Por: Danny Eisgruber
During the final week of September, part of our team joined other leaders, entrepreneurs, and investors from across the Latin American financial industry as they gathered in Mexico City at Finnosummit – one of the largest fintech conferences in the region. With over 1700 attendees from 26 countries, the event was a great showcase for the fintech industry both here in Mexico and across LATAM. The presence of attendees ranging from leading unicorn founders to emerging disruptors and everything in between made it clear: the LATAM fintech ecosystem is thriving. We could not be more thrilled to be a part of this vibrant community.
Over the course of two days of meaningful conversations with industry trailblazers on the trends and challenges that face the industry in 2023, a few key trends emerged:
Fintech companies take on some of Latin America’s most challenging problems
Underlying all of Finnosummit’s discussions was the shared understanding of the importance of the work we do. Financial inclusion is essential to accessing economic opportunities, expanding purchase power, and building personal financial security. Latin American access to services that enable these outcomes has greatly expanded during the last 5+ years and bank account penetration has increased from 55% to 74%1 since 2017 – largely thanks to the work of digital banking startups like NuBank. However, Mexico lags behind much of the region with a penetration of just 49%2 – emphasizing the opportunity for more local innovation to bridge the gap in access in the coming years. Credit access, meanwhile, is still limited regionwide as only 58%3 of Latin Americans have access to a credit card (33%2 in Mexico) and just 30%3 have access to loans, insurance, or investment products.
One trend that has helped to curb these disparities has been the proliferation of digital money. Both government initiatives like Pix in Brazil and private innovations like MercadoPago have allowed more Latin Americans than ever to formalize their labor and build a paper trail needed to access credit. However, while growing, digitization of money is still not widespread in all parts of the region and 85%4 of transactions in Mexico still take place with cash.
All this means that while we’ve already come a long way, there’s still a need for more entrepreneurs to bring new solutions that improve financial inclusion. We’re proud to be working with several exciting companies taking on these challenges. One of these companies is Duppla, which creatively democratizes home ownership and takes on the lack of mortgage access in the region through a rent-to-own fractionated home ownership model that allows their customers to build equity while they pay off their homes. Investing in these projects enables us to play a role in closing the gaps in financial access that exist across our region.
AI opens exciting new possibilities for innovation in the industry
Incredibly, ChatGPT hasn’t even been out for a full year. Yet, in the short time since its release, AI-based startups have exploded across the entrepreneurship space – both in Latin America and globally. Fintech is no exception to this trend, and artificial intelligence’s exciting potential applications in the sector were a frequent topic of conversation at Finnosummit.
Like in many other industries, AI offers the opportunity to close labor shortages in fintech in areas like customer service by providing chatbots that quickly answer customers’ frequently asked questions. These chatbots are also being used by some startups to provide ongoing investment guidance – helping to close the gap in investment access and enable individuals to build personal wealth.
Beyond chatbots, fintech players are also starting to use AI to build better predictive models using alternative sources of data. This innovation allows companies to approve more new customers, more reliably identify fraud, and proactively intervene before customers cancel their service. Excitingly, it also offers the potential to acquire non-traditional customers who may not have a strong credit score by correlating other elements of their purchase history to responsible financial behavior – helping to expand access to financial products.
Over the past year, we’ve had conversations with numerous entrepreneurs building disruptive projects using AI. These meetings have led to us making several investments in the space – most recently with Auba, a supply chain company that uses artificial intelligence to detect and proactively avoid delays and disruptions before they have a financial impact. We look forward to continuing building relationships with entrepreneurs using the technology and to exploring the new applications in the fintech sector discussed during the Finnosummit conference.
Embedded finances reach new audiences and solve specific problems
Many of Finnosummit’s presentations focused on the trend of financial services being integrated within non-financial offerings. Fintechs are increasingly using this technique to reach underserved populations and better provide consumers with targeted solutions that are easier to access than traditional banking. For example, in Mexico, Didi can be used not only to order a ride or food delivery, but also to obtain a loan – making it a go-to solution for everyday problems for many Mexicans. These services can also be used to solve specialized, industry-specific problems in certain verticals such as accessing money earned in the gig economy by streaming video games or driving for rideshare companies.
We were early believers in the value of this trend when we invested in Mox in the first half of 2022, a payroll connectivity API that enables companies to offer payroll-linked financial services such as personalized life and savings plans, paycheck-linked loans, and earned wage access, among other capabilities. These services enable companies’ employees to access capital as they need it directly through their payroll provider. Innovations like this one will enable more Latin Americans without traditional banking connections to find accessible solutions to their financial needs.
Resilient entrepreneurs will survive
It’s no secret that the investment climate has cooled down since the boom of 2021, and Finnosummit was not oblivious to that shift. Capital is now much harder to acquire and some startups will struggle to continue operations. However, the heavy investment period also brought some lasting positive effects as new investors both within the region and from foreign markets now have Latin American operations that previously didn’t exist. These funds will provide new avenues for innovative companies to pursue funding to bring their ideas to life for years to come. Leading investors and entrepreneurs alike expressed confidence during the event that projects with sustainable business models backed by resilient entrepreneurs will continue to have success even in this more challenging environment.
As a founders’ fund, this dynamic is something we’re intimately familiar with. We know the extreme challenges, peaks, and troughs that come with disrupting the status quo by building from the ground up. That’s why our philosophy has always been to invest in founders and not projects. We know that only the smartest, most resilient entrepreneurs will find success and we are proud to invest in some of the strongest innovators across our region.
Latin America is poised for success
If the hundreds of entrepreneurs, investors, and business leaders at Finnosummit could agree on just one thing it was that Latin America is ready to thrive. While the challenges related to financial inclusion in the region might be great, that only means the opportunity for disruptive innovation is even greater. Latin America already has some of the most skilled entrepreneurs in the world working to solve its problems, and its young demographics mean that it will have even more talented innovators disrupting the status quo in the years ahead. The next few years will be an exciting time of development for our region, and we’re excited to be empowering entrepreneurs to bring their ambitious dreams to life.
More than ever, there is no time like today for innovation in LATAM.
Footnotes
1: Atlantico
2: Encuesta Nacional de Inclusión Financiera
3: Mastercard
4: Bloomberg
