In recent years, there has been something of a quiet revolution happening in Latin America. A region once characterized by highly conservative and traditional banking systems has embraced change and opened up to neobanking and fintech. Latam’s financial services rise is built on agile new operators offering services to previously untapped markets.
This won’t be much of a surprise for people living in the region, as billboards and media advertisements for neobanks are seemingly everywhere across Latin America. Until recently, however, this was mainly a domestic issue, with little impact on the world economy. That’s starting to change as the larger operators in the sector look at international expansion.
Precisely how Latam’s financial services rise affects global markets won’t be fully known for years to come. However, we can look at how the sector has grown, why it looks to be fully sustainable and why it is a smart investment choice.
It’s an exciting region in which to invest, whether that’s via seed capital, stock purchases or full-blown company formation in Latin America. Particularly in the latter case, it pays to team up with a local partner such as Biz Latin Hub in order to help you navigate entry into an unfamiliar market.
How Does LATAM’s Financial Services Rise Affect Global Markets?
As the global economy is ever-more connected, multi-national companies are becoming commonplace and this means that moving money between countries is taking on greater importance. This may be through subsidiaries of a large umbrella organization or direct trade between.
A lot of the new financial services in Latin America are explicitly designed to handle remittances and international transactions in a hassle-free manner. This stands in direct contrast to traditional banks, who often placed onerous responsibilities and paperwork on locals in order to receive money from overseas.
Taking those hurdles out of the path of businesses makes them significantly more agile and able to take advantage of seamless trade with partners abroad. The result has been a boom in importation companies and the opening up of some big markets. While average wages may not be as high as in Europe or North America, there are hundreds of millions of people across the region.
Latin American Banking: Volatility, Regulation, and Investment Opportunities
Many of those people are also keen to bank either internationally or at least in a diversified manner. While a few countries such as Ecuador and El Salvador are fully dollarized, most are not. In Argentina, for example, the local currency (Argentine peso) is extraordinarily volatile, making it important for citizens to seek a safe haven by banking abroad.
However, there are reasons for some of the restrictions – mainly connected to money laundering and corruption issues. Traditional banks in Latin America are heavily regulated and bear a great deal of responsibility to know their clients and their money trails. Many fintech operations are more lax on this, but that is unlikely to last forever. How they deal with eventual regulation will be a key test.
Brazilian unicorn Nubank trades on the New York Stock Exchange and had an IPO valued at USD$45bn. The stability of being listed in New York makes it an attractive investment opportunity for international traders, not only regional players, and with good reason. Income, assets and equity are all on the rise, with lots of room for further expansion regionally.
Why Latin American Fintech Stocks Are a Smart Investment
Latin American stocks often stand out for a winning combination of factors. Asian stocks are often hard to buy into and can be opaque; European stocks offer low yields; American stock often comes with a hefty price tag. However, Latam fintech and neobank stock is usually freely traded, has the opportunity for high returns and can be very competitively priced.
The region continues to be overlooked by many investors, often because of largely outdated stereotypes and a widespread perception of instability. However, that’s becoming a thing of the past, with most countries now running fully liberalized economies that are keen to plug into the global system.
Company regulation is generally transparent, with financial information usually easily accessible. This stands in stark contrast to the way of doing business in the Anglosphere, where company monitoring is often rather slack and performance can be highly opaque.
Fintech, for reasons discussed below, is a great bet in Latin America. There is an enormous demand for financial services and a large number of unbanked people, meaning that the sector has lots of room for growth. While there are plenty of established operators, there is no shortage of opportunities for new entrants to the market.
In direct investment terms, this could mean providing seed capital to a startup (Mexico and Argentina stand out here) that is seeking to enter the market with a distinctive new product or considering company formation in Latin America. The latter option will provide you with far more control, but also requires a deeper understanding of local regulations, making it wise to consider working with a regional specialist such as Biz Latin Hub.
Why Has There Been a Rise in Financial Services in LATAM?
For decades in most countries in the region, the banking system has been ultra-conservative and risk-averse, meaning that many Latinos found it hard to open a bank account and were excluded from financial services. Having a large number of unbanked people was a natural consequence of this and simply seen as natural.
However, that large untapped market of unbanked people represented an enormous opportunity for investors more comfortable with risk. In 2013, that’s what David Vélez and Cristina Junqueira did when they founded NuBank, the poster child of new banks in Latin America. Now, it has annual revenues of USD$8bn and is seeking to be the top dog in the entire banking sector of Brazil.
The central idea behind the majority of these operations is democratization of banking access and financial involvement. They seek to give opportunities to excluded people rather than behave like an exclusive club you should feel privileged to join.
Latin America’s Fintech Boom: From Early Success to Regional Expansion
After early initial successes proved the naysayers wrong and demonstrated that the model could work, there was an immediate rise in Latam’s financial services markets. Most of these operators limited themselves to their home markets at first but rapidly looked at regional expansion.
That means that there are dozens upon dozens of fintechs and new banks operating across Latin America. Some of these cater to incredibly niche audiences, such as the LGBTQI community (Pride Bank) or gig economy workers (Zizzi). Almost every market supports at least one or two big players as well as smaller competitors.
Even with the impressive rise in financial services in Latam, there remains insatiable demand in most markets and plenty of room for further expansion. As the region opens up more in general and is ever-more interconnected with global markets, it’s becoming harder to ignore fintech and neobanking in Latin America.
