Five fast-growing Latin American fintech firms used virtual talks at Atlanta’s Fintech South conference last month to paint a picture of a maturing region where local innovations are being parlayed into global integrations.
Atlanta has long been recognized as an international payments hub, but it has remained relatively isolated from consumer-facing companies across Latin America. And for good reason: the region itself had been slow to innovate, saddled with rigid banking regulations, a conservative financial sector and large portions of the population still left out of the formal economy.
That’s all changing: Now, fintechs are connecting the (often) unbanked masses to the broader system while creating new products and services that broaden their choices for banking, investment and payment.
Uala, an Argentine company whose name sounds like the French “voila,” started with the principal that everyone should have a digital account and a payment method. Now, the company has 3 million users of its prepaid Mastercard and is expanding into Mexico, another significant economy with a large unbanked population.
Founder Pierpaolo Barbieri, a historian by training who has written a book on the economics of Spanish colonialism in the region, got the idea for the company after his research revealed a problem many already had identified:
“We have great financial services if you have a lot of money and no financial services if you don’t have a lot of money,” Mr. Barbieri said of the region.
Uala’s idea is to use technology to reduce the costs associated with bringing people into the system in a way that banks with their “analog” business models were unable or unwilling to do before. By accepting anyone on its mobile platform, Uala allows people to build a credit history and, eventually, access investment markets, insurance products and loans.
“That can only start if we give everyone and an account and digitize these transactions,” Mr. Barbieri said.
Latin America, he added, is maturing as investors see the promise in the region reflected in the likes of Nubank, a Brazilian fintech that has netted a $30 billion valuation and Argentine e-commerce giant Mercado Libre, with its market capitalization on NASDAQ surpassing $80 billion. Even Southeast Asian ride-hailing startup Grab, with its $40 billion valuation, is showing the appetite for risk in markets not traditionally served by Western venture capital.
“What has come of age is the ability to see the potential outcomes that you used to see only in Europe and the United States in other geographies,” Mr. Barbieri said.
Founded in 2012, Brazil-based Creditas also capitalized on banks’ hesitancy to branch out from their traditional business models. Because Brazil’s banks were so conservative, they were insulated from the effects of the 2008 financial crisis, but they were also holding back an opportunity to unleash the productivity of the private sector.
“Credit in Brazil is not something people see, like in the U.S., as leverage to grow; it’s just something you take when you can’t pay your bill,” said Luana Bichuetti, vice president of the auto business, who also spoke during the World Stage focus on Latin America.
The evidence: 60 recent of the U.S. real estate market is leveraged, as opposed to 6 percent in Brazil, meaning that 94 percent of money tied up in Brazilian homes could be used to invest, she said.
Creditas started as a way for customers to compare interest rates from various banks, but it eventually realized that it could help them unlock credit by accessing loans collateralized by their homes, cars and even salaries.
The company depended heavily on partner banks at first but built out its own tech stack during a period of fast growth, “developing the technology while we were flying the plane,” Ms. Bichuetti said. After raising $255 million in late 2020, the Sao Paulo-based company grew its workforce to more than 2,000.
Bogota, Colombia-based ADDI is offering a different type of credit, entering the “buy now, pay later” space, which enables the consumer to break up the cost of a purchase into payment installments, often without incurring interest. Sweden-based Klarna, Australia’s Afterpay and U.S.-based Affirm are among the largest players globally.
But ADDI co-founder Santiago Suarez says the practice is something that Latin Americans recognize and embrace. He remembers as child watching his father post-date 12 checks to make installment payments for a year.
“All we did was say, ‘OK, it’s time to update that to the digital world,’” he said in a conversation with investor Quona Capital during the conference.
In Latin America, credit card prevalence is below 25 percent, and many online transactions using credit cards end up with the method being declined for technical or financial reasons. For merchants, settlement can take days. That’s why merchants and consumers alike — the parties he wants to unite for a frictionless transaction — are embracing “probably one of the true new ways to pay since the advent of the credit card networks.”
The transformation was aided by a five-month COVID-19 lockdown, which forced people in Colombia’s “low-trust society” to buy online. Mr. Suarez saw his platform’s origination volumes plummet in the pandemic’s early days, but slowly things picked back up, with many transactions starting to occur on mobile devices. ADDI recently raised $65 million in debt and equity financing to power its expansion, which includes tackling the much-larger Brazilian market.
Waiting there is Zoop, a Brazilian company that helped pioneer the “fintech-as-a-service” model embraced by companies like Plaid in the U.S.
“We joke that we were that even before there was a name for it,” said Dan Faccio, chief financial officer, said during a Fintech South interview with Talle’s Bianca Lopes.
Zoop’s platform, part of a move toward “embedded banking,” allows companies to offer financial services without duplicating the work of building payments rails and handling compliance issues. One of its major clients is iFood, the country’s largest food-delivery platform, which offers bank-like services and point-of-sale terminals for restaurants using Zoop’s technology.
Beyond markets, Zoop also empowers ERP software systems to offer fintech services to the pool of clients they serve, Mr. Faccio said, using those focused on hair salons as a prime example. While a community bank may not have the scale to deal with the complexities of that particular segment — collecting payments, mananging cashflow, receiving tips — the ERP system can use Zoop’s scale to offer its users a tailored solution.
Brazilian central bank’s has been moving to reform a formerly closed-off and “oligopolistic” banking sector, boost privacy, empower consumers and foster competition. Handling the back-end fintech issues enables clients to utilize their unique knowledge of the customer to offer financial services without engaging a traditional banking intermediary.
Expense management platform Jeeves is also in a similar business of removing complexity. The company has created a single platform allowing companies to manage corporate spend across multiple Latin American jurisdictions. To start, that’s taking the form of a Mastercard that can be paid back in local currency, but founder Dileep Thazhmon sees it more broadly as a “financial stack” for companies growing globally. Jeeves builds on and integrates with the payments and financial infrastructure in each respective country, while clients interface only with the Jeeves app.
Mexico, where Jeeves started, and Latin America more broadly are at an “inflection point”in their startup ecosystems at a time when people are entering the formalized economy and joining the digital world.
“You actually have second-time, second-generation founders now, which you didn’t have in the ‘80s and ‘90s, and they’re just much more risk-tolerant,” Mr. Thazhmon said. “That is the lifeblood of what’s pumping out these amazing companies coming out of LATAM.”
And that is attracting funders: “The capital coming into the market is just a massive, exponential scale than just even two years ago,” he said. Jeeves is a testament, as the company announced $131 million in debt ($100 million) and equity ($31 million) financing from Andressen-Horowitz and other investors just weeks before Fintech South.
For Atlanta, the followup question will be whether firms here integrate further with a region where the city has deep access and connections, in an industry where it has some indisputable advantages.
To watch all content from Fintech South, including World Stage talks from Latin America, Asia, Europe and beyond, click here.