Latin American Fintech startups enable greater financial inclusion

In Latin America there is not a high level of financial inclusion, since financial services still have notoriously low adoption rates, since most consumers still do not have access to banking services, or if they do, receive them in a precarious way.

This extreme demand sets the stage for new players in the fintech market to better serve existing customers, but above all to introduce many consumers to the formal financial system for the first time. Fintech companies in the region have begun to fill many of the systemic failures for this historical lack of financial services.

According to data provided by Latinometrics, we are facing an exciting time to start a Fintech startup in the region, since up to 39% of venture capital funds are allocating resources to that sector. The disruptive potential of this class of companies is very attractive to investors, who recognize old banks and institutions with poor customer service and outdated technology compared to new options.

Low financial inclusion fosters growth in the sector

By adopting strict underwriting requirements and limiting access to new financial products, traditional Latin American banks end up excluding much of the population. In Mexico, for example, more than 50% of people do not have a bank account, while more than 30% do not have access to any financial product, including credit services.

Precisely credit, which is a powerful tool to finance studies, start a business, or buy a house, is extremely expensive and is not available to most people. As a result, there is a huge pent-up demand from customers who have historically been locked out of the financial system by established financial institutions.

The technology applied to new financial companies has great potential to increase productivity, improve consumer protection, and extend that inclusion to vulnerable sectors of Latin America. In this context, companies like Nubank bring these services closer to people, and thanks to them it is possible to open a bank account in 5 minutes.

The potential observed by investors is so great that money begins to flow. A good example of this new reality is the Chilean company Xepelin, a company that broke a record by receiving the largest Series B financing round for a Spanish-speaking startup in the region for $111 million.

But without a doubt, the country experiencing the greatest explosion in attracting capital for this kind of services is Brazil, where the four big players are the aforementioned Nubank, Neon, Ebanx, and C6 Bank. Neon has had its last two rounds worth $300 million each, both led by BBVA.

Cross-border payments firm Ebanx announced a $430 million investment round from private equity firm Advent International in 2021 as it prepares for an initial public offering (IPO) in the United States. C6 Bank for its part achieved one of the highest initial rounds on the list with $96 million.

From this perspective, given their population growth and low usage of the banking system, Latin American countries stand out as particularly exciting and attractive. In these countries, the Fintech sector is not only replacing established service providers, but also represents a technological leap capable of boosting financial inclusion in the region once and for all.