The fintech ecosystem registered growth of more than 340% in the number of technological finance startups created in the last six years, going from 703 companies in 18 countries in 2017, to 3,069 in 26 countries in 2023, according to the fourth report of the Fintech in Latin America and the Caribbean series (available in Spanish). The joint study by the Inter-American Development Bank (IDB) and Finnovista was presented during the fifth annual meeting of FintechLAC, being held in Bogotá, Colombia, with support from the Grand Duchy of Luxembourg.
The results of the study, titled “A Consolidated Ecosystem with the Potential to Contribute to Regional Financial Inclusion,” reflect market stabilization and progress towards long-term solidity and resilience. More than half of fintech companies serve the underbanked or unbanked population and the region has experienced dynamic regulatory development, with an increase in the number of regulatory frameworks for the development of segments such as open finance and the use of regulatory innovation structures such as innovation hubs and regulatory sandboxes. Fintech is the sector attracting the most venture capital investment.
According to the report, the current growth of the fintech ecosystem in the region is due to high demand from financial consumers, the state of the digital financial infrastructure and the availability of a specialized workforce. Consolidation and stability of the ecosystem is not only reflected in an increase in the number of emerging companies, especially in countries where the sector was incipient, but also in the diversification and distribution in terms of segments, business models, capitalization and enabling technologies.
Brazil continues to be the country in the region with the highest number of fintech startups, with 24% of the total. Mexico follows with 20%, Colombia with 13%, and Argentina and Chile with 10% each. The countries with the highest growth in the last two years were Peru, with 5.3% of the number of companies, followed by Ecuador with 3% and the Dominican Republic with 2.1%.
Peru, Ecuador, the Dominican Republic, Uruguay, Costa Rica and Guatemala constitute a set of emerging markets that are developing with notable dynamism, registering an average annual growth of 44% between 2017 and 2023. These markets went from representing just 7% of the regional ecosystem in 2017 (48 ventures), to almost 15% in 2023 (455 ventures).
The leading segments in terms of the number of platforms in the region continue to be payments and remittances, with 21% of the total companies, loans with 19%, and corporate finance management with 13%. These three segments have experienced average annual growth of 24%, 31%, and 28%, respectively.
An increasing number of fintech startups in Latin America and the Caribbean are targeting underbanked or unbanked people and companies, which shows the positive impact of this sector on financial inclusion. Currently, 57% of fintech companies target this population group, while in 2021 this percentage was 36%. The loan segment leads in serving unbanked people, while payments and remittances represent the segment that most serves underbanked small and medium-sized businesses.
Specific regulation for the sector is associated with its development. Thus, countries having permanent or provisional measures have registered growth or consolidation of their fintech ecosystems. In this regard, some notable cases for the 2021-2023 period are the publication and start of implementation of the Fintech Law in Chile, and the publication of specific regulation for interoperable low-value instant payments and open finance in Colombia.
“The data collected in the report are key inputs for countries in the region to generate public policies that provide clarity to investors and catalyze the regional Fintech ecosystem growth,” said Anderson Caputo, chief of the IDB’s Connectivity, Markets and Finance Division. “The report’s findings reaffirm the enormous potential of financial technology to close financial inclusion gaps in the region,” he added.
Fermín Bueno, co-founder and Managing Partner of Finnovista, highlighted that “the Fintech ecosystem in Latin America and the Caribbean is consolidating as a key driver for innovation and economic growth in the region, as well as for financial inclusion and accessibility to financial services for millions of people and small businesses. Our commitment is to continue supporting this development, promoting collaboration between all actors in the ecosystem and paving the way for a more inclusive and prosperous future.”
For the firms surveyed, the two main challenges are scalability (41%) and access to financing (19%). In the latter case, the study shows a trend of Fintech towards institutional financing sources, together with venture capital investments, both local and international. Although between 2021 and 2022 venture capital investment halved to US$7.8 billion, fintech continues to be the sector with the largest participation, representing 43% of the total, and an important line for foreign direct investment in the region.
The report “A consolidated ecosystem with the potential to contribute to regional financial inclusion” is a collaboration between the IDB and Finnovista, and countries and strategic allies in the region. This edition of the report has data from 26 countries and includes for the first time Bahamas, Barbados, Belize, Guyana, Haiti, Jamaica, Suriname and Trinidad and Tobago. Its rigorous mapping has identified 3,069 fintechs. Additionally, it conducted surveys of companies in the fintech ecosystem, regulators and investors. A total of 404 viable responses were obtained from companies, representing 13% of the total universe of fintech companies, with a margin of error of 4.54% and a confidence level of 95%. Also, 25 investors and 32 financial authorities responded to the IDB and Finnovista survey, which was carried out in November and December 2023.
