Fintech Ecosystems South America Spotlight

Spotlight 2023: A Good Year For Fintech in Latin America

Fintech in Latin America (LatAm) saw a boom like no other in 2021. Some even went so far as to say it was the sexiest market for fintech investment. This came as a result of $4.6billion being flooded to the fintech vertical, and saw the creation of fintech unicorns across the region. Two years later, fintech unicorns account for 50 per cent of the region’s total unicorns. 

2022, however, was not that bright. Investment fell in a very dramatic way and it does not seem like it will be recovering any time soon. And yet, the perspective for fintech startups in Latin America remains promising in 2023.

Latin America is an ideal space for fintech growth

Although in the media, the words ‘Latin America’ are often accompanied by the words ‘economic crisis’, ‘social explosion’, and ‘political crisis’, the LatAm market is characterised by a GDP/capita level of around $8.327 higher than those found in Africa and other developing regions.

Moreover, this is a continent where internet coverage reaches 92 per cent of households in Chile (the highest range) and 50.5 per cent in Bolivia (the lowest coverage, before Haiti), for an average of 75 per cent of households covered by the internet in the region. But paradoxically, levels of financial inclusion are still far from what should be expected:

  • Only 51 per cent of adults have a bank account, and of those, only 28 per cent make direct payments using those accounts
  • Only 45 per cent of SMEs have access to financial systems, even though they contribute 30 per cent of each country’s GDP and up to 67 per cent of employment.

Fintech entrepreneurs visualised this opportunity. Back in 2018, there were 1,116 fintech startups in LatAm. In 2021, that figure reached 2,482 fintech companies, accounting for 23 per cent of all fintech firms globally.

Crucially though, most of these developments are in Brazil. Eighty per cent of these fintechs are located there, while Mexico has 21 per cent of the share, Colombia and Argentina share 11 per cent, and Chile has seven per cent. Peru has 132 fintechs currently. However, growth in the number of fintech companies located there has grown by 69 per cent annually. It now belongs to a group of countries with a high growth fintech sector that includes Ecuador, Dominican Republic, Costa Rica, Uruguay, and Guatemala.

Verticals where Latin American fintechs operate:

According to the Finnovista and Inter-American Development Bank study:

  • Twenty-five per cent of fintechs are operating in payments and remittances
  • Eighteen per cent in lending, 15 per cent are engaged in providing technology to banks
  • Eleven per cent do corporate finance management
  • Seven per cent do personal finance management
  • Seven per cent are in the insurance vertical
  • Five per cent do crowdfunding
  • Five per cent are digital banks

These verticals’ distribution has not come about by chance. It reflects the major structural problems in the region that fintechs aims to solve:

  1. Lack of massively distributed payment systems for the bottom of the economic pyramid. Access to electronic payment systems by shops serving the bottom of the pyramid has been costly. In addition, the low penetration of formal employment has limited the rate of people with valid and formal bank accounts.
  2. Difficulty in accessing formal credit: Given the high rate of economic informality in the Region and high levels of structural unemployment, banks have limitations in placing credit under a regulation that is geared towards providing credit to formal workers and enterprises with moderately predictable incomes.
2023 is a year of opportunities and challenges
Early-stage VC investment will not recover

With interest rate hikes and recession clouds over the global economy, venture capital investment in Latin American fintechs fell by 60 per cent in the second quarter of 2022. VCs have no intention to reverse this trend in 2023,  whose recovery towards growth will depend on whether there is a rebound from the US economy in the second quarter of this year.

As a result, in 2023, investors will prefer mature fintechs. Investors still see opportunities, but the focus will be on strengthening existing investment portfolios, rather than seeking new investment opportunities.

But less VC financing could be a good thing

In 2021, there was an explosive amount of investment in Latin American fintechs, which led many fintechs to focus on ‘getting cute for the VC’ and not focusing on achieving real organic growth. This year, fintechs will focus on growing organically.

We will see a year in which some fintechs combine to create digital banks. We will probably see many fintech operators from foreign markets coming to the region to do some shopping. In addition, traditional Latin American banks themselves may be buying prominent fintechs. The drop in foreign investment will only catalyse the maturity of fintech companies and the LatAm fintech/digital banking ecosystem.

The regulatory landscape is improving

While in 2018, only Mexico had a law regulating fintechs, Ecuador recently passed a similar one, with laws in the pipeline for Chile, Argentina, Colombia, and Panama too. Regulation in a trust-demanding environment such as the financial sector is always a welcome and necessary vector for consolidation. In Ecuador, the law was promoted by a cluster of fintech companies and financial institutions organised under an association named Clúster Financiero, undoubtedly a type of associativity that other countries should replicate.

2023; Is Latin America in a recession? Unlikely

While the economic cycle in most countries in the LatAm zone depends directly on the evolution of the US economy, the region is increasingly becoming tied economically to Chinese purchases of primary exports. Latin America will fall into recession if the price of oil, gold, copper and other commodities fall sharply and for more than a quarter. This is something that is not likely to happen.

And the structural reasons for growth are still present

Markets remain underserved and dissatisfied, financial inclusion is not improving substantially, credit delivery models remain linear, industrial, and obsolete, the digitisation of traditional banking digital channels substantially improved the Latin American user experience but interest rates and fees charged for services remain high, and financial customer acquisition costs for traditional banking remain very high.

As a result, banks are very dynamic in the region, but the scope and size of the markets are more extensive than their capabilities.

What are the opportunities in the region?
For investors

As much of the VC will focus on deals to bolster their investments, there is an opportunity for many important early-stage fintech startups too. In addition to investing in those aiming to tackle underserved markets, emerging digital banks in other regions could find fintech acquisition opportunities at desirable prices, given the capital drought coming in 2023.

For fintech operators outside Latin America

These are the ‘jobs to be done’ that are not yet fully solved:

  • The need for non-expensive, reliable, fast international transfers and remittances. This is a critical opportunity considering that there are countries whose GDP depends heavily on remittances (El Salvador) or economies where the level of remittances significantly boosts the economy (Ecuador, Peru, Dominican Republic, Mexico). In addition, although most of the region’s immigrants are in the US, some European countries, such as Spain and Italy, are important sources of remittances.
  • Electronic payment ready POS (hardware for mom-and-pop shops) that should be incredibly cheap (less than $100  or less per unit) and not relying on fixed broadband. It is estimated that more than five million mom-and-pop stores cannot receive digital payments. Local players are solving this problem, using software like PayPhone (Ecuador), but they do not have enough capital to grow exponentially.
  • Financial education, information security education, and data privacy education, affordably and massively
  • Access to cheap, long-term credit for university education abroad
  • Access to financing alternatives for SMEs in the region
  • Alternative financial customer profiling models
  • Risk-based alternative scoring for SMEs
  • Access to real estate investment vehicles in the region and the first world
  • Real estate tokenisation services
  • Access to global markets for regional fintechs
  • Access to global talent for local fintechs
  • Fintech maturity assessment and fintech maturity certification
  • ESG assessment of fintechs and banking


  • Author and expert on innovative startups and technology firms in Latin America

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