FintechinLatinAmericaandtheCaribbean-Introduction3JELclassifications:O33,G2,G21,G32,G38,P43Keywords:fintech,bigtech,entrepreneurship,LatinAmerica,Caribbean,gender,financialregulation,financialinclusion,digitalpayments,crowdfunding,digitalbanking,financemanagement,creditscoring,regulatorysandbox,innovationhub.Copyright?2022Inter-AmericanDevelopmentBank.ThisworkislicensedunderaCreativeCommonsIGO3.0Attribution-NonCommercial-NoDerivatives(CC-IGOBY-NC-ND3.0IGO)license(/licenses/by-nc-nd/3.0/igo/legalcode)andmaybereproducedwithattributiontotheIDBandforanynon-commercialpurpose.Noderivativeworkisallowed.AnydisputerelatedtotheuseoftheworksoftheIDBthatcannotbesettledamicablyshallbesubmittedtoarbitrationpursuanttotheUNCITRALrules.TheuseoftheIDB’snameforanypurposeotherthanforattribution,andtheuseoftheIDB’slogoshallbesubjecttoaseparatewrittenlicenseagreementbetweentheIDBandtheuserandisnotauthorizedaspartofthisCC-IGOlicense.Notethatthelinkprovidedaboveincludesadditionaltermsandconditionsofthelicense.TheopinionsexpressedinthispublicationarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheInter-AmericanDevelopmentBank,itsBoardofDirectors,orthecountriestheyrepresent.Inter-AmericanDevelopmentBank1300NewYorkAvenue,N.W.Washington,D.C.20577TheInstitutionsforDevelopmentSectorwasresponsiblefortheproductionofthispublication.Externalvendors:ProductionEditor:SarahSchineller(A&SInformationPartners,LLC)Editor:AmyScott(NomadEnterprises,LLC)Design:AgenciaFelicidad4Contents5Foreword,IDB7Foreword,Finnovista8Summary9RecognitionandAuthors10Introduction12Chapter1:OverviewoftheLatinAmericanandCaribbeanFintechEcosystem13?GeographicalDistributionandMainMarkets20?MainSegments39?Maturity,Internationalization,andChallenges48?Cybersecurity51Chapter2:InvestmentintheLatinAmericanandCaribbeanFintechSector55Financing63?InvestmentOpportunities64Chapter3:TheRiseofDigitalBankinginLatinAmericaandtheCaribbean66?EvolutionandCharacteristics70?MarketNiches76Chapter4:FintechandFinancialInclusioninLatinAmericaandtheCaribbean78?FinancialInclusionFintechStartups79?GeographicalDistributionandFinancialInclusionFintechSolutions88Chapter5:TheGrowingRoleofWomenintheFintechSectorintheRegion90?Women’sParticipationintheFintechEcosystem92?InvestinginWomen-LedFintechVentures96?WomenintheFintechWorkforce98?WomenasUsersofFintechServices105Chapter6:TheCompetitiveEnvironmentoftheFintechSectorinLatinAmericaandtheCaribbean107?TheRelationshipbetweenFintechCompaniesandFinancialInstitutionsandItsEvolution109?MergersandAcquisitions112?BigtechinFinancialServices115Chapter7:Insurtech:InsuranceInnovationinLatinAmericaandtheCaribbean117?InsuranceInnovation118?MarketNichesandTechnologiesUsed127Chapter8:FirstAnalysisandThermometerofRegulationoftheFintechSectorintheRegion130?RegulatoryEnvironmentforSelectedVerticals142?PerceptionoftheRegulatoryEnvironment156?FintechAssociationsinLatinAmericaandtheCaribbean:Developments179Conclusions180References185Annex1:InvestmentHighlights2020–2021191Annex2:CollaboratingFintechPlatformsFintechFintechinLatinAmericaandtheCaribbean-IntroductionFintechinLatinAmericaandtheCaribbean-ForewordForeword,IDBLatinAmericaandthe TheLatinAmericaandtheCaribbeanhasgrown112%sincetheInter-AmericanDevelopmentBank(IDB)andFinnovistapublishedthepreviousversionofthesectoranalysisin2018.TheLatinAmericanandCaribbeanregionwentfromhaving1,166fintechplatformsto2,482injustoverthreeyears.ThegeographicconcentrationofplatformschangedlittlecomparedtothepreviouspublicationandcontinuestobeledbyBrazil(31%ofthetotal),followedbyMexico(21%),Colombia(11%),Argentina(11%),andChile(7%).Althoughthesegmentwiththehighestnumberofplatformscontinuestobepaymentsandremittances(drivenbyrecentregulatorydevelopmentsinBrazilandMexico),with25%ofthetotal,thelending(19%)andcrowdfunding(5.5%)verticalsarestartingtobecomerelevantintheregion.Businesstechnologysolutionsforfinancialinstitutions(15%)andenterprisefinancialmanagement(11%)follow.Somechangesintheparticipationofverticalsintheecosystemareexplainedbygrowthinthesegmentsofdigitalbanks(57%),businesstechnologysolutionsforfinancialinstitutions(49%),insurance(46%),andlending(45%),amongothers.Finally,intheperiodbetweenthepublicationofthepreviousreportandthisone,theregionfelttheeffectsoftheCOVID-19pandemic,whichincreasedthedigitalizationofmanyofsociety’sactivities.Thefinancialsectorwasnostrangertothistrendand,inthiscontext,thenumberoffintechplatformsintheregiongrewby35%between2020and2021.Thisgrowingsupplyhasbeenaccompaniedbyanincreaseincollaborationbetween“traditional”financialplatformsandinstitutionsandthegrowthandinternationalizationofdigitalbanks.Thesefactorsarebeginningtoblurthelinebetweennewplayersintheindustryandincumbents.Consistentwiththesedynamics,theregion’sfinancialauthoritieshaverespondedwithregulatoryinnovations.Implementingregulatorysandboxes(inBarbados,Brazil,Colombia,Jamaica,Mexico,Peru,andTrinidadandTobago)hasallowedthetestingand,insomecases,licensingoffinancialproducts.Inaddition,innovationhubshaveopenedupspacesfordialogueinArgentina,theBahamas,Brazil,Colombia,CostaRica,theDominicanRepublic,ElSalvador,andGuatemala.CrowdfundingregulationsappearedincountriessuchasBrazil,Colombia,andPeru.MexicoenacteditsFintechLaw,whileChilemovedforwardwithanambitiousFintechFintechinLatinAmericaandtheCaribbean-Introduction6FintechinLatinAmericaandtheCaribbean-Forewordbill.Manyofthesepublicpolicyreforms,aswellasthepublicationofthisstudy,weresupportedbyFintechLAC,1thefirstnetworkfortheLatinAmericanandCaribbeanfintechecosystem.Thisreportdetailstheregulatorychangesthathaveaccompaniedtheecosystem’sgrowth.Theregion’sfintechecosystemisdynamic,andthedatahelpillustratehowithaschanged.Thisdocumentseekstoprovideinformationtounderstandthestateofthissectorintheregion,thechallengesitfacesinacontextdefinedbythepandemic,andthenewdemandsofconsumersandbusinessesforbetterfinancialservices.Thereportalsohopestobeareferencetoinformpolicydecisions,notonlytoaddressrisksinherenttonewtechnologiesbutalsotopromotethebenefitsofinnovationandtechnology.TheIDBGroupiscommittedtopromotingthefintechecosystemandtheuseoftechnologyforgreaterfinancialinclusion,particularlyofcommonlyexcludedpopulationssuchaswomenandmicro-,small-,andmedium-sizedenterprises(MSMEs).TheseissuesarepartofVision2025,whichtheIDBGrouphassetasapathforthecomingyears.Implementingthisagendaisonlypossiblebypartneringwiththecountriesoftheregionandstrategicallies,asFintechLACdoes.OurclosecollaborationwithFinnovista,exemplifiedinthisthirdregionalpublicationonfintechinLatinAmerica,isjustoneexampleoftheseefforts.WehopethatthisstudywillservetopromoteanecosystemwherefintechcandevelopandrealizeitspotentialasameanstoimprovelivesinLatinAmericaandtheCaribbean.1Moreinformationat/en/sector/initiatives/digital-finance-innovation/fintech.FintechFintechinLatinAmericaandtheCaribbean-IntroductionFintechinLatinAmericaandtheCaribbean-ForewordForeword,Finnovistahisisthethirdregional TfintechreportforLatinAmericathatFinnovistahaspublishedwiththeInter-AmericanDevelopmentBank(IDB).InJanuary2020whenweembarkedongatheringdataonthemorethan2,000fintechplatformsoriginatingintheregion,therewasnowaytoforeseethatatriplecrisis—health,economic,andsocial—wouldsoonhittheworldandtheregion.However,eventhoughtheprospectsforrecoveryfromtheCOVID-19pandemicinLatinAmericaarenotyetapparent,thefintechsectoriscurrentlyexperiencingaphaseofexuberance.Thissentimentisreflectedintheinvestmentavailableforventures,whetherindebtorequity,whichhasfollowedanincreasingtrajectoryduringaperiodwherethevaluepropositionsofferedbyfintechventureshavebecomeevenmorerelevant.WhenwecreatedFinnovistain2013,wewereconvincedthattechnologicalentrepreneurshipcouldtransformfinancialservices.WealsofeltconfidentthatthecombinationwouldpositivelyimpactLatinAmerica’ssocialdevelopment,improvingfinancialinclusionintheregioninthemediumandlongterm.Thisbeliefisevenstrongertodayduetothevirtuesofferedbytechnologytobringfinancialservicestopeoplehistoricallyexcludedfromthefinancialsystemandthemillionsofpeoplewithbankaccountswhowereunabletoaccessthemduetotheconfinementmeasuresdecreedbyauthoritiesduringthepandemic.Alsobenefitingarethefintechplatformsthatspecializeinprovidingfinancialservicestothemillionsofsmall-andmedium-sizedenterprises(SMEs)thatinrecentyearshavefoundthemselvesinneedofdigitalizationtoensuretheirsurvival.Lastbutnotleast,thereisacropoffintechventuresfocusedonhelpingbothindividualsandSMEsdevelopthefinancialeducationandresiliencetheyneedtogetthroughthesemultiplecrises.Wearelivinginahistoricmoment.AtFinnovista,wearecommittedtomakingfintechakeypartoftheeconomic,social,andhealthrecoveryofallLatinAmericanandCaribbeancountries.Wehopethisreportwillbehelpfulforthedifferentplayersintheecosystemandavaluabletooltoacceleratetherecoverywesodesire.AndrésFontaoManagingPartnerFinnovistaFintechFintechinLatinAmericaandtheCaribbean-Introduction8FintechinLatinAmericaandtheCaribbean-SummarySummaryintechplatformsappear FtobeapotentialsolutiontothefinancialinclusiongapssufferedbybothenterprisesandindividualsinLatinAmericaandtheCaribbean.Whilefewoftheregion’sfintechstartupsscaleenoughtobesignificantandcompetewiththetraditionalfinancialsector,thisreportshowsthatthefintechsectorhasbeenestablishingitselftogrowandincreaseitsimpact.Thisdocumentshowsthatthesectorintheregioncomprises2,482fintechplatforms,equivalentto22.6%ofthetotalnumberoffintechfirmsworldwide.Theirgeographicaldistributioniscloselyrelatedtothesizeoftheeconomieswheretheyoperateandthecountries’levelofregulatoryadvancement.Asaresult,theregion’slargestnomiesBrazilandMexicoaccountformorethanhalfofthetotalnumberoffintechsinLatinAmericaandtheCaribbean.ThosecountriestogetherwithColombia,Argentina,andChileaccountfor80%oftheseplatformsintheregion.Thepaymentsandremittancesandlendingsegmentsoffintechremainthemostrelevantattheregionallevel,althoughemergingsegmentssuchasdigitalbanksandinsurance(insurtech)havebeengrowingdramatically.ThisreportbytheInter-AmericanDevelopmentBank(IDB)andFinnovistahighlightshowtheCOVID-19pandemic,whichledtoincreaseddigitalizationfortheregion’sinhabitants,endedupbenefitingtheadoptionandstrengtheningofbusinessmodelssuchasdigitalpayments.Inaddition,acompetitionanalysisshowsagrowingregionaltrendofcooperationwiththetraditionalfinancialsystem.Thisworkalsoshowshowfintechplatformsareapowerfultoolforfinancialinclusion,providingfinancingformicro-,small-,andmedium-sizedenterprises(MSMEs)orfacilitatingaccesstofinancialservicesformoreandmorewomen.Infact,thereporthighlightstheextenttowhichwomenownandinvestinbusinessesinthesector.Likewise,thedocumentliststheprimarypublicpolicychallengesovercomeintheregion,anaspectacceleratedbythepandemic.Forthefirsttime,thisworkbytheIDBandFinnovistaincludesasummaryoffintechregulationintheregionandshowstheadoptionofregulatoryinnovations,inparticulartheimplementationofinnovationhubsandregulatorysandboxes.Thatsection,whichisthefoundationforaspecificdocumentonthesubjectthatwillbepublishedsoon,isaccompaniedbyadigitaltoolthatwillallowthereadertolocatetheadvancesinregulatorymattersintheregion.ThisflagshipdocumentsummarizestheIDB’seffortsinthefintechecosysteminLatinAmericaandtheCaribbeanovernearlyadecade.TheseeffortsaremaderealwiththelaunchoftheFintechLACNetwork,thefirstpublic-privatenetworkofthefintechanddigitalfinancesectorinLatinAmericaandtheCaribbean,whichfinancesthiseffort.FintechinLatinAmericaandtheCaribbean-RecognitionandAuthors9RecognitionandAuthorshisdocumentwascreated Tthroughamultiyear,multidisciplinaryeffortentrustedtoandexecutedbytheInter-AmericanDevelopmentBank(IDB)withthecollaborationandcapacityofFinnovista.OnbehalfoftheIDB,thecoordinationandpartofthedraftingwascarriedoutbyGabrielaAndradeandDiegoHerrerafromtheConnectivity,Markets,andFinanceDivision.AnaMariaZárateMoreno,JaimeSarmiento,andSaharadelaTorrefromthesamedivisionsupportedthetext’sdraftingandconstruction.TheprojectteamappreciatesthelogisticalsupportofMildredRiveraandRominaNicarettaandthetechnicalreviewofPhilKeefer.TheyaregratefulfortheeditorialreviewbyAmyScottandSarahSchineller.OnbehalfofFinnovista,thecoordinationwascarriedoutbyAndrésFontao.Thewritingofthetextandthecollection,processing,andanalysisofthedatawerecompletedbyElenaCruzandGracielaHerrera.TheauthorsthankLeeHarveyUrquijoandIgnacioAmezcuafortheircollaborationindevelopingtheinteractiveFintechRegulationMap.Also,Also,wearegratefulfortheeditorialreviewoftheSpanishtextbyMikelA.AlcázarandtheBeyupteamandClaudiaM.Pasquetti,SantiagoArévalo,andtheirteam.FintechinLatinAmericaandtheCaribbean-IntroductionIntroductionhisreportrepresentsthe Tthirdeditionofaseriesofresearchdocumentsthataimtomapandanalyzetheemergenceofcompaniesthatusetechnologytocreatenewsknownasfintech—whichtheInter-AmericanDevelopmentBank(IDB)initiatedwithFinnovistain2016.Thetwopreviouseditions,publishedin2017and2018,havegeneratedenormousinterestfromthecommunitiesthatmakeupthefintechecosysteminLatinAmericaandhavealsobecomeoneoftheprimarysourcesofinformationonthissectorintheregion.Thiseditionpresentsupdateddataontheindustry.Itanalyzesissuesthathavegainedrelevanceastheecosystemevolvesandgrows,suchastheriseofdigitalbanks,thegrowingdynamismintechnologicalinnovationsappliedtoinsurance,andtheimpactofthepandemiconthesector.COVID-19disruptedtheworld’seconomicandsocialstatusquo,undoubtedlyimpactinghowpeopleinLatinAmericaandtheCaribbeanrelatetomoneyandfinance.Asmostofthedatawerecollectedduringthepandemic,thisreportdiscusses—throughoutthechaptersandintheinterviewsthatwereconducted—someoftheconsequencesthataffectthesector,itsresponse,andtheopportunitiesgeneratedforthefuturefromtheaccelerateddigitalizationthataccompaniedthepandemic.Thisreportusesthefollowingsourcesofinformation:First,Finnovista’s2020databaseoffintechcompaniesinLatinAmerica,generatedthankstoFinnovista’sinvolvementindifferentinitiativesandprojectstoboosttheecosystem,suchasaccelerationandscalingprogramsandcorporateinnovationprograms.Toenrichtheanalysisoftheevolutionofthesector,thedataiscomparedwiththatpublishedin2017and2018,andtheaggregatedinformationisupdatedwithdataasofDecember2021.Itisessentialtomentionthatin2021somefintechsegmentswereaddedtoallowformoreconsistentcomparison:businesstechnologysolutionsforfinancialinstitutionsnowincludescreditscoring,identity,andfraudandopenfinanceandwealthmanagementwasmadeitsownsegmentalongwithtradingandcapitalmarkets.Second,theregionalsurveyaimedatfintechcompaniesinLatinAmerica,whichhasmaintainedthesamebasicstructuresincethefirstsurveytofavorthecomparabilityandevolutionofdata,wasupdatedwithnewquestionstodelveintothetopicsthathavegeneratedmoreinterestinthesector.Thissurveyincluded,asinthepast,18countriesintheregion:Argentina,Bolivia,Brazil,Chile,Colombia,CostaRica,DominicanRepublic,Ecuador,ElSalvador,Guatemala,Honduras,Mexico,Nicaragua,Panama,Paraguay,Peru,Uruguay,andVenezuela.Whiletheoriginalsurveydataforthisreportwascollectedin2020,2thetextwasenrichedwith2PrevioussurveysgathereddatainJanuary–February2018andSeptember–November2016.FintechinLatinAmericaandtheCaribbean-Introductionupdateddatafrom2021forChile,Colombia,Mexico,andPeruandsecondaryreferencesfortherestofthecountries.Intotalforthisedition,thesurveycollectedinformationfrom657fintechcompaniesintheregion,afterfilteringresponsesfrominvalidandduplicateentities.Thesenumbersindicatethatthesamplesizeis28%oftheidentifieduniverseoffintechcompaniesinLatinAmerica.Third,weusedsecondaryresearch.Itisimportanttonotethatthisreportfocusesonfintechcompaniesand,therefore,doesnotreflectthedigitalortechnologicalinitiativesoftraditionalfinancialinstitutionsorthefinancialinitiativesofinstitutionsinotherareas,suchasinthetelecommunicationssector.Inaddition,consideringthatmostfintechcompaniesareyoungfinancialtechnologycompanies,forthisdocumenttheterms“fintech”,“fintechstartup,”“fintechcompany,”“fintechventure,”and“fintechinitiative”areusedinterchangeablybecauseyoungcompaniesarethefocusofthisstudy.Thisreportisstructuredasfollows:Chapter1offersanoverviewofthesectorintheregion,highlightingtheevolutionofthedifferentbusinesssegments,thegeographicaldistributionoftheventures,andthestateofinternationalization,development,andmaturityoftheecosystem.Chapter2delvesintoissuesrelatedtothefinancingofthesecompanies,whileChapter3focusesontherapidriseofdigitalbanksintheregion.Chapter4discussesthepotentialofthefintechsectortoimprovethefinancialinclusionofindividualsandbusinesses;Chapter5delvesintotheroleofwomeninthefintechsector.Chapter6describessometrendsinthecompetitiveenvironment,andChapter7providesaninitialanalysisoftheemergenceoftheinsurtechsegmentintheregion.Chapter8examinesforthefirsttimeregulatorydevelopments,includingananalysisoffintech’sperceptionofregulationandanupdateonfintechpartnerships.Throughoutthetext,referenceismadetotheeffectsfromtheCOVID-19pandemiconthefintechsector.Finally,thebriefconclusionseekstoprovidesomecriticaldataandreflectionsontheimpactofCOVID-19ontheindustryandtheopportunitiespresentedbythepost-pandemicera.CHAPTER1:OVERVIEWOFTHELATINAMERICANANDCARIBBEANFINTECHECOSYSTEMTFintechinLatinAmericaandtheCaribbean-Chapter1ThefintechecosysteminLatinAmericacontinuestogrowquickly,maintainingthedynamismofthepast.Therehasbeensustainedgrowthinallsegmentsandinthenumberofactiveventuressincethelastmeasurementin2018,accompaniedbyaprogressivematurityofthesector.Thischapterpresentsanoverviewoftheindustryanditsevolutionintermsofthedistributionofactivityamongcountries,thedevelopmentoftheninefintechsegmentsthatthesereportshavebeenstudying,andothertrendssuchasthecompanies’currentstageofdevelopment,theirinternationalization,andthechallengestheyface.GeographicalDistributionandMainMarketsTowardstheendof2021,2,482fintechcompanieswereidentifiedinLatinAmerica,morethandoublethatofthelastdatacollectionin2018,whenthereportcounted1,166.The2,482LatinAmericanfintechcompaniesrepresent22.6%ofthe11,000fintechcompaniesworldwide,accordingtodatafromtheGlobalFintechIndex2021(Findexable,2021a).Between2017and2021,theaverageannualgrowthforthenumberofcompaniesoperatinginthesectorwas37%(equivalentto253%fromthefirstdatacollection,in2017,untilDecember2021).ThesenumbersshowthedynamismandexpansionthattheindustryhasbeenexperiencingyearafteryearandindicatethatentrepreneursinLatinAmericaseeopportunitiestoaddresstheunmetdemandforfinancialservicesandthemarketsegmentsthatremainexcluded.Thisdynamismincreasedduringthepandemic,withmoreeffortsbyfintechcompaniestomeetalltheneedsofusersvirtuallyFintechinLatinAmericaandtheCaribbean-Chapter1Figure1.1:FintechVenturesinLatinAmericaandtheCaribbean(2017–2021)FintechStartups3,0002,5002,0001,5001,00050002,4821,830703Year20172018201920202021Source:Finnovista(2021).MainFintechMarketsinLatinAmericaandtheCaribbeanSince2017,BrazilandMexicocontinuetohavethetwolargestfintechmarketsintheregion,accountingforoverhalfoftheregion’sfintechventures(seeTable1.1).BehindBrazilandMexicoareColombia(279companies),Argentina(276),andChile(179).ActivityconcentrationintheprimarymarketsBrazilMexico,Colombia,Argentina,andChile—hasbeendecreasingsincethefirstmeasurementin2017,when89.7%offintechventureswereconcentratedinthesefivecountries,2018(86%),and2021(81%).Thesenumbersexplainaslighttrendofdeconcentrationoffintechentrepreneurshipintheregion.FintechinLatinAmericaandtheCaribbean-Chapter1Table1.1:DistributionofFintechCompaniesbyCountry:MainMarkets2021CountryTotalFintechCountryTotalBrazil1MexicoColombia279Argentina276ChileSource:FinnovistaandIDB(2021).Onaverage,thenumberofventuresinthisgroupofcountrieshasgrownat34%peryearbetween2017and2021.Together,thesefivecountriesaccountfor81%ofLatinAmericanandCaribbeanstartups.Coupledwiththesizeofthemarkets,accesstofinancing,regulatorycertainty,andotherfactorsthatinfluencetheconstantgrowthofthesector,itisfairtosaythatthepandemicwasacatalystforusersandincomeforfintechplatformsinthesemainLatinAmericanmarketsinrecentyears.Furthermore,Brazil,Mexico,Colombia,andChileareofthemostsignificantinteresttotheinvestmentcommunityinthissector(IDBandFinnovista,2021).Figure1.2showstheevolutionofthefintechecosysteminthesefivemainmarkets.FintechinLatinAmericaandtheCaribbean-Chapter1Figure1.2:EvolutionoftheFintechEcosysteminFiveMajorLatinAmericanMarkets9008007006005004003002001000FintechStartups77155474644644444133803535727279273230273230276227620018018017514820179884784658410620172018201920202021YearBrazilMexicoColombiaArgentinaChileSource:Authors’elaborationbasedonFinnovista(2021).FintechinLatinAmericaandtheCaribbean-Chapter1CountrieswithanEmergingFintechSectorTrailingthemainmarketsandaccountingfor14%ofthetotalnumberoffintechcompaniesintheregionaresixcountriesinwhichtheecosystemisstillemergingbutisexperiencingsignificantgrowthrates.Forexample,intheDominicanRepublic,55activeventureswereidentifiedin2