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Covid-19 promotes the use of new financial technologies in Latin America

May 17, 2020

Since the pandemic started Latin America saw a significant boom in the use of startups in the financial sector. This is due to the abrupt closure of traditional financial systems, which is why fintech companies in the financial sector are taking up the space created by the gap in local financial services.

The economic instability from which Latin America suffered dates from before the pandemic. Indeed, high rates of inflation, corruption and crime are the most common elements in the region and thus the diversification of business activities among business people.

With that in mind, fintech companies have received a great investment. The data shows that investments in the region reached $ 2.6 billion in 2019, Brazil is the main country in Latin America with capital investments, followed by Mexico and Argentina. This comes from a message published by latinamericareports.

Covid-19 promotes the use of new financial technologies in Latin America
Covid-19 promotes the use of new financial technologies in Latin America

These data showed broad growth compared to the previous year and showed an increase in investment in the fintech sector by 180% and thus the number of platforms, especially the neo-banks in the region.

The World Bank states that at least 60% of Latin Americans are without bank accounts. For this reason, this sector was strengthened in 2020 to attract new users, and for this reason the use of technologies that are attractive to new users.

Latin American panorama

Countries like Venezuela, which has suffered from unprecedented hyperinflation, were considered the richest country in South America a few years ago. Despite the country situation Venezuela has the highest rate of bankers in the region at 73.2%, and the lowest number of bankers comes from Nicaragua at 28.4%.

It is estimated that there are around 703 fintech companies across Latin America, which implies a clear intention to expand the business in the region. The pandemic has fueled this panorama of opportunities for investors as the quarantine declaration in the countries in the region has resulted in many people running out of money to buy consumer goods, supplies and payments for services.

Therefore, neo-banks in Latin America are now helping citizens to manage their money digitally. The Argentine financial technology company Ualá offers citizens a prepaid card and an application for national and international payments.. Transfers between Ualá users are free and customers can top up their cell phone credit and pay bills through the application.

Neon do Brasil similarly extends access to banking. Neon users receive an international debit card, virtual credit card, and limited free cash withdrawals. You can also use an in-app loan calculator that estimates interest rates and fees to borrow money responsibly.

In Colombia, Rappi partnered with Arcus to help customers better manage payments without having to leave home during this pandemic.. Originally, only the transfer between app users was allowed before the introduction of QR code payments. Known as Rappi Pay, this service now offers users cashback offers and ATM withdrawals without fees.

In Argentina, for example, banks such as Santander Rio, the province of Banco de la Cordoba and the Banco de la Nación have recognized the need to implement remote account opening services using traditional banking disruptive technologies, some of which are technology-based blockchain.

With the relaunch of its virtual wallet Mercadopago, Mercado libre offers various ways to mobilize money, finance it, even use the funds to invest in mutual funds and generate a kind of interest on the money in the account and services between Paying them Other services that the sales giant offers in Latin America are some of the impulses that have been delivered as a result of the breakdown of the traditional financial system.

Fintech companies have also turned their attention to sending remittances in the region, as data shows that at least 15% of gross domestic product from countries like El Salvador, Haiti, Honduras, and Jamaica is based on sending remittances. In general, only 1.5% of Latin America’s GDP is represented by the remittance service. However, the use of P2P money transfer instruments is still relatively low in the region, while expensive traditional banks and money transfer companies still dominate the market.

Countless data show that the region is using the best option for sending transfers via the crypto market. Therefore, exchange platforms continue to be added. Platforms like Localbitcoins were originally an almost universal solution, but as the region’s cryptocurrency market grew, others such as ArgenBtc, Cryptomkt, Localcryptos, and Buda emerged.

For this reason, Brazil has announced that it will launch its own fintech payment platform, PIX. The country’s central bank has announced plans to combat the growth of unregulated crypto exchanges and provide citizens with better digital access to their funds. try to allow direct transfers between users without any intermediation.

Current situation of SMEs

In the midst of this health crisis, Latin American SMEs are struggling to obtain loans in the existing financial system because they do not have enough credit information to pass credit checks or because they do not have enough guarantees. Poor credit infrastructure has led banks to overstate risk, leading to high premiums and interest rates (between 50% and 120%) that SMEs cannot afford. Not surprisingly, the cost is why 60 percent of non-banks in Latin America say they don’t have formal accounts.

These data show that the traditional system continues to employ small and medium-sized entrepreneurs in the region, since those who start in an industry do not have an overwhelming lever of capital that enables them to support the requirements for access to credit, and in many cases to continue working.

Vice versa, Startup fintech companies have data algorithm-based credit rating systems that analyze credit risk in an innovative way and offer lower interest rates than conventional banks. They also improve SMEs’ access to financial products and models and help them raise capital.

Examples of successful fintech for SMEs in Latin American markets are Konfio, a Mexico-based financial services platform that helps SMEs to raise liquidity and expand their business. While banks are struggling with loans under $ 40,000, confio loans average $ 12,000 and are paid out without collateral within 24 hours. Tienda Pago is a small merchant platform that you can buy from merchants via mobile payments, while Alegra is a cloud-based billing and management system for small businesses.

This type of solution is well received by the corporate sector, and therefore this type of fintech continues to increase its presence by making more financial services available to its users.