An Inside Look at 5 of the Most Innovative Regions Propelling the LatAm Fintech Market to Surpass $150M, Brazil Fines Facebook $1.6M for Improper Sharing of User Data, Mexican Softtek buys Spanish IT services company Vector ITC, and More from LatAm
Other featured stories include: Ripple Targets Partnerships with Banks in Brazil in 2020 for Blockchain Remittances, The Biggest Food Delivery Apps are Moving into Latin America, and Latin America’s Second “Lost Decade” is Not as Bad as the First
Latin American Fintech Report: An Inside Look at 5 of the Most Innovative Regions Propelling the LatAm Fintech Market to Surpass $150M
As innovative startups in Latin America look to leverage smartphone and internet penetration to serve the region’s massive unbanked and underbanked populations and small- and medium-sized businesses (SMBs), a massive fintech boom is taking hold.
Photo Courtesy of Business Insider
Authorities in countries throughout the region have enacted fintech-friendly regulations: identifying fintech and digital financial services as a way to provide widespread financial access. Meanwhile, international investors have expressed increasing interest in the region as it becomes increasingly difficult to identify and compete for these startups in mature markets like the US and UK.
As reported by Business Insider,
“The pace of fintech growth in the region is evidenced by the vast sums LATAM startups have raised: In Q2 2019, fintechs secured $481 million, representing a six-quarter high, at least, and accounting for 69% of the total raised in the region across all of 2018, per CB Insights.”
The above mentioned Q2 funding figures outpaced the sums raised by both Chinese ($375 million) and Indian ($350 million) fintechs for the first time.
In the Latin America Fintech Landscape report, Business Insider Intelligence identified five key fintech markets in the region —Brazil, Mexico, Colombia, Argentina, and Chile— that provide meaningful insights into the region’s fintech ecosystem.
The report explores the factors driving fintech growth in each country, identifies the key fintech segments within each market, and discusses what has made major players in each segment successful as well as how they can improve going forward.
The five key takeaways from the report include:
- Fintech has spread globally over the past decade, taking root in various hubs worldwide, but Latin America has always lagged behind — until now.
- This report highlights five countries — Brazil, Mexico, Colombia, Argentina, and Chile — that are dominating LATAM’s booming fintech ecosystem.
- Brazil is the region’s economic powerhouse and home to some of the most innovative players.
- Mexico, LATAM’s second largest economy, is battling Brazil to become the dominant fintech hub, and boasts the greatest number of fintechs in the region.
- Colombia, while considerably behind the region’s two dominant fintech ecosystems, has quietly consolidated its position as the third largest fintech ecosystem in LATAM.
- Argentina’s long history of economic booms and busts has created a fertile environment for fintech growth.
- Although Chile is the smallest fintech ecosystem of the five, it has seen rapid growth of fintech players over the last 18 months.
Brazil Fines Facebook $1.6M for Improper Sharing of User Data
This Monday, Brazil’s Ministry of Justice announced it has fined Facebook Inc. 6.6 million reais ($1.6 million) for improperly sharing user data.
As reported by The Financial Post, the ministry’s department of consumer protection said it had found that data from 443,000 Facebook users was made improperly available to developers of an App called ‘thisisyourdigitallife’.
In a statement, the ministry said the data was being shared for “questionable” purposes. Facebook did not immediately respond to a request for comment.
“The ministry said the world’s largest social network failed to provide users with adequate information regarding default privacy settings, particularly related to data of “friends” and ‘friends of friends.’” (Financial Post).
The ministry said it launched the investigation following media reports of the misuse of data by political consultancy firm Cambridge Analytica in 2018.
According to Financial Post, Facebook has 10 days to appeal the decision, and the fine should be paid within 30 days.
Mexican Softtek buys Spanish IT services company, Vector ITC
Mexican digital solutions developer Softtek announced the purchase of 75% of Madrid-based tech firm Vector ITC’s stock.
Softtek had previously worked with Vector ITC in a formal partnership launched in April of 2019, when the two companies worked together on creating digital solutions for banking, consumer products, and industrial sectors.
“With this acquisition, our penetration and scope of service in the European market are strengthened, which allows us to achieve a very balanced position between the U.S., Latin America, and Europe,” explained Blanca Treviño, CEO at Softtek.
Ripple Targets Partnerships with Banks in Brazil in 2020 for Blockchain Remittances
Blockchain platform Ripple plans to partner with Brazilian banks to target the international remittances market.
According to Ripple’s general director in Brazil, Luiz Antonio Sacco, after closing deals with banks such as Santander, Bradesco, and Rendimento, and opening a new office in Brazil, the Silicon Valley-based company will announce new partnerships in the future with more institutions, including digital banks,
“With the advance on the regularization of bank transitions in Brasil to make it easier for the financial transactions, including international transactions, the opportunities here will grow a lot in a couple of years” Sacco said.
According to data from the Central Bank of Brazil, money sent by individuals between Brazil and other countries from January to November accounted for a total of 4.6 billion dollars, a 10% increase from the same period from the last year.
Most of these transactions are made by Swift: a system that puts together banks from different countries.This expensive process could take up to week.
Subsequently, new solutions have been developed that involve blockchain and shared records platforms to allow these transactions to happen instantaneously and at a lower cost. Luiz Antonio Sacco told Reuters Brazil their services using Ripple cost only 10% of what the banks charge, according to reports.
In October of last year, Santander Brazil was the first bank to use Ripple’s technology to send money internationally. Two months later, a fintech from Britain called Transferwise arrived in the Brazil, and quickly became one of the company’s five main global markets.
According to the director of the company in Brazil, the country represents almost 30% of the total volume of transactions made by the platform, that is in 45 countries (Reuters Brazil).
The Biggest Food Delivery Apps are Moving into Latin America
dataPlor’s CEO and Founder Geoffrey Michener wrote a piece for IDG Connect discussing why the biggest food delivery apps are moving into Latin America, and the challenges they face to compete in its highly saturated market.
The global food delivery mobile app market is expected to hit $16.6 billion by 2023. India’s Swiggy, Germany’s Delivery Hero, the UK’s Deliveroo, and San Francisco’s Postmates and DoorDash are among the delivery companies expected to attain VC-backed valuations of $1 billion or more in the past two years, according to Pitchbook.
The technology industry in Latin America is booming. Millions of consumers are coming online via mobile devices, and entrepreneurs are seizing the opportunities that increased connectivity offers. In the first half of 2019 alone, VC investment in Latin American startups totaled $2.6 billion, a significant uptick from the less than $2 billion raised in all of 2018. Technology is disrupting everything in Latin America, from banking and education to travel and food delivery.
The food delivery market in Latin America is now one of the most competitive in the world. In the early 2010s, Germany’s DeliveryHero expanded aggressively across the region through a series of acquisitions. The food delivery giant arrived in Latin America almost overnight through its acquisition of Uruguayan PedidosYa, which at the time was the leading online food delivery service. In the same year, DeliveryHero also acquired Colombian startup ClickDelivery, helping to solidify its Latin American presence.
Latin America’s local delivery heroes
There are more than a dozen other local food delivery apps in Latin America, all vying for a slice of market share. But Softbank’s billion-dollar bet on Rappi and Uber’s interest in Cornershop are signs that the international community is excited about the region as well. Global delivery giants are increasingly turning to Latin America for growth; however, operating in Latin America is not without its challenges, and requires a different playbook to succeed.
The global players placing bets on Latin America
In 2015, the on-demand courier service, Glovo, launched in Spain. With a fresh injection of venture capital investment and a joint venture with mobility company Cabify, Glovo entered Latin America by launching in Chile in 2017. Cabify supported Glovo’s Latin American launch by providing access to its existing network of messengers, which helped the app to become a regional leader from the start. Glovo now serves more than four million monthly orders worldwide, with a large percentage of those orders coming from Latin America. Glovo recently reported that Peru will be among its top three markets by the end of 2019. And while Glovo has been wildly successful in Peru, it has struggled to find its footing in other Latin American countries.
In 2019, Glovo abandoned its operations in Chile and Brazil following fierce competition with direct competitors Rappi, Cornershop, iFood, and UberEats. UberEats began it international expansion in 2016, which included Mexico. Over a two-year period, the company launched its food delivery service in more than 60 cities across 11 countries. Although UberEats now has a presence in 40 Mexican cities, the country is completely saturated with food delivery options. UberEats is fighting against Rappi, SinDelantal (owned by JUST EAT and iFood), Postmates, among others in a market that is estimated to reach $750 million in sales in Mexico alone by 2021.
Postmates launched in Mexico City around the same time as UberEats, with more than one thousand local merchant partners and couriers. And while the company does not operate in any other international markets aside from Mexico City, local players are keeping an eye on its growth strategy, which also focuses primarily on food delivery. Meanwhile, Amazon, Walmart, and other grocery retailers are also experimenting heavily with on-demand delivery services in the region.
Challenges still facing food delivery in Latin America
Fierce competition remains the top challenge for both local and global food delivery apps in Latin America, but not the only one. Consumer preferences and digital behavior differ greatly across the region, making local teams and partnerships crucial for success.
According to UberEats data, nearly 20% of UberEats orders are paid in cash across Latin America, and in Colombia, this number rises to around 40%. Cash is still king in Latin America, so delivery companies must adapt to local payment preferences as well, which means still offering cash payments as an option.
Another growing approach that food delivery companies are using to augment their operations and meet consumer demands are ‘ghost’ or ‘dark’ kitchens. These basic commercial cooking spaces provide restaurants all the resources they need to cook up more food and deliver it at lower costs. DoorDash has already opened a dark kitchen for multiple restaurants to share in California, and Glovo launched seven dark kitchens across Spain, Argentina, Peru, Italy, and Ukraine.
Solving the challenges above will be key to compete in Latin America’s saturated food delivery market. Fortunately, many delivery services have already found unique ways to deal with these hurdles; however, continuous innovation in this space is crucial as more of Latin America’s population comes online and will demand better and faster services.
Latin America’s Second “Lost Decade” is Not as Bad as the First
For Latin America, the decade started with a bang- with economic growth of 5.9% for the region in 2010- but has fizzled out. Since 2013, growth has averaged 0.8%, signifying that income per person has fallen slightly. The United Nations estimates that 31% of Latin Americans are poor: the same share as in 2010. Income inequality is continuing to fall, but much more slowly than it did before 2014.
Taking these factors into consideration, it’s no wonder the 2010’s are starting to be dubbed a “second lost decade” for Latin America. Yet a comparison with the 1980s- the region’s original lost decade- is instructive.
In 1982-83 debt defaults afflicted the region, leading to years of hyperinflation and austerity. As reported by The Economist, by 1990 income per person was still 5% less than in 1981, the poverty rate had increased from 35% to 41%, and (in real terms) the minimum wage was only two-thirds of its previous level. Politically, the 1980s were traumatic as guerilla wars plagued Central America, Colombia and Peru.
Out of the woes of the 1980s, a better, reinvigorated Latin America was born. The pro-market shift coincided with a democratic wave that expelled the region’s dictators (all except the Castros in Cuba) while social spending went on to rise, along with people’s access to education.
“In the 1980s almost all countries suffered slumps. In the 2010s the pain has been concentrated in Venezuela, Brazil and Argentina, where governments made macroeconomic mistakes. Elsewhere, policies are much sounder than in the 1980s. Except in Argentina and Venezuela debt is manageable. Despite the aberrations of Venezuela and Nicaragua (as well as Cuba), democracy has shown resilience. Amid recession, Argentina this week saw an exemplary transfer of power between political adversaries” (The Economist).
While the 2010s have seen stagnation, this does not represent a repeat of the history 1980s Latin America. The Economist reports that the region must find ways to return to growth in a world where the economy is expanding more slowly, while taking bolder steps to reduce the inequality that has scarred it since long before the 1980s. In the upcoming decade, Latin America must deal with a demographic shift in which the workforce will grow more slowly than the population.