The COVID-19 pandemic has accentuated the relevance of fintech solutions for promoting economic growth and social development in Latin America. Even though most industries were forced to a halt with the worldwide adoption of social distancing measures and lockdowns, people still needed to pay for their services and cover their basic needs.
The solution for many was to recur to fintechs that offered innovative solutions for making contactless payments, manage their finances or buy online for the first time– as was the case for 50 million Latin Americans in 2020.
Technology is acting as a key driver to financial inclusion by reducing the cost of expanding financial services in emerging markets like Latin America, where only 54% of the adult population has a bank account and 41% have debit cards.
Latin American startups have demonstrated tremendous resilience contributing to pandemic relief efforts, adjusting their operations, and pivoting their business models according to the demands and changes in consumer behavior brought on by the pandemic.
There are four female entrepreneurs that are making waves in the region’s fintech sector and should be in your watchlist: Cynthia Villar (MiBolsillo), Mariana Boot (Akredito), Anabel Perez (NovoPayment), and Victoria Blanco (Ábaco).
These entrepreneurs, also finalists of the WeXchange Women STEMpreneuers Competition 2020, are creating solutions that are serving vulnerable market segments such as indebted people and gig economy workers and tackling some of Latin America’s most pressing problems including the lack of formal financial services and the gap between fintechs and traditional banking.
Cynthia Villar, financial health for the unbanked
Cynthia Villar has been an entrepreneur for more than 15 years. She was born in Lima, Peru but had a nomadic upbringing between Paraguay, Canada, and the US. The constant change instilled in her a sense of resilience and adaptability that have helped her throughout her entrepreneurial journey as co-founder of MiBolsillo.
During her university years at Universidad San Ignacio de Loyola (USIL), she realized that her true passion was a hybrid between science and humanities and specialized in market research and consumer behavior.
She eventually decided to start her own marketing and advertising agency for medium-sized companies and experienced firsthand the lack of access to formal financial services that SME owners face in Latam.
“The main problem that every SME entrepreneur faces is the lack of cash and preparation to access services or formal financial solutions that will help them grow. Without this foundation, they are unable to access services with decent rates, and end up burdening themselves with a host of problems that are very difficult to solve,” explained Cynthia.
In Latin America, about 50% of the adult population is unbanked or underbanked. According to Cynthia, the heavy reliance on cash combined with the informal nature of regional economies is an obstacle for microfinance institutions.
“In our region, SMEs make up 99% of the private sector, however, 80% of them are informal,” said Cynthia.
According to a study conducted in 2016, these SMEs are less competitive than their global counterparts due to the lack of access to financial services which represents $34B of unplaced funds. Granting credits, loans or other financial solutions in Latin America requires significant human intervention which results in processes that are very costly and inaccessible for the unbanked segment.
Cynthia immediately fell in love with the idea of helping other SME entrepreneurs avoid going through the same frustrating experience she had. Bringing together her passion for science, math, and statistics through social impact Cynthia co-founded MiBolsillo, a mobile app that automates financial health. The app helps users build a digital financial identity that allows them to access formal financial solutions that fit their needs and profiles. Today, MiBolsillo operates in Brazil, Peru, and Guatemala and after participating in SUP Chile and SUM they will soon enter Mexico and Chile.
MiBolsillo leverages the use of technology to create a solution that reduces the human bias generated by traditional credit models. The app helps SMEs increase efficiency and customer loyalty by reducing acquisition costs, delinquency rates, and accompanying clients in the debt repayment process to maintain their financial health.
Cynthia considers that over the last 10 years connectivity, technology, and the Internet have significantly changed the way business is done. In 2018, almost 50% of the population had access to a mobile phone, and according to Finnovista and the IADB, there are 703 fintechs in Latin America. This evolution and the onset of the pandemic have shown the limitations of traditional financial institutions to help the more than 400 million unbanked and underbanked people in the region.
“I believe that the presence of startups like ours within the ecosystem will help to continue reducing the access gap while preparing more people and owners of small and medium-sized companies to continue growing adequately by having formal financial services with fair prices and rates for all,” said Cynthia.
Cynthia observes three clear trends in the sector:
- Further virtualization as people seek more digital solutions to solve their needs.
- A continued search to integrate more people in the formal financial sector. On one hand, financial and microfinance companies need more people eligible for loans and, on the other hand, micro-entrepreneurs cannot grow properly without access to formal and fairer financial solutions.
- Fintechs that focus on financial health and B2B2C models.
Mariana Boot, a second chance for the indebted
Mariana Boot was born in Curaçao to Brazilian parents and spent her childhood between Cuba and Paraguay. Raised in a family with a strong ‘entrepreneurial culture’, Mariana couldn’t see herself doing anything else but being an entrepreneur.
Her biggest inspiration is her father, who for many years had worked at a bank until he decided to follow his dreams and open his own business. This moment shaped Mariana and her siblings’ outlook on life forever.
“We feel comfortable taking risks and admire everything it takes to be an entrepreneur,” commented Mariana.
While interning at Lagoa Investimentos, a call from an ex-colleague working in the US piqued Mariana’s interest in Brazil’s fintech scene. She came across the reality of a staggering 63 million Brazilians who are blacklisted in credit bureaus and do not have access to any type of credit, often getting turned down for jobs, and becoming financially excluded from society.
What had started as Mariana’s university thesis transformed into a full-fledged startup and Akredito was born, with the aim of creating an accessible platform to help this segment of the Brazilian population reinsert itself into the financial system.
As opposed to other players in the ecosystem that collect individual debts for creditors, Akredito looks at the problem holistically. In Brazil, there are about $50B in registered blacklisted debts.
“Our mission is to remove the client’s name from the blacklist […] We identify all debts, negotiate each debt, consolidate and refinance, charging installments that are maintainable. We only make a proposal if it includes all delinquent debts to totally restructure our client’s finances,” explained Mariana.
With the onset of COVID-19, a solution like Akredito has become more timely than ever. After resuming operations during quarantine in 2020, they were able to facilitate payments and keep offering a decent default rate. The platform already accepts clients from all over Brazil.
“Our next steps are to further automate our platform so we can scale whilst maintaining the quality of our service. Our business is capital intensive so we are always on the lookout for investors that have synergy with what we are doing,” said Mariana.
Anabel Perez, closing the tech gap in the banking sector
Before starting NovoPayment, Anabel Perez served as Senior Vice President at a bank and was the only woman on the executive board. Originally from Venezuela, Anabel has been living in Miami for more than ten years and although her training is in banking, she considers herself a techie at heart.
“My father owned a successful technology services company. I learned at a young age how to transcribe punched cards (an early medium used for computer commands) while helping him. I suppose I got the entrepreneurial bug’ from him,” commented Anabel.
Her experience in banking gave her invaluable insight into financial services and regulated entities. She explains that she gained an understanding of the limitations of traditional banking and where it struggles to meet the needs of retailers, companies, and consumers.
The idea for NovoPayment emerged from this blind spot in the traditional banking sector. There was a need for a solution to offer electronic payments in the region and Anabel aimed to meet it through NovoPayment.
Quickly, the solution gained market share and expanded throughout Latin America.
“We solve some of the most consequential challenges facing today’s financial services and enable some of its most sought-after use cases. Closing the tech gap between bank legacy systems and their customer’s evolving needs,” said Anabel.
Some of these use cases include the ability to digitally open a bank account and instantly issue a virtual payment card via mobile phone. This application enables businesses to manage and embed innovative financial services into their product offering.
“We do it over a secure, API-based platform or tech stack that’s integrated with multiple systems and key networks and is multi-country, multi-currency,” explained Anabel.
One of NovoPayment’s differentiators is that it brings together in one place what would otherwise require assembling a network of specialized organizations ranging from software houses to front-end developers, processors, and core banking technology vendors, among others. NovoPayment has developed solutions for clients such as Rappi, Banorte, Kubo Financiero and Chin Chin.
Since the world was taken by storm with the pandemic, Anabel has observed a major shift in the market.
“The need for digital models has gone from being something you could postpone to a real requirement of doing business and contemporary life,” said Anabel.
According to the Venezuelan entrepreneur, the main challenge for financial services in the region is their ability to keep up with the demand and the speed of innovation.
“Open banking in Latam is going to be more disruptive than anywhere else in the world. The region’s FIs have had the highest return on equity (ROE) in the world –while other regions shrunk– despite lots of inefficiency and large underserved segments of the economy,” commented Anabel.
She explains that the market opportunity for Open banking is huge:
- About 550 tier 1 through 3 banks in Latam (assets of $100B to less than $5B)
- The total addressable market to be captured is a $10T opportunity ($4T in P2P and B2C and another $6 T in B2B)
- Gig economy opportunity alone is estimated at $34B
In terms of expansion plans, NovoPayment’s primary focus is the US, but they will continue to expand to other Latin American markets as their clients demand it.
Victoria Blanco, the democratization of financial services
An opportunity to develop marketing strategies for Deloitte brought Victoria Blanco to Colombia from her native Spain. Born into a family of entrepreneurs, she has always known what it takes to start a company from scratch.
Her background in computer engineering prompted her to work in the technical area of companies like Airbus at the beginning of her career. But eventually, she transitioned to more of a business profile and worked in various consulting firms and banks.
It was in Colombia that she was inspired to follow in her family’s footsteps and embark on her own entrepreneurial journey.
“In Latin America, two things come together: the great journey that is developing new ideas and the enormous potential to have an impact on people and their quality of life. Perhaps it was the combination of these two things that motivated me to start a business there,” said Victoria.
Through Abaco, Victoria decided to address the challenge of democratizing financial services, specifically in the access to credit and investment products. She considers that access to fair credit is a fundamental requirement for a society to grow and generate equal opportunities among different segments of the population.
“With an analysis of the client profile from a different angle that is based on the transactionality of mobile apps, we allow the underbanked segment to access loans for productive assets. This allows them to work and autonomously generate their own wealth,” explained Victoria.
Abaco collects information from its users’ economic activity and their financial behavior to create a credit score model that allows them to access further services on the platform.
Victoria believes that the gig economy and freelancers are the future.
“We envision the future of hiring involving specialized services completed in short and medium-term contracts, and above all through digital channels,” said Victoria.
For Abaco, the pandemic represented the leap towards digitization and the future system of microservices that they had predicted. The digital transformation facilitated the democratization of services through easy access to products on e-commerce platforms and the ability to earn an income working on apps that offer a multitude of services, flexible hours, and the possibility to take on other jobs or studies.
Victoria explains that the fintech revolution, though very positive, must take into account the sustainability and the ethics of the models that are created ensuring that clients are not penalized in the future. As for expansion plans, Abaco will focus on growing in large countries in the region as well as smaller ones with greater inequality.
“The main challenges lie in truly understanding the customers and in the ability to change habits. And the greatest opportunity is the market and demand for our solution,” said Victoria.