The Chinese is a society that greatly appreciates peaceful family life and the predictable work that goes with the seasons. This is why one of their most famous curses augurs “May you live interesting times”. There are few things in our lives more disturbing than living surrounded by changes, innovations, disruptions…  A great number of resources are required to thrive during interesting times: huge doses of resilience, relentless capacity to survive uncertainty, and lots of creativity to re-invent ourselves upon each change in the course of action.

Undoubtedly, we live in interesting times. Just a few years ago, big financial companies resorted to a great number of suppliers to run projects that their staff, lacking time or knowledge, could not execute. Projects ran at the pace dictated by the bank or financial institution, which was slow, for there were complex bridges to build among core legacy systems and the new technologies. Suppliers were not cheap, and normally, only the big consulting firms had the capacity to survive innovation projects: they suffered, together with their customer company, the process of ideation, integration, construction and deployment. These processes required big amounts of capital, and seldom did the consultant, or the Company, or both, reach a safe haven.

The scene for Small and Medium Businesses (SMB) was even worse: very limited offering of “Out of the Box” (ready to install) technological solutions, economic and fast to implement. The most adventurous SMB could try hiring a smaller vendor to build a tailored solution, and usually ended up tied to that vendor, until they decided to move to a new small supplier. The most conservative SMBs settled for one of the generic pieces of software that the market offered, which was usually rather limited, and those tasks that the software could not do were performed manually, or with the help, and dependence, of a small vendor. This was the way to innovate until not so long ago.

Small vendors got tired of following the pace of their large customers. They took advantage of new emerging technologies to specialize in no more than one or two services, offering them as solutions that are easy to implement in the jungle of systems that large corporations have.  Some others even ventured to compete directly with their big customers, offering that same service to the public. By reducing their costs and implementation times, these companies were able to offer to the SMBs segment solutions that they could afford, and that they could operate themselves, relieving them from an eternal bond to a vendor. These small vendors were called Fintech, an abbreviation for financial technologies, which, according to the  Interamerican Development Bank (IDB) and Finnovista, are the new players competing directly with traditional financial institutions and challenge their largely established business models. Moreover, Fintechs are also directly contributing to the SMBs, and their critical role in the productive development, employment and economic growth in Latin America.

IDB and Finnovista have conducted two studies that are fundamental to understand the evolution of Fintechs in Latin America. The report “Fintech: Innovations you did not know that came from Latin America and the Caribbean” , published in mid 2017, is still reputed as the “largest and only effort to systematically measure the activity of Fintech companies in the region”. The second edition of this report issued in 2018, “Fintech in Latin America”, updates the description of this industry’s activity, and their evolution compared to the first issuance of the report. Some figures reported in the latest report: 1,116 Fintech ventures have been identified in 18 countries in Latin America. This represents an increase of 66% compared to 2017, equal to 463 new Fintech startups. These 1,166 ventures are distributed across 11 Fintech business segments, three of which represent 58% of the total, placing them as the most representative of the Fintech sector in terms of the number of companies: payments and remittances, with 285 companies (24%); loans, with 208 companies (18%); and enterprise financial management, with 181 companies (15%).  The size of these three segments, the report states, can be derived from the massification of mobile devices in the region, the high number of people under-served or excluded from the formal financial system, and the existing limitations and inefficiencies in the offering from traditional financial players.

When it comes to geographical distribution, Brazil, Argentina and Mexico are among the countries that have experienced an increase of more than 50% in the number of companies:  Brazil grew 65% (from 230 to 380 companies), Argentina grew 61% (from 72 to 116 companies), and Mexico grew 52% (from 180 to 273 companies).

It is also interesting to observe the resilience that Fintech companies have shown so far, at least in this early stage: out of the 703 Fintech startups identified in 2017, only 85 companies have ceased to do business in the last twelve months, equivalent to a corporate mortality rate of just 12%.

The latest Fintech report shows a considerable increase in the number of companies that offer their products and services to the SMB segment. The region already houses 179 companies providing enterprise financial management services, that provide electronic invoicing, digital accounting, financial management and enterprise intelligence, and collections: “through this type of products and services, SMBs access to tools to digitalize their products and services, improving their efficiency, and generating new data points and digital footprints, that allow them to show and present new information, which places them closer to formal financial and credit systems, through data driven credit scoring models. Fintech services oriented to SMBs allow for better cost control and the savings derived from it, by simplifying execution in a fast and standardized way”. Just like Conciliac, a system based on RPA technology, that enables the reconciliation of big volumes of data, simply and effectively.

These are indeed interesting times for Fintechs, and even though we will not be able to enjoy the peace and tranquility that the Chinese dear so much, the perspectives are positive and encouraging. These are times when there is still much to be done, as mentioned by Finnovista and the IDB, in order for the full potential of the Fintechs to result in better and more fulfilling lives for everyone.

Author :  Jorge Oropeza.


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