IDB

Study: Fintech Industry Doubles in Size in Three Years in Latin America and the Caribbean

  • Third edition of IDB, IDB Invest and Finnovista study highlights the rise of the fintech ecosystem in Latin America and the Caribbean, growing 112 percent from 2018 to 2021.
  • The COVID-19 pandemic prompted the digitalization of numerous activities and sped up the adoption and consolidation of digital finance from fintech platforms in the region.
  • Besides the payments and digital lending segment, the largest in the region, other emerging relevant verticals include business technology platforms for financial institutions, digital banks, and insurance (insurtech).

The fintech ecosystem in Latin America and the Caribbean has experienced rapid growth and established itself as a key actor to meet the demands and needs of financial consumers in the region, according to the third edition of the study Fintech in Latin America and the Caribbean: A Consolidated Ecosystem for Recovery, published by the Inter-American Development Bank (IDB), IDB Invest and Finnovista.

The number of fintech platforms reached 2,482 in 2021, a growth of 112 percent from 2018 to 2021. Nearly a quarter of fintech platforms globally – 22.6 percent – are Latin American and Caribbean. Country distribution in the number of platforms changed little since the study’s last edition and is still led by Brazil (31 percent of the total), followed by Mexico (21 percent), Colombia (11 percent), Argentina (11 percent), and Chile (7 percent).

Fintech startups in Latin America and the Caribbean, 2017-2021

Source:  Compiled by the authors using Finnovista’s historical data base (2021).

Growth was fueled by an increasing demand for financial services not provided by the traditional financial sector, an increased demand for digital financial services because of the COVID-19 pandemic, and regulatory changes that enhanced transparency and security for investors using these platforms, the study says.

“The study shows that the fintech ecosystem is becoming a key tool for promoting greater financial inclusion,” said Juan Antonio Ketterer, head of the Connectivity, Markets and Finance division at the IDB.

“At the IDB, we are committed to supporting the development of this sector because we believe fintech platforms hold great potential for expanding credit in sectors such as micro-, small- and medium–sized enterprises and segments of the population that are commonly excluded, such as women. We hope that this study serves as an input to promote an ecosystem where fintech platforms continue to grow and become stronger so they can support Latin America and the Caribbean’s sustainable development,” Ketterer said.

Six countries account for 14 percent of all fintech companies in the region, whose ecosystem is still emerging but posting significant rates of growth. Peru is the leader in terms of the number of currently active fintech ventures, followed by Ecuador and the Dominican Republic.

Main sectors

The study also provides an analysis of the largest fintech sectors in the region over the past three years. Although the payments and remittances sector remains the largest, accounting for 25 percent of the market and driven by recent regulatory developments in Brazil and Mexico, the study notes that the digital loans (19 percent) and crowdfunding (5.5 percent) sectors are registering important growth in the region. These are followed by business technology platforms for financial institutions (15 percent) and business finance management (11 percent), among others.

Other key takeaways from the study include:

  • The number of fintech platforms offering digital banking services, mainly through mobile apps, rose from 28 in 2018 to 60 in 2021.
  • Thirty-six percent of fintech startups polled offer solutions involving segments of the population that are totally or partially excluded from the formal financial system.
  • Results of the poll carried out by the IDB and Finnovista show an increase in the average of fintech initiatives where a woman is a founder or cofounder. Since the last report came out, the average of fintech firms with a woman as founder or cofounder in the region rose from 35 percent in 2018 to 40 percent in 2020.
  • The rise in the adoption of mobile technology led to the emergence of insurtech platforms directly offering insurance products in line with users’ needs. In 2020, 73 percent of  identified entrepreneurial ventures operating actively in Latin America offered insurance products, compared to 60 percent in 2018.

Regulatory progress

The report (download it here) also lists the public policy challenges overcome in the region. To this end, the document features, for the first time, a summary of fintech regulations in the region and highlights the adoption of regulatory innovations, such as the creation of regulatory sandboxes and innovation hubs that have opened up testing or dialogue spaces in countries like the Bahamas, Brazil, Colombia, Costa Rica, the Dominican Republic, El Salvador, and Guatemala. The report also notes regulatory progress, such as the rise of crowdfunding, in Brazil, Colombia, Ecuador, Mexico, and Peru, and the enabling of open finance in Brazil and México.

Investment

“Even though prospects for recovery in Latin America are still unclear, the fintech sector is currently going through a phase that could be categorized as exuberant. This sentiment is reflected by the investment available for startups, whether in the form of debt or capital, which has grown during a period in which the value propositions offered by fintech platforms have been even more relevant,” said Andrés Fontao, managing partner at Finnovista.

Fintech investment in the region led venture capital investments and accounted for 39 percent of the amount invested in 2021.

About the study

Fintech in Latin America and the Caribbean: A Consolidated Ecosystem for Recovery has been possible thanks to a collaboration between the IDB, IDB Invest and Finnovista, and countries and strategic allies in the region which, since 2016, have published reports that generate interest among the communities that comprise the fintech ecosystem. These reports have become one of the main sources of information on this sector and they support the IDB’s Vision 2025 strategy of promoting the development of small and medium-size enterprises and greater gender equity among its member states.

About the IDB

The Inter-American Development Bank is devoted to improving lives. Established in 1959, the IDB is a leading source of long-term financing for economic, social, and institutional development in Latin America and the Caribbean. The IDB also conducts cutting-edge research and provides policy advice, technical assistance, and training to public and private sector clients throughout the region.

About IDB Invest

IDB Invest is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $14.8 billion in asset management and 376 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.

About Finnovista

Finnovista is an innovation and venture capital company driven by the fintech ecosystem, helping transform finance and insurance to create a better world. Finnovista connects and facilitates the fintech ecosystem in Latin America to make the transformation of the financial industry possible. Through the FINNOSUMMIT conference, Finnovista lead the largest fintech community in Latin America with more than 30,000 entrepreneurs, investors, and industry executives. Finnovista also shares its knowledge of the fintech ecosystem with the public and publishes studies on innovations in fintech and insurtech.

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