Last holiday season, my family and I visited a local ice cream store in a rural town in Colombia and were offered the option to pay with a direct bank transfer on my Bancolombia app. When living in Brazil this month, the only way to pay for my building’s laundry was with the Brazilian Pix app, an instant payment system created by the Central Bank of Brazil. I found myself in a world of shiny new fintech embedded in my daily life. While it may have only meant tiny moments of awe and wonder for me, for businesses and communities across Latin America, fintech has brought a historic shift in access and socioeconomic development. Over the past ten years, LatAm fintech startups have dominated over big banks, filled institutional voids, and changed the culture of an entire continent.

A new era of finance in Latin America

Fintech innovation across Latin America, especially Brazil, Mexico, and Colombia, has impacted all sectors of society, from rural and unbanked populations to small and medium-sized businesses (SMBs). If you are Latino or have Latino friends, you know we have trust issues, and yet 43% of adults in Brazil and 17% in Mexico use a digital only bank account, according to a 2022 survey. Fintech startups are serving communities that have historically been frustrated by the corruption and lack of transparency in their institutions.

 In the early 2000s, financial services in Latin America were still dominated by traditional banks and largely inaccessible. Since then, fintech startups have increasingly disrupted the industry across sectors like payments and remittances, lending, and business technology for financial institutions. The COVID-19 pandemic accelerated digitization, offering startups a chance to scale digital services to the vast underbanked population of Latin America. As of today, the number of fintech ventures in Latin America and the Caribbean has almost quadrupled, reaching 2,482 in the past four years, which means there are now more fintech ventures than there are McDonald’s in these regions.

The long-term effects of digital fintech innovation could be huge. From 2009 to 2022, the percentage of Brazilian individuals with access to banking services has increased from 57% to 86%, and the long-term impact of this is starting to be seen. Research conducted in 2021 found that the expansion of financial access and capital deepening in Brazil led to a permanent increase in economic development, especially in regions that were previously banking deserts. Combined with the right policies, this decade’s fintech revolution has the potential to uplift Latin America’s most vulnerable populations, contribute to a flourishing economy, and spark fintech innovation around the world.

The prime environment

Latin America has become the fintech capital of the world due to factors like its digitally savvy consumers, supportive government policies, and strong need among underbanked and unbanked populations, and we’re currently at an inflection point in its evolution. In the coming years we could see continent-wide fintech expansion, increasingly innovative and embedded financial solutions, and even more financial inclusion.

Countries like Mexico and Brazil have paved the way for other countries to follow in their regulatory footsteps— regulation here meaning a green light for startups. A critical component is open banking, which enables collaboration between financial institutions and startups. Mexico was the first country to provide open banking with its Fintech Law of 2018, requiring financial entities to share data with third parties through APIs. Policies like these have allowed startups to scale without having to establish partnerships with financial institutions. In Brazil, data-sharing licensing will soon include foreign exchange, insurance, pension funds, and more, opening doors for a whole host of new innovations. For anyone waiting for the next fintech regulatory change to drop, the Inter-American Development Bank has a country-specific regulation tracker for Latin America and the Caribbean.

The proliferation of fintech startups across the continent has done more than just turn “LatAm Fintech” into a buzzword in the startup world. It’s fostered an ecosystem for accelerated innovation. Startups across LatAm are building out the infrastructure for various digital financial services and offering APIs for every level of the fintech stack, from data to bank integrations, providing a plug and play experience for entrepreneurs in the region. For example, startups that want to offer financing to small businesses can simply use R2’s embedded lending. Rappi, LatAm’s super app providing on-demand delivery and more, uses R2 to finance the businesses on its platform. Startups like Prometeo and Stark Bank offer APIs for digital money transfers, automated payments between financial institutions, and bank management. There’s even a startup, Pomelo, that provides APIs to launch and scale your own LatAm fintech product. Developments in infrastructure beyond open banking are laying down high-speed rails for startups in Latin America.

Another effect of the fintech revolution has been a dramatic increase in talent excited to execute on fintech innovation. “LatAm is not on an island anymore. There is an influx of global talent headed to the region to innovate,” according to Manuel Silva, head of investments at Santander Innoventures. In addition to significant brain gain, extremely skilled operators in the region are moving from later stage fintech startups into founding roles or early-stage startups. Unicorns such as Creditas, Konfio, and Nubank are producing their own “mafias” that are moving on to continue spearheading innovation in LatAm.

Innovation in finance

Fintech in Latin America has built a fascinating financial fabric of society. In emerging markets around the world today, technological innovation is building tools from the ground up and filling digitization gaps, as opposed to in developed countries where many industries rely on incumbent legacy systems that are more resistant to change. This has resulted in responsive, seamless digital services and widespread innovative financial structures.

Blockchain and crypto, for example, has blossomed in Latin America, rising as a response to corruption and unstable currencies. LatAm startups are helping lead the way for blockchain and crypto use cases around the world, which makes sense: it’s easier to iterate in a region where adoption is becoming the default. Latin America’s remote workers prefer to be paid in cryptocurrency, its gamers rank in the top 5 for play-to-earn blockchain games, and its consumers unwaveringly believe in stablecoins. 

Crypto exchange platforms are a prime example of the resulting LatAm-led innovation in the sector. Ripio, which provides electronic payment solutions for businesses, created the Ripio Credit Network, matching lenders and borrowers around the world through ethereum smart contracts, and is now expanding its core operations to the US. In the sector of cross-border payments and remittances, Mexico-based crypto exchange Bitso shines, with $1 billion handled in crypto remittances between Mexico and the U.S. in 2022. Both Ripio and Bitso are growing and innovating, including with recently launched tools such as crypto debit cards and QR crypto payments.

LatAm fintech is not only providing communities with more stable assets, but it is also facilitating the flow of capital, democratizing financial services historically reserved for higher socioeconomic classes, and disrupting industries such as insurance, payroll, and lending at an unprecedented rate. One of the innovation trends is more holistic financial products that promote long-term improvement in wellbeing. Betterfly, a Chilean unicorn, incentivizes healthy habits among employees, such as walking or meditation, and provides rewards such as growing life insurance. Quansa (where I got to work recently!) empowers workers financially by offering no-interest salary advances along with financial health tools. 

In addition to benefits for workers, startups are also providing more holistic financial services to SMBs. Kredito uses AI and alternative data to provide more inclusive credit to SMBs and combines their financial products with optimal customer service, which is lacking among traditional banks. Startups across Latin America are crafting brilliant win-win solutions that benefit all: consumers, businesses, investors, and financial institutions, in the long-term.

What’s next

A vast majority of Latin America remains underbanked and more than half of sale purchases are still made in cash, so financial innovation across the continent still has a long way to go. However, the population is increasingly prepared to adopt fintech services like mobile banking and digital payments. The Association for Private Capital Investment in Latin America (LAVCA) predicts that 76% of the region’s population will be smartphone owners by 2025. Fintech mobile app usage could soon compete with my extended family’s use of Whatsapp group chats. With these regional trends, entrepreneurs have a unique opportunity to both build the region’s next unicorns and financially uplift its underserved businesses and communities.

While fintech can be a powerful tool for increasing financial inclusion, it isn’t a silver bullet, and there are various challenges facing entrepreneurs, policymakers, and other stakeholders in the field. For example, while the loosening of regulation can accelerate innovation, it also poses more risk to consumers, such as in cases of potential fraud and data breaches. In the first half of 2020, Latin America recorded the world’s highest cyber-attack rates, especially through mobile browsers. Additionally, a shift to digital services and away from physical branches of financial services requires an increase in investment in tech accessibility and internet infrastructure. Fintech startups also face operational risks and ethical responsibilities that come with providing financial services such as loans and assets. Disruptive technology inevitably brings risk and calls for continued collaboration between the for-profit and non-profit sectors.

Latin American fintech isn’t happening in a vacuum, and it will continue impacting the world by  pushing innovation forward and leading by example. In Mexico, Uber recently partnered with BBVA bank to allow drivers to open and use a digital bank account directly on the Uber app, and there’s nothing stopping BBVA or other global companies and banks from enabling these changes in more countries. Startups and companies adopting embedded finance will be able to bring fintech solutions to communities in even more ways on the day-to-day. After all, “every company will be a fintech company,” asserted by folks like a16z’s Angela Strange and Plaid co-founder Alex Willhelm. Whether true or not, Latin American fintech has shown the world how to empower an entire generation of unbanked people. 

My love for Latin America has always been rooted in the warmth of its people, the lushness of its landscapes, and the smells of my grandma’s cooking. Now, it is combined with a growing fascination and excitement. Some of the world’s brightest operators and investors are all joining forces in Latin America to build a new world of finance. It’s a historical moment to watch, and to join.