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Latin America - FinTech's real-life sandbox

Latin America is said to be the underdog of the FinTech Ecosystem, however that might not be true for very long. Within the last couple of years the FinTech industry has exploded in countries like Brazil, Colombia and Ecuador. The FinTech start-ups in those countries have created major transformations in the daily lives of their people, governments, and economies as a whole. One trend that will emerge in 2017 worldwide is the real-life application of FinTech technologies. Latin America, through its economic ups and downs, strictly regulated and completely deregulated markets, and thirst for innovation, has been the real-life sandbox for FinTech.

The current FinTech landscape in Latin America varies by country; however, some major obstacles can be seen in every region. The main obstacles are: the advancement of technology, accessible data / information, and capital / investments. The financial sector in Latin America is going mobile but not at the same pace as other regions of the world. A BSLatAm survey showed that 52% of adults in Latin America have at least one bank account, while over 65% are smartphone users. Unfortunately, a technology hurdle still exists in the connectivity of being able to use smartphones to their full potential. A GSMA study estimates that by 2020 Latin America will only have 80% of its smartphone users connected to 3G. Strict government regulation exists in some LatAm countries making it hard for FinTech businesses to get the data they need. Open information or open flow of data from governments and financial institutions alike is needed to increase the efficiency and impact of FinTech start-ups. Venture capital, bank investments, and bank loans are still really low for all of Latin America. Latin American big banks understand they need to innovate, but are still fearful of the FinTech industry.

Traditional banking has ended up excluding the low income homes and companies. The movement for financial inclusion for both poorer families and small businesses is what is inspiring FinTech start-ups throughout Latin America. FinTechs are beginning to design more affordable products to include the unbanked. Brazil and Colombia, both considered to be power-houses for FinTech in Latin America, have the lead in the number of FinTech start-ups, with Brazil at over 200 and Colombia at over 70. Both countries understand the importance of satisfying the unbanked clientele and therefore have the biggest FinTech segments in payments, remittances and lending. Micro lending, or lending to SMEs is particularity increasing in Colombia and financial management is trending in Brazil.

Colombia: a campaign for “digital life”

The rise of FinTech in Colombia comes from the help of key players including foreign banks and the government. The Spanish BBVA Bank, for instance, is the most active in promoting innovation and its importance. It has created one of the largest innovation centres in Bogota to encourage the development of FinTech. Moreover, it hosts an annual open talent conference looking at new innovative projects and emerging FinTech trends. In 2015, Colombia represented 57 out of 196 participants in the BBVA Bank Annual Conference. Another bank that is trying to make headway in LatAm FinTech is the Canadian bank, Scotiabank. In an article for Finextra, the bank states that it is focusing its FinTech efforts on the Pacific Alliance countries (Colombia, Mexico, Chile, & Peru). Teamed up with QED Investors the bank plans on assisting FinTech start-ups with capital and industry expertise.

Understanding the significance of digitization, the Colombian government has even created a new campaign, “Vive Digital”, to help low income households access the internet. As part of Vive Digital, multiple programs like App.co and Computadores Para Educar have been created which donate computers to educational sites and even teach people how to code. The government’s expansion of the information and communication technologies sector will help close the gap of the financial exclusion. As of the start of 2016, according to the Colombian Banking Association, over 35% of the Colombian population remained unbanked. Both the banks and the government understand that working together to help the FinTech and digital movement is the only way to lower that number.

Brazil: FinTech hubs for the greater cause

The FinTech landscape in Brazil is one that mirrors Colombia; FinTech hubs and organizations are being created for the greater cause of helping start-ups thrive. Started in October of 2016, ABFintech (The Brazilian Association of FinTechs), comprised of 6 top FinTech executives was formed to transform and mentor the FinTech ecosystem in Brazil. The association has three main goals in assisting FinTechs: generate business, help start-ups deal with regulators, and encourage social impact. The FinTech movement in Brazil is also being driven by the unbanked, which to date as reported in a BCtA Case Study is 40% of the population. That ratio, along with the fact that in 2015 over 282 million mobile phones were activated, showcases that the current FinTech movement for financial inclusion is going to make a huge impact on the financial and social landscape in Brazil.

Ecuador: economic turbulence doesn’t halt innovation

Overall, the FinTech industry has the potential to transform the way people interact with the financial industry, the way they do business, and above all their lives. Diego Martinez, Director at Banco Central in Ecuador, was quoted in an article by El Universo, “The majority of citizens have a cell phone but have no accounts open in a financial institution”. Ecuador is one of the prime examples of the FinTech real-life application trend. Given its economic crisis and the instability of its currency, in 2010 the Ecuadorian government decided to try and stabilize its situation by creating a digital currency. With the popularity of bitcoin and other cryptocurrencies, the central bank of Ecuador decided that the best way to stabilize the economy is the social and financial inclusion of the unbanked population. The digital currency released in 2015 is still in its initial stages, however as of August 8th 2016, Banco Central has opened over 130,000 digital accounts, accounting for over $1.5 million in transactions. Although, Bitcoin and other cryptocurrencies are banned in Ecuador, without their infrastructure being in place the realization of the Ecuadorian digital currency would have never happened. Thanks to the innovative ideas of FinTech, economically turbulent countries like Ecuador can finally begin to balance out their economic systems as well as their unbanked population.

In conclusion, FinTech in Latin America is here to stay. The FinTech industry is a means to end the social and financial segregation of the Latin American population. As technology advances, so does the betterment of the lives of Latinos. As governments and big banks continue to assist FinTech start-ups, more affordable financial products are offered to everyday consumers and businesses. The inclusion and advancement of the Latin American people is what drives the current FinTech movement. This will only continue through the means of FinTech organizations and centres where innovation can be encouraged and thrive. Becoming even more mobile will help expand the movement to other Latin American countries inspiring them to join the movement and not fear the FinTech disruption.

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