Fintech in Latin America, the Perfect Storm

The Perfect Storm

What’s in it for me:

  • An increasing number of fintechs are growing in Latin America, understand why that is happening
  • Have a better understanding of the financial environment in Latin America
  • Realize the opportunity fintechs are exploring in Latin America

As you could see in my last post (2017, a Great Year to Latin American Fintechs), Fintech in Latin America is booming! But what makes Latin America a great place for fintechs to develop themselves? Why so many fintech entrepreneurs are bullish about the opportunities while so many financial institutions are scared to lose market?

Latin America has 5 factors that create the perfect storm for the fintech development, let’s take a look and analyze each one of those factors:

  • High interest rates  

Latin America has one of the highest interest rates in the world. In 2016, Brazil had a real interest rate of 40.4%, Colombia 8.3%, Paraguay 12.2%, Peru 12.4%. While developed countries such as United States, and China had rates of 2.2% and 3.1%(Source).

That happens even thought the federal fund rates in Brazil is currently the lowest in more than 20 years, 7% in December 2017.

Because of that financial institutions have a huge spread, in 2016 Brazil had a 22% spread and Mexico 9.1% compared to 5.5% in Germany and 5.2% in the United States (Source),  which make them highly profitable, leading to our second factor.

  • Banks huge profit margin

Banks in Latin America are much more profitable than their counterparts in the rest of the world. They have the highest Return on Equity (ROE) globally, according to the research McKinsey Global Banking Annual Review 2016, 22.6%, that would be 235% more than the global average, 9.6%.

Because of that, banks are very powerful in Latin America, influencing government and being profitable even during terrible crises. All this in expense of the population. This lead us to our third factor.

  • A distrust in the financial institutions

Due to the many financial crisis that the region went through, high interest rates they charge, and many shady things they did and do, the financial institutions in Latin America have the greatest mistrust from their population in the world (Source).

In other countries, Banks trust is one of their greatest competitive advantage against fintechs, because people are skeptical to let small startups to handle their money.

However, in Latin America is pretty much the opposite. People don’t have bank accounts because they don’t trust financial institutions. They are more willing to trust fintechs than in banks which takes us to our fourth factor.

  • A large number of unbanked people

According to the World Bank research The Global Findex Database, in 2014 , only 51% of the Latin America population with more than 15 years had a bank account. While in a global level that number was 62%, reaching as high as 92% in the United States and 99% in the United Kingdom.

Also, only 14% of the population had formal savings and 11% borrow formally, while Americans had 54% and 23%, respectively.

Finnovista launched together with the IADB a report worth checking about the Fintech innovation in the region, with a great emphasis on financial inclusion.

So, there is a huge untapped market that the current financial institutions weren’t able to reach so far due to the mistrust the population has on them but that fintechs can provide services. This is possible due to the massification of technologies such as the smartphone, which is exactly our last factor.

  • A growing penetration of smartphones

According to GSM Mobile Economy 2017 report, smartphone penetration in Latin America was 55% in 2016 and expected to grow to 71% by 2020. In Europe, this number was 65% in 2016 and will be 76% in 2020. Therefore, Latin America is catching up Europe in a few years in smartphone access.

However, the impact of the smartphone in Europe is totally different than in Latin America, because Europeans already had access to internet through other devices. The smartphone is the first internet connected device that many of the Latin Americans have, which will add, by 2020, an extra 100 million people to the internet changing enormously the behaviour of those people, especially regarding access to financial services.


All of the factors mentioned above results on a high adoption of fintech services in Latin America, as showed by the EY Fintech Adoption Index, which shows Brazil with a 40% adoption rate and Mexico 36%, above the average of the 20 top countries of 33%.

Also, it makes the incumbents fear losing market to the fintechs more than in any other part of the world, with a whooping 93% of the incumbents fearing to lose part of their business to fintechs in the next 5 years. (PwC Global Fintech Survey 2017).

The whole scenario is attracting venture capitalists attention. Investment in Fintech, in 2016, represented 27% of all venture capital investment in technology in the region.

Startups such as Nubank, Creditas, Kueski, and Afluenta are attracting millions of dollars in investment to disrupt the market.

Banks know that situation and aren’t staying still, they’ve been working closely with startups for the past few years with initiatives such as Startupbootcamp Fintech Mexico City, InovaBraCubo, we’re going to discuss how those initiatives work in a later post.

As we could see, Latin America is an amazing place for fintechs with an unique opportunity to disrupt the market. It’s a great moment to be working on a fintech or investing on one. I’m very happy to be supporting amazing entrepreneurs to create great fintechs in Latin America through the acceleration and Scale program of Startupbootcamp Fintech.

And you, what do you think about the fintech environment in Latin America? Leave your comment below.

Key Takeaways:

There are 5 main reasons that makes Latin America a perfect place for fintechs to grow:

  • Financial institutions charge high interest rate with a high spreads
  • Banks have huge profit margin, in expense of the population
  • Banks aren’t seen as trustworthy as in other parts of the world
  • Latin America has a large number of unbanked that don’t trust financial institutions
  • Smartphone penetration is growing quickly and it is the first device a good part of population has that can connect to the internet







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