Latin America’s Budding Tech Companies
Imagine you could go back in time and buy Amazon.com shares seven years ago or Alibaba five years ago.Today, you can browse through a handful of emerging Latin American e-commerce companies that are getting a boost as COVID-19 keeps consumers away from brick-and-mortar stores.
According to Barron’s, roughly 625 million people live between Tierra del Fuego-the southernmost tip of South America- and Texas, with per capita incomes similar to those of China. However, in Latin America, online penetration by various measures is less than half of Chinese levels, and most retail payments are still made in cash.
According to Sudarshan Murthy, a senior analyst at fund manager GQG Partners, this environment presents a golden opportunity for the region’s marquee tech company MercadoLibre. Shares in the online marketplace, which is headquartered in Argentina but does most of its business in Brazil, soared by a quarter since it announced first-quarter results May 4th, for a 35% gain year-to-date (Barron’s).
Investors have been pleased to see that the company’s revenue has continued to rise, despite the pandemic, and that it’s continued shifting from merchandise commissions to payments and other financial services—a higher-margin, longer-runway endeavor.
“They have an incredible opportunity to become the default payments company in Latin America,” Murthy says.
One obstacle in MercadoLibre’s way is Sao Paulo-based PagSeguro Digital (PAGS), whose “Square-esque mobile payment systems” dominate point-of-sale for Brazil’s abundance of mom-and-pop shops.
“PAGS provides payment solutions to five million micro-merchants in Brazil, half of whom never worked with banks,” says Justin Leverenz, chief investment officer for developing market equities at Invesco.
PagSeguro was Leverenz’s biggest purchase during the pandemic-induced markets panic earlier this year, and it looks like a good one. The shares have bounced 50% from late March lows.
A third rival in Brazil is StoneCo, which focuses its payments and lending services on larger retail outlets that could prove less resilient in a COVID-induced recession, Murthy says.
Shares have barely recovered from their March free-fall and are off by nearly half year-to-date. StoneCo laid off 20% of its staff on May 12.
“Stone is certainly challenged by the macro situation, but will emerge on the other side as a sustained share-gainer,” Cantwell says.
Investors in all three companies must remember that Brazil is no China.
As reported by Barron’s, the nation of 210 million has struggled to grow consistently since the 2008 financial crisis. A chaotic response to COVID-19, rooted in President Jair Bolsonaro’s denial of its dangers, will likely be little help.
Expansion beyond Brazil to Latin America’s number two market, Mexico, is also a daunting task, as U.S. online incumbents present much stiffer competition there.
“MercadoLibre has no chance of winning the Mexico business,” Invesco’s Leverenz predicts. “Amazon is free to operate there because of the free-trade agreement, and Walmart has a huge presence through Walmex.”
Despite potential hurdles, Latin America may prove to be the sleeping giant of digital commerce, and COVID-19 the prod that stirred it awake.
“It took a pandemic to get LatAm more online,” says Kevin Carter, founder of the Emerging Markets Internet & Ecommerce exchange-traded fund (EMQQ).
Brazil Seeks Opportunities in Space Technology
The Brazilian Space Agency (AEB) is looking to evolve its space technology capability and identify new opportunities for new projects that can potentially bring socioeconomic benefits, in areas such as analysis of satellite data.
As reported by ZD Net,
“With a view of identifying opportunities around technology solutions based on space systems and building proximity to the industry to develop projects in the field, the AEB, an autarchy linked to the Ministry of Science, Technology, Innovations and Communications (MCTIC) signed a protocol of intentions with Visiona, a joint venture between Brazilian aerospace firm Embraer and state-owned telecoms company Telebras.”
The two-year partnership with the company, which has delivered Brazil's Geostationary Defense and Strategic Communications Satellite (SGDC), seeks to exploit the possibility of providing technical services, consultancy, and establishing technology transfers around satellite systems and sensors.
“The organizations also want to combine their expertise to develop technology systems based on space platforms, integrating data-intensive technologies such as Internet of Things (IoT) and Big Data in new geotechnology applications and solutions for purposes such as mapping and identification of natural risks” (ZD Net).
Prior to the completion of SGDC, Brazil did not have satellites of its own, and instead leased eight satellites operated by foreign companies.
According to Visiona's president João Paulo Campos, the company's successful delivery of Brazil's first satellite paves the way for the evolution of the country's space technology ambitions.
SGDC, which entered orbit in 2017, connects healthcare providers, schools and communities in remote and vulnerable conditions, according to Campos, and is a particularly critical instrument during the COVID-19 pandemic.
"The [satellite] was a concrete example of how we can make good use of space systems, " Campos said.
He also noted that exploiting socioeconomic opportunities in relation to space has long been part of the agenda of the Brazilian science and technology minister, astronaut and Air Force pilot Marcos Pontes.
"Minister Pontes has insisted, since the start of the current administration, that we must use space to resolve concrete situations for Brazilian citizens", said Visiona's Moura, adding that the first national satellite was developed in line with world trends. "With compact and versatile systems, it is possible to develop applications that solve a plethora of demands from the Brazilian society," Moura added.
In March last year, the Brazilian government signed a space technology safeguard agreement (TSA) with the United States in hopes of reviving its own activities in the sector and monetize opportunities related to space.
The idea was that Brazil would be able to claim a share of the space launch business, estimated to generate nearly $300 billion a year, by allowing U.S. companies to launch out of the Brazilian Air Force's Alcantara Launch Center.
Goldman Sachs Says Latin America's Economy to Shrink Record 7.6% This Year
Latin America's economy will shrink 7.6% this year, in the steepest downturn on record and a return to pre-coronavirus crisis levels will take at least another two years, economists at Goldman Sachs said on Tuesday.
As reported by The New York Times, Goldman Sachs economists said the COVID-19 pandemic and resulting social distancing policies have arrived late to the region, which coupled with a high degree of uncertainty over policy responses and their effectiveness, means the economic damage will be severe.
"Our baseline now assumes that the bulk of physical restrictions on activity and social distancing protocols will remain in place through May, and will start to be gradually eased through June-July. This extension will generate a deeper and longer-lasting effect on real activity," the Goldman economists wrote.
The economists also warned of the risk of "scarring effects," such as long-term damage to the labor market and productive capacity of the economy, which could delay and undermine the eventual recovery.
Brazil's gross domestic product, the region's largest, is now expected to shrink 7.4% this year compared with Goldman Sachs economists' previous forecast of a 3.4% contraction. Mexico's GDP is now expected to fall 8.5%, compared with 5.6% previously forecast, as is Argentina's.
According to The New York Times,
“Goldman's new forecast for Brazil is at the bearish end of the spectrum. The government recently revised its 2020 GDP outlook to -4.7%, and the latest consensus among economists in a weekly central bank survey is -5.1%.”
The path to recovery will be slow and highly uncertain, in large part due to "significant uncertainty" over the spread of the virus and countries' policy response and strategy to deal with the public health and economic challenges, Goldman said.
Using the fourth quarter of last year as a pre-crisis base, most economies in the region, with the exception of Chile, will not fully recover until 2022-23, they said.
Esri and IDB Offer Solution to Combat COVID-19 in Latin America and the Caribbean
On Monday, Esri, the global leader in location intelligence, announced that it has partnered with the Inter-American Development Bank (IDB) to provide free access to geospatial technology in response to the COVID-19 emergency in Latin America and the Caribbean. Governments throughout the region will be able to use a COVID-19 solution to track critical equipment and asset availability, manage supply chains, and maintain business continuity.
Leveraging Esri’s Disaster Response Program, and based on the specific needs of IDB member countries, this collaboration provides access to technology resources that can enhance the region’s response to the immediate public health emergency posed by COVID-19.
As reported by Business Wire, governments in the region will be able to leverage Esri’s analytical models and implement dashboards and control centers to monitor the spread of the virus and identify where intervention is needed.
“With Esri, we have developed a collaborative relationship focused on working with IDB clients to solve complex problems and combat COVID-19 in Latin America and the Caribbean...We believe Esri’s leadership in disaster response programs, technical knowledge and assistance in the use of geographic information systems, usage of georeferenced data, and access to analytical tools can greatly benefit the region in its fight against the virus, while helping us meet other important needs in the countries we serve,” said Nuria Simo, the IDB’s Chief Information Officer and General Manager of Department of Information Technology.
Jack Dangermond, Esri’s Founder and President, stated,
“We are very proud to assist IDB in providing support to Latin America and the Caribbean...The ability to understand emergency management capacity is crucial to handling a crisis like this, and it is our mission to offer enhanced technological capabilities that empower governments around the globe to respond faster, and with the best data resources at their disposal."
According to Business Wire, in addition to supporting the public health response, this partnership will also support the three other priority areas identified by the IDB as it works to address COVID-19 in Latin American and the Caribbean. These initiatives include the creation of safety nets for vulnerable populations, economic productivity and employment, and the development of fiscal policies to relieve economic impacts.
How To Protect Your Brand Development With Trademarks In Latin America
A brand epitomizes the essence of a company, its products and services, therefore serving as a key tool for establishing credibility and customer loyalty.
By seeking protection for the unique design elements of your brand, you can support the longevity of your company’s image, which is a supporting pillar of brand development. Owning exclusive rights to distinctive signs that represent your company helps secure your credibility as an entity. Without these exclusive rights, you run the risk of harming the credibility of your brand should other third parties decide to adopt and market designs similar to yours.
According to Forbes, when expanding a company to Latin America, ensuring that trademark registration is one of the first steps you take to ensure successful brand and business development.
Intellectual Property Laws In Latin America
The Economic Commission for Latin America and the Caribbean (ECLAC) suggests that the region’s “IP interests” may differ substantially from those in other regions.
According to Forbes,
“Many Latin American jurisdictions have subscribed to various treaties and agreements under international intellectual property protection organizations. This includes the World Intellectual Property Organization’s Regional Bureau for Latin America and the Caribbean. Regional groups such as the Pacific Alliance and Andean Community have also established clear agendas to develop their IP protection among member countries.”
With this commitment to regional and international IP protection agreements, Latin America appears poised to further develop robust intellectual property policies.
Ushering In Necessary Innovation
Not only are Latin American countries active in regional and global IP protection, but various governments are also hustling to encourage increased business activity in “creative” industries.
For example, Colombia’s Orange Economy seeks to boost development of new businesses in creative fields through various commercial and tax incentives. An important flow-on effect of this could be ensuring those industries have the confidence to operate in the country through robust IP protection regulations.
Meanwhile, in Mexico, Chile, Peru and Colombia, emerging “fintech laws” focus on providing legal frameworks to support and regulate innovation in the financial services industry. This evolving industry- including emerging regulation, legal and insurance technologies- will likely demand adequate protection for innovations in order to flourish.
The “knowledge economy law” in Argentina is also following suit. Entrepreneurs and investors are experimenting with the growing belief that “ideas are the new currency,” and intellectual property protection is core to this ethos. Economies must prove that they can facilitate creative development by offering mechanisms that will support the profitability of ideas and innovation.
In order to continue building business and investor confidence in these areas, these nations should ensure their intellectual property protection policies are up to date and in line with global expectations.
Though you can generally apply for a trademark at any point in business expansion and operations, it’s wise to register for the trademarks that are most important to the success of your business immediately to ensure you’re adequately protected.
Many jurisdictions (such as the U.S.) offer a 10-plus-year lifespan for their trademarks, which can often be extended for additional 10-year periods indefinitely.
Signatories to the international TRIPS agreement (Trade-Related Aspects of Intellectual Property Rights) provide that “initial registration, and each renewal of registration, of a trademark shall be for a term of no less than seven years. The registration of a trademark shall be renewable indefinitely.”
You may also be able to make a “priority claim” to your trademark before you enter the new market.
It can be harder to win your right to a trademark retrospectively, as third parties may be able to file a similar or identical trademark within the country first. Be proactive and seek protection for your distinctive signs as early as possible.
Supporting Brand Development Through Trademark Management
Protecting your distinctive signs is an ongoing process that doesn’t stop once you have obtained the exclusive rights to your intellectual property. Some countries may also require continuous demonstration of commercial use of a trademark, or the trademark owner might lose their exclusive rights to it.
Your company should also be aware of any new, pending trademark applications that may bear a resemblance to your own registered IP. One way to secure your ongoing brand development is to use publicly available databases (typically on government websites) to view those pending trademarks under review.
According to Forbes,
“Trademark registration processes often involve publication of pending applications in gazettes or widely distributed media. This allows third parties to file formal objections or comments against pending trademarks that bear resemblance to their own. Monitoring these new pending applications is an essential preventative activity to protect your brand. It may be harder and more resource-consuming to object to a trademark in court after relevant government institutions have approved it.”
The Central Bank of Brazil Will Roll Out Open Banking Implementation
The Central Bank of Brazil has released open banking regulation, which will mandate registered financial institutions (FIs) to share a customer's transactional data with third parties, if the customer agrees, per Finextra.
As reported by Business Insider, the regulation will have a phased rollout starting in November, with the goal of full implementation by October 2021. The initiative is part of a push by Brazil’s central bank to promote digitization and transparency of financial services, as well as to welcome new market players and business models.
“Brazil is poised to become a major neobank market, fueled by favorable market factors and friendly regulations. Insufficient competition among banks in Brazil — the four largest banks control over 80% of deposits and charge some of the highest fees and interest rates in the world — has made financial services largely inaccessible to consumers, leading to low financial inclusion and lower consumer trust in banks.”
These factors have driven a need for alternative solutions, and high internet penetration is creating an environment for neobanks to thrive. The Brazilian government has also implemented fintech-friendly regulations that are stimulating competition and allowing Brazil to spearhead Latin America's neobank movement: Rules were passed in 2018 to allow fintechs to directly extend credit, and open banking guidelines were initially published in 2019. The latest round of regulations is further evidence of the favorable environment.
Open banking regulations can stimulate competition for neobanks while promoting greater financial inclusion.
Neobanks can leverage open banking to provide personalization and more compelling features. Open banking in Brazil will give neobanks access to a greater pool of financial data and customer data through which they'll be able to more accurately assess creditworthiness — even for those consumers without an established credit history — to lend more money and provide a personalized bank experience.
Neobanks can also provide features like account aggregation, allowing them to become central destinations for consumers' finances. We've already seen this play out in the UK, where regulatory efforts are easing barriers to entry for fintechs and have led to more information sharing among banks, third parties, and their customers. UK neobanks like Starling and Monzo have leveraged open banking to easily build onto their platforms to offer value-added services from other providers, which can be cost-effective for them and valuable to customers.
These regulations can ultimately fuel competition and make Brazil a more attractive market for neobanks to expand into. With 24 million users, Nubank is the sixth-largest FI in Brazil. It's also the highest-valued neobank in the world, with a valuation of $10 billion, making it the best example of a neobank posing a legitimate threat to incumbents.
While it's likely to maintain this lead for the foreseeable future, Brazil's rollout of open banking could invite competition from established neobanks from other markets — like Germany's N26 — which have already had their eye on expanding into the market. And given the significant portion of currently underbanked consumers in Brazil (1 in 3 do not have a bank account), there's likely enough room for those neobanks to build their customer bases, despite the size of Nubank.
Protests Over Food Shortages Erupt in Chile Amid Virus Lockdown
Chile risks the return of the social unrest that wracked the nation late last year following protests against food shortages in the capital Santiago amid a tight lockdown aimed at slowing the spread of the coronavirus.
As reported by Bloomberg, dozens of protesters blocked traffic and threw rocks at police in the low-income neighborhood of El Bosque in demonstrations that lasted most of Monday, according to videos posted on social media. Local media reported sporadic incidents in other parts of the city that were capped by pot-banging protests at night in several neighborhoods.
Santiago, one of Latin America’s most prosperous cities, went into a strict lockdown on Friday following a surge in coronavirus cases, though many individual neighborhoods, including El Bosque had been in quarantine for weeks. President Sebastian Pinera announced plans Sunday to distribute millions of food baskets to low and middle-class families struggling amid the hardship. Local police officials are warning that unrest may spread.
“There is no reason to hoard food or to engage in speculation,” Agriculture Minister Antonio Walker told reporters on Tuesday.
Pinera’s administration is implementing stimulus measures equivalent to 7% of gross domestic product as the pandemic sends Chile into its worst recession since the early 1980s. Policy makers pledged to boost unemployment insurance and healthcare spending in the weeks before the latest measures were announced on Sunday night.
Strong interest in the food baskets prompted Pinera to follow up with another speech on Monday promising that distribution would begin as soon as this week. Local radio station Bio Bio reported that some municipalities such as Santiago’s Renca district have been inundated with requests about the food program.
Complicating matters further are signs of accelerating price increases of food and beverages both in Chile and elsewhere in Latin America. Regionally, lockdowns have strained food supply chains while prompting some panic-buying.
Walker said on Tuesday that the government has not observed changes in local food prices. Meanwhile, Marcelo Galvez, who is the CEO of Chile’s third-largest supermarket operator, SMU SA, said in an interview on Monday that his stores are fully stocked.
The pandemic seemed to be under control in Chile in late April, before the number of new daily cases tripled. Those figures forced Pinera to backtrack on plans to allow people to resume normal activities. The Health Ministry reported a record 3,520 new cases on Tuesday with 31 deaths.
Pinera’s administration is grappling with the virus following a period of social upheaval against inequality and poor government services that started last October. Pinera initially called in troops to quell last year’s unrest before agreeing to measures including a plebiscite on a new constitution.
Tapping InterSystems Tech to Help Combat Bank Fraud in Chile
Fallout from social distancing measures is impacting virtually every facet of daily life in Chile – as it is around the world.
Banking is no exception, as the booming e-commerce sector fueled by COVID-19 has encouraged consumers to tighten their embrace of mobile and internet banking.
Against this backdrop, E.nable- a Chilean company that helps financial services institutions such as banks detect fraud in digital channels- has brought in global digital transformation giant InterSystems to help beef up its capabilities.
The timing has proved favorable as negotiations, which had got underway prior to the outbreak, closed amid the sharper focus on digital transactions. Additionally, on the legislative front, congress passed a bill placing responsibility for card fraud on the shoulders of banks.
With more than 20 years of industry experience, E.nable will incorporate InterSystem’s IRIS Data Platform to strengthen its fraud detection operations.
In a nutshell, IRIS is a unified data platform that houses a scalable database and has built-in analytics and interoperability tools. Different applications can plug into it.
BNamericas: Can you give us a little background on the deal?
Kozak: InterSystems has much global experience in the financial sector, with large clients and partners at this level. We see that, together with E.nable, we can complement each other to deliver the best technology in data management and with extensive experience in fraud resolution in financial markets.
This is an industry that is undergoing a major overhaul and innovation process, so it needs certain additional capabilities such as machine learning, artificial intelligence and top-notch analytics. Given this, the decision is part of InterSystems’ strategy to expand its market presence, using the experience it has in this and other areas and which is very useful.
BNamericas: And how is IRIS Data Platform going to enhance E.nable’s fraud detection services?
Kozak: First, it will provide scalability and elasticity; it will be an update for a platform that, given current demand, requires it.
It will deliver more capacity for real-time analysis of information, which means that immediate action can be taken to prevent fraud. Another benefit is that we are going to deliver the ability to handle and analyze a greater volume of information, which will allow us to bolster the foundations of this business with more and better information. Also, when one starts the process of implementing machine learning and artificial intelligence it will facilitate better bank fraud prediction.
BNamericas: What other companies do you work with in this way?
Kozak: InterSystems has a strong global presence in the financial sector. It has clients such as Broadridge, a fintech based in the US, clients such as Credit Suisse and JP Morgan, among others. Such is its presence that InterSystems handles 50% of the daily transactions of the New York Stock Exchange and about 15% of daily stock exchange transactions worldwide. And this is why we have brought our international experience and adapted it to Latin America, tailoring it to the specific needs of the region.
One of our clients is the International Investment Bank, which set itself the challenge of anticipating growth, so it sought to improve the scalability and profitability of its data management application. And as a result, after a recent review and test of competitive high-performance technologies, the bank again committed to using InterSystems technology.
InterSystems IRIS Data Platform was of particular interest due to its massive horizontal scaling for concurrent transactional analytical processing. A second case to mention is MFS Investment Management, which had a slow Global Portfolio Modeler (GPM), so in order to keep up with growth, it needed to migrate the GPM from a relational database to InterSystems technology, thus achieving its goals of performance, reliability, application availability, scalability and risk reduction.
BNamericas: In the face of the health crisis and the increase in the use of digital solutions (such as mobile banking) that we are seeing, do you think that financial services companies will put, or have to put, a stronger emphasis on the issue of detection of fraud?
Kozak: I think that, with the paradigm shift in consumer behavior, fraud detection technologies will undoubtedly play a fundamental role, because the purchasing habits of consumers are changing.
That is why, recently, we’ve seen a sharp focus on large investment in systems security and on the cost-benefit relationship for this type of outlay.
Given the above, the use of information is essential today and, for this, we need quality information and technology that allows us to scale and make all this information available. It is not much use having a lot of information if you do not take advantage of it; likewise, there’s no point in having the latest technology without the information.
Another aspect to consider is that, little by little, the possibility of sharing information will grow, taking advantage of it from different angles, obviously, considering all aspects of confidentiality and information security. Here, fintech companies have tremendous potential.
BNamericas: How has InterSystems been impacted in Chile since the beginning of the health crisis in terms of operations, and so on?
Kozak: Given our business, we see a slowdown that is the product of this process of imbalance that involves changing work habits, social distancing and a global effect – which also impacts us. We saw that the early stage was more chaotic, because people had to adapt to this new rhythm in the sphere of work. But now operations are more stable…The positive thing is that we have seen, on the part of many clients, the desire to continue investing in projects, understanding that the incorporation of technology is an essential launchpad for the future and for that we are here, to accompany and support them in this process.