Kushki Closes Series A Round Led by DILA Capital, Why Mexico Has So Few COVID-19 Cases Compared to the U.S., Goldman Sachs Says Latin American Economy is Set for Biggest Crash in 75 Years, and More from Latin America

Other featured stories include: How Fintechs Can Build Trust with SMEs in Latin America, COVID-19’s Impact on Businesses and Consumers in Latin America, and Update: Coronavirus in Latin America

Kushki Closes Series A Round Led by DILA Capital

Kushki, a leader in payments processing in Latin America, recently closed a Series A led by DILA Capital.

Kushki offers clients an integrated payments platform for physical stores, e-commerce, and m-commerce. The startup currently operates in Ecuador, Chile, Colombia, Mexico, Peru, and the U.S. in a variety of sectors. The company plans to leverage its new capital to accelerate its plans for regional expansion.

According to LatAm List, the startup’s API standardizes the ecosystem’s fragmented payments landscape, including credit and debit cards, bank transfers, and cash networks with over 300,000 physical points of payment.

“Kuskhi’s capability to offer a multichannel payments process in real-time that has social media integration for today’s mobile consumer is impressive,” commented Eduardo Clavé, DILA Capital’s Managing Partner.

Other notable investors include Kaszek Ventures, Magma Partners, Clocktower Ventures, and Conexo.

“We’re pleased to keep supporting Kushki’s team, led by experts in the payments market, as they continue to satisfy the needs of a growing payments sector in Latin America,” said Nathan Lustig, Managing Partner at Magma Partners.

As reported by LatAm List, Kushki’s services can be a solution to the physical limitations brought upon the population due to the COVID-19 outbreak that restrict access to payment options.

Why Mexico Has So Few COVID-19 Cases Compared to the U.S.

While the U.S.-Mexico border has long been a region of contrasts, people in both countries are puzzled over the latest: The number of confirmed cases of coronavirus on the Mexican side of the border is just a small fraction of the U.S. count.

As reported by Washington Post, the U.S.-Mexico border is the busiest in the world, with an estimated 1 million legal crossings a day.

“The disparity reflects, in part, a time lag. Mexico didn’t report its first case until Feb. 27 — a month after the virus was detected in the United States. To date, the country has counted 993 cases, less than 1% of the U.S. total” (Washington Post).

Mexico is pursuing an unorthodox strategy; relying less on tests and more on its own disease modeling. While its Central American neighbors declared emergencies back in mid-March, Mexico kept its airports, shops and government offices open. The Mexican government didn’t urge a broad stay-at-home policy until late last week.

“Mexico’s approach amounts to a bet, its coronavirus czar acknowledges — ‘a bet that’s technically sound,’ Hugo López-Gatell said in an interview. Authorities are wagering they can fine-tune their response to the virus, even as it’s outwitted health officials in the United States and Europe” (Washington Post).

The stakes of Mexico’s gamble are enormous. The country held off on harsh lockdown measures to allow Mexicans to work a few more weeks, taking into consideration that nearly 60% of the labor force works in the informal sector, and has little or no savings.

Keeping those workers home when it’s not absolutely necessary, López-Gatell said, can cause “frightening damage.”

If it becomes evident that Mexico waited too long to introduce restrictions, analysts warn, it could suffer a crisis like Italy’s or New York’s — however with far fewer resources.

According to OECD statistics, Mexico has half as many hospital beds per capita as the United States, and a quarter as many nurses.

“The health system will be overloaded much faster than in other countries”, Eduardo González-Pier, a former Mexican deputy minister of health, said in a briefing last week sponsored by the Mexico Institute at the Woodrow Wilson Center in Washington.

Although turmoil in Mexico typically generates fears of spillover in the United States , it’s now Mexicans worrying about crossover problems from the U.S. On Saturday, governors of three Mexican border states called on President Andrés Manuel López Obrador to tighten controls to limit the arrival of coronavirus from the United States.

López-Gatell, a respected epidemiologist with a doctorate from the Johns Hopkins University – an institution currently distinguishing itself with a widely cited website tracking the pandemic – noted that Mexico’s official count doesn’t reflect the real number of cases.

“Any country in the world that takes public health seriously knows there’s a portion of the epidemic that’s visible, and a portion that’s not visible,” he said.

The raw number of cases isn’t the point, however. What matters, he claimed, is identifying when and where the virus starts to grow exponentially. Figuring this out is a bit like conducting a presidential election poll, López-Gatell added.

“You don’t interview 300 million Americans… There’s a scientific method to know what is the size” of the sample needed for an accurate survey, he said.

On March 24, Mexico declared that the virus had moved to a “new phase”, and was spreading unchecked in communities throughout the nation. Since then, monitoring stations around the country, in hospitals and primary care centers, have been testing around 10% of suspected coronavirus patients with mild symptoms.

Everyone with serious symptoms is tested, López-Gatell stated. “This allows you to have the information to construct estimates,” he said.

In total, Mexico has conducted about 65 tests per million inhabitants. That compares to 2,250 per million in the United States (Washington Post).

Goldman Sachs Says Latin American Economy is Set for Biggest Crash in 75 Years

Last Friday, economists at Goldman Sachs said Latin America’s economy will fall into its deepest recession since World War II this year, with growth shrinking 3.8% on the back of the coronavirus pandemic.

Strangled by tight restrictions on movement, travel and business across the region, Latin America’s economy is expected to “hit a wall and face a sudden stop” in the second quarter, the bank’s economists said in a research note (The New York Times).

The contraction will be more severe than the 2.1% fall in regional gross domestic product in 2009, or the 2.4% decline in GDP during the South American debt crisis in 1983, the economists wrote.

“Latin America’s macroeconomic and financial environment continues to deteriorate, and at a pace with no historical precedent… The forecasted real GDP contraction … has no precedent in the post-war period despite several episodes of severe regional crisis and financial sudden stops,” they said.

As reported by The New York Times, Goldman Sachs’ economists now expect Brazil’s economy to contract 3.4%, with Mexico’s GDP falling 4.3% and Argentina’s by 5.4%.

To counter this, central banks around the region are expected to cut interest rates further, in many cases to new all-time lows, Goldman Sachs said. It now expects benchmark interest rates to be cut to 3% in Brazil, 0.50% in Chile, 3% in Colombia, 0.75% in Peru, and by a further 150 basis points to 5% in Mexico.

How Fintechs Can Build Trust with SMEs in Latin America

Small businesses in emerging economies are notoriously underfinanced.

As reported by Crowdfund Insider, up to 78% of small businesses in Argentina and 45% in Peru struggle to grow because of financial constraints. A main reason for the financing gap is the lack of trust between banks and SMEs, even prior to the COVID-19 crisis.

“Banks simply do not know how to accurately calculate small business risk, especially in volatile economies and times in Latin America, so they offer high-interest rates or pass on providing credit altogether.”

While the millions of SMEs in Latin America present a massive opportunity for B2B fintechs who can solve their financing challenges, these small businesses tend to be traditional, non-technical, and disillusioned with financial institutions.

Crowdfund Insider discusses the following ways that fintechs that wish to target SMEs in Latin America can build trust and improve services to this business sector:

Educate potential SME partners to build financial knowledge

An EU Report finds that SMEs are not likely to shop around for financing options. These businesses prioritize time, convenience, and effort in choosing potential funding choices. To become a trusted partner to SMEs, fintechs must focus on educating these companies not only about financing alternatives, but also about blending these options to support their operations in the long term.

Fintech startups looking to finance small businesses need to take the time to explain their own solution, in addition to mentoring these business owners. This mentorship can take the form of digital content - such as videos, infographics, or blogs - or hands-on consulting with each client.

According to Crowdfund Insider,

“Outcomes for both financial institutions and SMEs will improve as these companies can make more informed decisions about their financing options.”

Make pricing information standardized and transparent

A major challenge facing SME financing is the lack of transparency between businesses and banks in Latin America. SMEs typically fear regulation and prefer to keep information private; while Latin American banks appear to be a black box, making it difficult for customers to obtain clear details about costs and interest rates. These barriers break down trust between small businesses and financial institutions, making it nearly impossible to cross-sell or add on services.

Fintechs looking to work with SMEs can break down these barriers by providing fully-transparent pricing that is easily understood by their partners. Banks should explain (in detail) how interest rates are calculated and which factors are taken into account is something especially relevant in Latin America, where most credit is calculated based on negative factors – late payments or defaults – rather than positive behavior. If business owners can see how specific actions impact their finances, then they are more likely to trust a startup as a reliable and fair partner.

Provide services rapidly and consistently

Fintech startups can build trust with SMEs by creating long-term financing relationships that are consistently available when these small businesses need it most. While it may not always be possible to provide immediate assistance to the companies in need, it is important to have software or systems in place that help customers get access to services quickly and regularly. This speed and reliability will help a startup gain credibility as a partner that cares about its customers, building trust with potential SME clients.

COVID-19’s Impact on Businesses and Consumers in Latin America

The arrival of COVID-19 in Latin America has sent shock waves across businesses. Since Brazil reported its first confirmed case on February 26, the country’s currency lost more than 20% of its value. Amid growing concerns over U.S. job losses and controversy surrounding President Andrés Manuel López Obrador’s response, the Mexican peso tumbled 1.8% to a new historic low of MXN 24.86 per US dollar as of March 22 (eMarketer).

Business Impact

In Chile, Colombia and Peru, over two-thirds (68.7%) of business executives surveyed by DNA Human Capital from March 12 to 16 said they believe the coronavirus will greatly affect their company’s bottom line in the long term. These three countries make up one-quarter (25.3%) of confirmed coronavirus cases in Latin America.

Graphic Courtesy of eMarketer

                                                      Graphic Courtesy of eMarketer

Preventative Measures

DNA Human Capital’s survey also found that roughly 80.7% of respondents (Latin American business executives) have stopped greeting people with a kiss or handshake, 57.3% have suspended in-person meetings and events, 48.2% have canceled travel and 38.0% have implemented a work-from-home policy.

Graphic Courtesy of eMarketer

                                                  Graphic Courtesy of eMarketer

Ecommerce companies like MercadoLibre are also experiencing changes. In response to the pandemic, quarantine policies and growing consumer demand for basic necessities, the company announced that it would waive its fees for sellers of basic necessity products through the end of March.

MercadoLibre stated,

“This will impact commissions on more than 21,000 vendors that are currently selling over 252,000 basic cleaning, personal hygiene and non-perishable food products” in Latin America. Since the publication of this article, MercadoLibre has reported that its pharmacy and home and laundry sales in Mexico rose 114% and 403%, respectively.

Consumer Impact

In Brazil—home to 26.4% of confirmed coronavirus cases in the region—the pandemic has rapidly disrupted internet users’ routines and shopping habits. A March 2020 study conducted by Instituto QualiBest found that 20.0% of Brazil’s internet users stopped buying products online from China. Nearly as many stopped going to indoor (19.9%) and outdoor events (17.8%).

Graphic Courtesy of eMarketer

                                                  Graphic Courtesy of eMarketer

Brazil is Latin America’s largest retail ecommerce market, so this change in consumer behavior is impacting cross-border e-commerce, especially for merchants selling their goods and services on platforms like AliExpress, as consumers opt to purchase from domestic players in the near term.

“We are constantly monitoring the situation and implementing initiatives to support merchants and small businesses on our platform. Some deliveries might be affected, but we are working hard to minimize any inconvenience to our customers in Brazil and elsewhere in the region,” said Ken Huang, head of Latin America for AliExpress at Alibaba Group.

In Argentina, fear and uncertainty surrounding COVID-19 continue to mount. Even prior to Argentina’s announcement of a mandatory quarantine from March 20 through April 12, internet users had quickly started altering their routines and shopping habits.

According to a survey fielded by Kantar between March 12 and 14, 87% of internet users in Argentina ages 18 to 65 said they were buying, or planned to buy, more household cleaning and personal hygiene items. Some 44% of respondents said they were buying, or planned to buy, more items online to avoid going to a physical store.

For companies already selling online, this situation can be an opportunity as long as they can ensure logistical efficiency.

“Now is a time to be close to the consumer and keep your promises as a company. That’s why it’s key to make sure your shipments arrive in a timely manner with shipping fees that are not too costly for customers,” said Sebastián Corzo, creative domain leader at Kantar.

In fact, B2C e-commerce sales in Argentina have sustained consistent, double-digit growth year over year despite equally debilitating double-digit inflation. According to the Argentine Chamber of Ecommerce (CACE), Argentina B2C ecommerce sales grew 75.5% in 2019—reaching a market worth ARS 373.84 billion ($6.82 billion).

Graphic Courtesy of eMarketer

                                                     Graphic Courtesy of eMarketer

Update: Coronavirus in Latin America

The coronavirus landed in Latin America on February 26, when Brazil confirmed a case in São Paulo. Since then, governments across the region have taken various actions to protect their citizens and contain the spread of COVID-19.

Americas Society and Councils of the Americas has analyzed the impacted countries in the region.

Aside from the obvious health risks, the Latin American economy will be greatly impacted as well. On March 2, the OECD decreased global GDP growth expectations for the year by half a point to 2.4 percent. Prior to the pandemic, the IMF predicted 1.6 percent GDP growth for the region for 2020. Additionally, dropping oil prices have resulted in plunging Latin American markets and currencies.

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