made an online transaction for the first time last year, and retail e-commerce expanded by 36.7% to around USD 85 billion.

Overall, we expect to see more companies creating omnichannel experiences to better cater to consumers' and suppliers' preferences, developing in-house payment processing capabilities, and launching digital wallets to better adapt to each market’s local payment methods.

MercadoLibre: Spearheading Fintech In Latin America

In Q3 2021, MercadoLibre posted a 68% jump in quarterly revenue. Gross merchandise volume rose 23.9% to USD 7.31 billion, while its active user base increased by 3% to 78.7 million.

Founded in Argentina and now present in 18 countries, MercadoLibre is an online e-commerce marketplace with a core fintech segment that provides e-wallets for consumers with payment services. As the regional e-commerce market leader with a 25% market share, we expect MercadoLibre to continue to expand its fintech segment in the region.

According to market research firm eMarketer, following the 2003 launch of its digital payment platform Mercado Pago, the company established a first-mover advantage in several key markets such as Argentina, Brazil, Chile, Colombia, and Mexico.

Today, the company offers a wide variety of financial services, ranging from payment processing and gateway services to mobile payments and credit cards. Mercado Pago launched QR codes in 2018 and in Q4 2022 was identified as a candidate in phase one of WhatsApp's plan to launch a payment service within the app in Brazil.

3. Insurtech Piques Investors’ Interest

Insurance penetration is still low in LatAm, leaving plenty of growth opportunities. In 2020, insurance premiums represented nearly 4% of GDP in Brazil and Chile, respectively, compared to 12% in the US and 4.5% in China, according to a research report by VC Atlantico. That figure is even lower for Mexico and Argentina at 2.6% and 2.2%, respectively.

Over the past years, several innovative insurtech players have emerged to digitalize the market.. For example, Brazilian startup 180° Seguros partners with businesses to create customized products that can be embedded in the customer end journey.

Another noteworthy insurtech is Justos, which uses data to improve the auto insurance process by measuring how people drive and price insurance policies more accurately, offering plans up to 30% cheaper than traditional plans.

We expect insurance companies and brokers to leverage open finance to become more strategic – able to create niche insurance products with adequate structure and price for consumers needs while balancing insurance cost and delivery time.

4. ‍‍Embedded Finance Continues to Play a Vital Role

Embedded finance plays a vital role as companies gain access to proprietary user data and earn their "permission" to offer financial services within their product. We continue to believe in the power of platform solutions in LatAm, where companies fill needs across diverse value chains. Examples of such innovative startups include the following:

With the expansion of embedded solutions & Open Finance, we expect companies to design ways to make lending safer and more efficient while helping customers unlock new and recurring pools of capital.

On the flip side, lenders and providers in the payments sector will play an increasingly important role in the ecosystem. With increasingly available credit from neobanks and BNPL fintechs, we expect that access to credit will become a new barometer for financial inclusion going forward. While the first phase of embedded solutions was focused mainly on retail marketplaces, we anticipate new use cases in 2023 as SMEs and corporates continue to identify ways to engage, monetize and optimize their client base.

We can expect increased partnerships between banks and digital service providers and, as a result, increased digital development from banks, including rewards marketplaces, P2P payments, digitized credit, and integration with third parties. This will promote a more digital financial services landscape and push banks toward embracing open banking.

5. A Favorable Regulatory Environment

LatAm’s governments are increasingly adopting a pragmatic and supportive approach towards fintech regulation, which has supported the sector’s growth in recent years.

For example, Brazil's Central Bank continues to show a balance between what is best for customers, banks, and fintechs – as evidenced by the 2021 launch of its open banking plan in 2021. In Mexico, 2018 landmark fintech legislation was launched, offering a framework for fintech groups, such as crowdfunding platforms, electronic payment providers, and a license for companies to operate in the sector. Other countries have followed suit, with similar legislative proposals published in Chile and Colombia, the latter launching the region’s first regulatory sandbox in 2020. 

As fintech firms become major players in the region’s financial system, central banks and regulators must respond quickly to ensure a level playing field with traditional financial institutions and prevent a spike in financial risks. In this context, it is a positive development that LatAm countries are increasingly deploying Fintech regulatory projects and technical committees to promote the sector’s development, competitiveness, and efficiency. 

At the same time, regulators and policymakers are advised to strike a careful balance between the need for growth on the one hand and industry stability and safety on the other. Given the region’s risk profile, it’s only reasonable to anticipate a rise in the pace of regulatory activity and audit in key areas such as anti-money laundering, cybersecurity, and consumer protection.

Much like elsewhere in the world, the Covid-19 crisis has changed the region’s landscape and imposed significant challenges for Central Banks and fintech firms. As it faces an uncertain global economic outlook and the traditional risks of emerging market economies, the region is at a crossroads regarding how fintech can transform financial services.

To fully realize fintech’s potential, LatAm countries will need stronger institutions and regulatory frameworks with a greater focus on governance. But with growing interest from international investors, proven scale with newly minted unicorns and established players, the future is bright for Latin America’s fintech ecosystem.

Need help with support and information on the fintech sector in Latin America? InnReg is your trusted compliance partner based on our knowledge and experience across both continents. Reach out today for a free consultation:

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Published on Mar 5, 2023


Last updated on Jan 15, 2024

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