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Interviews

Where is Latin America's fintech at? – interview with Finnovista

Wednesday 5 December 2018 | 09:33 AM CET

Andres Fontao, Co-founder and Managing Partner of Finnovista, makes an in-depth analysis of the current state of Latin America’s fintech ecosystem

Could you share with our readers your background and the reason why you have founded Finnovista?

The organisation was founded more than five years ago by myself and another co-founder, Fermin Bueno. We have a mixed background – we both spent time in the telecommunications industry and more recently I was working in financial services, whereas Fermin was working in venture capital. We were both living in Spain at that time, and we were really convinced that the mix of entrepreneurship and technology could have a disruptive effect on the financial services industry. So we founded Finnovista as a collaborative platform to empower and connect fintech and insurtech entrepreneurs with the industry. We accelerate, scale and build new business through startup-corporate collaboration in the financial services and insurance industries.

Our platform also includes conferences; we run the largest fintech conference in Latin America called FINNOSUMMIT, we organise hackathons, we design and implement startups competitions, and we also partner with large corporates like Visa or Scotiabank to help them run their fintech competitions in the geographies where we operate. And we have a dedicated fintech co-creation space in Mexico City, we are currently running two startup support programmes under the Startupbootcamp brand, Startupbootcamp Fintech Mexico City and Startupbootcamp Fintech Scale.

Through all these activities, we aim to build bridges between the financial services and insurance industries and the fintech and insurtech startups, with the vision of transforming these industries at the intersection of entrepreneurship, technology and innovation. Through this platform, we want to eliminate frictions, so that startups and corporates can successfully collaborate.

How would you describe the fintech ecosystem in Latin America? What factors are constraining the growth of the fintech in Latin America?

Latin America fintech ecosystem is definitely at an immature level of sophistication. If we were to compare it to the likes of UK, or China, or even the US, the number of fintech startups, the number of funding, the sophistication of fintech regulation, the openness and collaborative nature of financial institution players – there’re all behind the levels of maturity and development that we are accustomed to seeing in Asia, Europe and the US.

It is a very unique ecosystem, and, considering that more of 50% of the population today does not have access to formal financial services, there are plenty of opportunities in the region for fintechs to truly disrupt and transform financial services. What we’re now seeing is tremendous growth, and this can be measured in different factors: the number of fintech startups is growing significantly, we’ve going from approximately 700 fintech startups in 2017 to more than 1100 at this point. Venture capital investment in fintech is growing significantly as well; fintech represents the largest segment of venture capital investment in the region, by far larger than any other opportunity, and we’re seeing a serious and quick advancement in regulation. Mexico, this year, approved the first of its kind fintech regulation; there’s now a framework in Mexico under which fintech startups can operate, which brings certainty to the market. The Fintech Law, as it’s commonly referred to in Mexico, is based on the UK law and has four important elements:

  1. Open banking and API standards for all financial institutions

  2. Introduction of regulatory sandboxes for early stage fintechs

  3. Cryptocurrency regulation

  4. Crowdfunding and electronic payment licenses

No doubt, there’s still a lot of work that needs to be done in the region. The three drivers that will help thrive maturity and development faster: one has to do with regulation - we still need other markets to follow Mexico’s lead and adopt forward-thinking regulatory frameworks that will bring certainty to the market. Also, we still need to see a significant increase in the amounts of venture capital that is now being poured into the fintechs, to help them both survive the early stages of development, and then help them scale their businesses, to capture the opportunities that exist in the market. Thus regulation is a barrier today and that needs to be worked on, while investment is another. Talent is important as well, and we are looking for ways to develop and attract the right talent to the fintech ecosystem.

How are banks in Latin America responding and collaborating with fintech?

Banks are definitely opening up to collaboration, with Scotiabank being one player that is differentiating itself from the pack. For example, they’ve partnered with QED Investors to they invest in Fintech startups across the region. Beyond their relationship with QED Investors, Scotiabank has a holistic approach supporting and partnering with fintechs across the spectrum of maturity through early stage partnerships, later stage investments and building their own innovative products and services through their Digital Factories in Mexico, Chile, Colombia and Peru.

BBVA, the Spain-based banking group, is at the forefront as well, particularly in Mexico. And, when it comes to local players in Mexico, the two that stand out are the Monterrey-based BanRegio - a Mexican retail bank – and Gentera, the largest micro-finance institution in Latin America. They both have their own innovation units through which they invest in startups, they build their own startups internally, and they also run pilots and proof of concepts with startups through accelerators like Startupbootcamp.

These collaborations are mainly focused on technologies that banks can leverage in order to improve their business models, such as artificial intelligence, big data and blockchain. Furthermore, we’re seeing a strong interest from the banks on technologies that have to do with cybersecurity, risk fraud and digital identity.

Moreover, we’re seeing the Chinese players taking note of Latin America’s growing fintech market and capitalizing on opportunities to help the region develop. We’ve already seen some Asian players coming over to the market: in March 2018, Alipay forged a partnership with BBVA`s OpenPay, a payment service provider that facilitates ecommerce, including on mobile devices, for large businesses and SMEs. The deal means Chinese tourists and visitors to Mexico can now pay for things using the Alipay platform. Most recently, Brazilian fintech Nubank has announced a strategic partnership with Tencent as part of a plan to further develop its footprint in the local financial services industry.

We can expect, therefore, to see a ramped up presence of Chinese fintech players in Latin America leading to more partnerships and investments, and potentially acquisitions.

What sectors are particularly susceptible to disruption in Latin America?

Latin America is fast becoming one of the most fertile grounds for fintech, with payments, lending, and digital banking as sectors particularly susceptible to disruption.

When it comes to lending and online digital lenders (whether its balance sheet lending or peer-to-peer lending marketplaces), there is huge credit demand in Latin America, both from individuals as well as SMEs, which makes the region a hot bed for alternative lending innovation.

In Brazil, we see players such as Creditas, a digital lending platform focused on secured lending, in Mexico we have players like Konfio, Kueski, and regional players like Afluenta, a peer-to-peer marketplace. What`s more, we’re seeing a lot of activity on the SME lending front, factoring in accounts payable marketplaces, such as Konsigue and Factudero.

Interestingly, according to one of our surveys, more than 40% of the startups in the region are addressing financial inclusion, due to almost half of LATAM's population being unbanked. Among startups addressing financial inclusion are Aflore in Colombia, Lendo EFL in Peru, Kubo.financiero, Konfio and Kueski in Mexico, Creditas and GuiaBolso in Brazil, and Afluenta in Argentina.

Furthermore, digital banking, specifically neobanks, are now gaining attention across the region. These mobile banks do not have branch-based distribution models and offer more services than traditional banks. Latin American neobank startups, such as Nubank, are receiving significant foreign investment as they strive to serve the millions of unbanked consumers across Argentina, Brazil, and Mexico, respectively.

On the payments side, as commerce is being digitized and technology is allowed for money to be digitalized as well, we’re seeing a high opportunity for payments players, whether they be wallets or offering peer-to-peer solutions, or payment aggregators working in the electronic ecommerce space. Payment gateway Conekta (similar to Stripe) and Clip (an app that allows any merchant or person to accept all payment methods) are being successful in the deployment of their products in the region. Moreover, In Mexico we see propositions coming from Payit and Swap (P2P payment apps to send money to anyone on your contact list, any bank account and any debit card number), and mobile wallet solutions coming from startups like Pagamobil or UnDosTres.

Your events cover the digital transformation of financial services. What are the key takeaways after 2018’s events and what can we look forward to for 2019?

As mentioned, we expect to see a ramped up presence of Chinese fintech players in Latin America leading to more partnerships and investments. Also, we’re going to see an explosion of digital banks in Latin America, starting with Mexico – there’s a very significant opportunity there that no one has tapped into yet. Lastly, we are expecting to see more consolidation on the lending front.

About Andres Fontao

Andres Fontao is Co-founder and Managing Partner of Finnovista, an organization that promotes the development of Fintech entrepreneurship in Latin America and Spain, building bridges between startups and corporates in the Financial Services industry. Furthermore, Finnovista designs and executes Fintech startup acceleration and scaling programs, such as Startupbootcamp FinTech. Prior to starting Finnovista, Andres spent time with a Silicon Valley-based Fintech startup leading expansion into Europe and LATAM. Before that, he was head of mobile banking at Bankinter. Andres has also worked as a strategy consultant to mobile operators in Europe and Mexico. Andres holds a BA from Middlebury College in Vermont (USA) and MBA from IE Business School in Madrid.

About Finnovista

Finnovista is an impact organisation that empowers Fintech ecosystems in Latin America and Spain through a collaborative Fintech platform that encompasses acceleration and scale programs, conferences, hackathons, research, competitions and a dedicated Fintech co-creation space. At Finnovista we build bridges between financial institutions and Fintech startups with the vision of transforming finance for a better world at the intersection of entrepreneurship, technology and innovation.

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