Fintechs target population segments unattended by traditional banks. Opportunities appear in all segments of the value chain.

The fintech phenomena started worldwide about five years ago, although there are cases of companies that had started even before the term was even coined. The pandemic gave them the push these companies needed to increase a faster adoption from users that necessarily had to overcome resistances and adopt mechanisms to pay or collect through digital financial services or to access to other banking services that, in other times, would not have even imagined using. This eruption of digital payment methods, already covered in a previous post, was the tipping point for the explosion of the fintech industry.

A research from Korefusion recently published showed that by the end of 2020, Latin America had 1,075 fintech companies, mainly located in Brazil, Chile, Argentina, Colombia, and Mexico. This group of countries has been able to attract investments for over USD 8 billion.

This segment came to cover the unsatisfied needs of a large proportion of the population -mainly in the low-income segments- not covered by the traditional financial system, due to certain regulations (or lack of interest). The advantage of fintechs resides in leveraging the use of technology to segment customers, perform targeted credit and risk analyses, or detect opportunities, as well as facilitating an operating scheme that traditional banking insists in maintaining bureaucratic and outdated, what translates into a low penetration of financial services at regional level.

In Mexico, for example, more than 50% of the population goes unbanked, over 30% does not have any financial product, and 31% has access to some form of credit, according to a report from Anderseen Horowitz.

En Brazil, home of Nubank, the biggest fintech in the region, there is higher level of access to financial services through debit cards, reaching 70% of the population, although the ratio drops to 33% when utilizing credit cards. Another 33% goes not banked at all.

Fintechs have decided to reach that unattended population through different services and have leveraged the use of cell phones to approach it. These devices have an average penetration of 80% in Latin America according to GSMA.

The combination of cell phones with financial apps that allows users to obtain consumer credits in just three steps, register a new digital credit card through a selfie and a photo of an ID document, or make payments of products or services through a QR code, generated an ecosystem attractive for foreign investment. Nubank started 2021 with a capital raise of USD 400 million, that was increased to USD 1.15 billion in August.

Uala, another Latin American flagship, captured USD 350 million last August, and three months later announced the acquisition of the ABC Capital bank in Mexico as part of their expansion plan for the region.

This shows that investment funds are interested in boosting these new financial companies that have been able to position themselves very quickly among different populations, through services that are easy to use, and that help users solve their day-to-day matters. Focused in areas like digital payments, credits, payment infrastructure and diverse technological solutions, part of their success also resides in the transparency of the information they offer to users about the way in which the money circulates, beyond the specific transaction performed.

Also, transparency in the transactions that users make, together with the possibility of increasing their savings (even the smallest ones) or venturing into the investment world, among other alternatives offered, seem to have earned the sympathy of those customers that know that traditional banks would never offer these services to them.

In Argentina, the introduction of QR codes by Mercado Pago in 2018 allowed the company to jump from 0 to 3.5 million users in just three years, according to the company. The key to this explosive growth was the alliance sealed with big and small supermarkets, that spread the tool to massive places, raising awareness together with its positive image. The BCRA (Central Bank of the Argentine Republic) admitted that in the first half of 2021 “these payment methods experienced significant growth rates due to their comparative advantages during the social distancing phase. Regardless, in person methods of POS (Point of Sale) and mPOS registered higher payment transactions, both in quantity and in amounts”.

Digital banks that apart from opening a bank account fast and in a few steps, do so without charging any commission are also part of this phenomenon. Evo Banco, Revolut and N26 are leaders in this segment in Europe.

As shown, fintechs owe their good momentum to the fact that they have been able to solve people’s daily matters with a level of transparency in the eyes of the users that, up to now, traditional banking has not been able to offer. This phenomenon has still much more to offer and, for sure, in the upcoming months there will be more news to share.

What is certain is that in this scenario, the generation and exploitation of data is even further amplified. And this is where organizations must consider the relevance of Data Management tools, as their biggest allies to leverage, securely and scalably, the advantages that this growth wave offers.