Latin America (LatAm) has established itself as one of the best regions when it comes to fintech innovation, with many other countries and regions looking to emulate its success. Although the number of innovators and innovations continues to grow, there is not enough capital to accelerate all of their developments – this is where corporate venture capital (CVC) from abroad can become a lifeline.
Many large corporations want to gain an edge against their competitors. However, trying to gain this edge by testing new products in their most important market can be a risk they do not believe is worth taking. To overcome this, trialling new technologies and solutions in other markets can be a good indication of how consumers in their primary one would respond.
Technological developments are taking place in LatAm primarily due to the need for greater access to finance. The need to change this has enforced open-mindedness in the region, making it a prime location for EU and US-based corporations to test new products.
Challenges in LatAm
Many traditional payment methods are not widely available in certain countries in LatAm. Therefore large companies must be aware of the payment trends taking place in the country they’ve expanded to in order to properly test new products.
Hector Jirau, Ph.D., the executive director of Parallel18, an international startup accelerator focusing on positioning Puerto Rico and Latin America as vibrant hubs for innovation provided an example in Puerto Rico saying: “Although we now have Paypal and Venmo, a few years ago, Puerto Rico only had its local payment method: ATH Movil.”
He explained that corporations must be aware of these local payment methods or they won’t be able to properly integrate their services due to a lack of familiarity with what consumers are used to.
Tension in Chile
One corporation that has allegedly failed to do this in Chile is Walmart Chile. In December 2023, Tenpo, the Chilean digital bank, called out the US corporation for failing to take into account financially inclusive payment methods that were popular among Chileans. According to Tenpo, “prepaid cards exceed seven million and transactions have grown at an annual rate of 233 per cent on average.” However, Walmart Chile does not accept prepaid cards as a payment method.
This resulted in Tenpo starting a campaign against the corporation calledYoElijoComoPago (#IChooseHowIPay). The campaign aims to promote freedom of payment choice popular with locals – ensuring financial inclusion.
There has been a lot of support for the campaign on LinkedIn with members of the industry reposting the hashtag and voicing their opinions. For example, Paola Heresi Herrada, assistant manager at paytech Metropago said: “A real leader does not discriminate… if we want to bring all of Chile closer to the banking industry with all the actors in the world, there are large groups that are stopping this.”
Impact of excluding financial methods won’t be seen for 10 years
We sat down with Jirau to further discuss Walmart Chile’s exclusion of prepaid cards and the impact that a corporation practising financial exclusion can have on an ecosystem. “Corporations focusing on one particular rail will come across barriers. Walmart in Chile is a great example. By not accepting prepaid cards, it is limiting the capacity of the corporation to grow within the country. It creates a big barrier for individuals.”
“Looking at the economy as a whole, there won’t be a visible impact in the short term. However, in the long term, it not only impacts the end user, but the corporation too. The company won’t be able to scale as much and access opportunities. In this case, the access to credit will be extremely limited.”
Jirau did suggest that there could be some reasons underpinning Walmart Chile’s decision not to accept prepaid cards. “They won’t introduce a new financial vertical just because they don’t feel like it or don’t see the demographics. There could be other reasons.”
In 2021, Walmart Chile said cash transactions cost a third of what debit card transactions involve, considering the fees set by Transbank at the time. Should fees remain high, this could be a factor stopping prepaid card acceptance.
Parallel18’s executive director continued: “At the end of the day – corporations’ choices can cause the economy to lag. However, we have to remember that they’re private companies under a capitalist system. They’re mostly there to create profit, not a positive impact. We won’t see this lag take place in an economy for 10 to 20 years though – the negative impact will definitely be felt in the long term.”
Light at the end of the tunnel
If a corporation can have such a negative impact on an economy, then surely it isn’t a good thing for an emerging market to welcome it? Not necessarily. In fact, corporations can provide a much-needed lifeline for these markets. Jirau explains: “It’s very difficult for an investment firm to allocate capital and create a new ecosystem of knowledge in an emerging market because that’s not their primary line of business.
“They can support a startup and teach it to make more money, but that’s where investment firms’ abilities stop. After all, they are looking to make money themselves. Corporate venture capital actually has the capacity to create.
“It can both support educational and financial inclusion, all the while providing the local economy with opportunities. Not only opportunities in their current and most established line of business, but in new ones too.”
Jirau added that for most corporations, investment is done due to aligning beliefs. However, it can be done as a way to ensure security in the future – making sure they do not fall behind technologically in their primary markets. Furthermore, the corporations are aware of the talent in emerging markets. As such, they are aware of what can be adopted from them.
He concluded that supporting startups and innovators to grow is key. Corporations can provide new jobs and economic developments in a country that otherwise would not happen. They can learn from the startups before they are strong enough to leave of their own accord and go their own ways. In turn, these now-established startups are likely to return to their original communities and reinvest in them themselves.
That is how the positive cycle of financial inclusion can be kickstarted by CVC.