Historically, there is major disparity in Latin America when it comes to financial inclusion and one of the catalysts for the recent boom in fintech companies is the growing demand to close the gap using technology. To gain more insight about this dynamic that has significantly impacted the region, we interviewed Ingrid Barth ("IB"), a leading Fintech entrepreneur and founder of Linker Bank, and Miguel Arias ("MA"), CEO of K Fund and former head of Telefonica's venture interests.
1. How has the fintech landscape evolved globally and in Latin America in particular over the past years?
MA: The fintech landscape has changed dramatically. Founders have become more sophisticated, massive funding has poured into Latin American companies and consumers appreciate the benefits of using new tools, apps and services which have become mainstream. It is a night and day difference. It is impossible to talk about the development of fintechs in the global environment without also talking about the regulatory sector, central banks, and regulatory entities (for example, capital markets also have a role in the innovation sector) in deciding how to include more people in the financial system.
IB: In Brazil, we estimate that at least half of the population is unbanked or semi-banked, that is, that has poor financial services. So, it was in this context where the urgent need for financial inclusion coupled with the fintech and technology sector that we saw developments in this sector accelerate. What is happening in Brazil is part of a global movement that touched on several themes: technology, the development of startups, the existing demand from people who were not yet inserted in the financial market, or poorly inserted, and the regulatory environment.
2. Though we talk about Latin America as a region, we understand incentives and regulations greatly vary from country to country. In your view, are there any jurisdictions that you consider fintech friendly?
MA: Brazil is quite fintech friendly despite being bureaucratic and difficult to navigate. However, nowadays Brazil is a leader in open banking. In addition, countries like Mexico and Chile are creating interesting mechanisms in their new fintech laws to regulate crowdfunding proactively, while other countries are enabling sand boxes and providing spaces where startups can validate the feasibility of their projects before scaling up their investment efforts.
IB: Although Brazil has a mature, well regulated and secure financial market, it is not very inclusive due to several factors, including lack of trust in traditional banks and the cost to maintain an account. But, since 2014, we have made important advances with the creation of payment institutions, and the development of legislation to encompass arrangements in the payment market, which has allowed us to create digital payment accounts that today are paramount within the universe of the strongest fintechs. I believe that this combination of demand, the search for better, cheaper and more personalized alternatives with the favorable regulatory environment, made Brazil to have such fintech boom, which, in my opinion, is still just beginning.
3. What are the most pressing challenges faced by founders when considering/ assessing a company that delivers innovation in the fintech sector?
MA: This varies greatly depending on the maturity of the market, but right now in markets like Brazil, the biggest challenge is the strong competition, not just by the incumbent, but by other well-funded scale-ups, which have the resources and the ability to branch out and expand with new segments or adjacent spaces very quickly.
IB: Speaking as a fintech founder, when you create a fintech product, your MVP (minimum viable product) has to be functional and it has to be secure. I have this joke that, even if a fintech is not actually a bank, it must have the security and technology of one. This is derived from good, experienced professionals, who often go to a bank instead of a fintech, because they are able to pay much more for the professional services that are not necessarily present in the beginning of a fintech's operation. This ends up putting very strong pressure on fintech founders to obtain capital (via venture capital and investors) to finance the minimally operational project and get it up and running. Additionally, you are not only competing for these good, experienced professionals with other funded fintechs, but also with the entire financial market. That's a lot of pressure to meet the demands and scale a fintech business.
4. As you look towards the future, what are your hopes for greater financial inclusion in the Latin America region?
MA: The region is the home of some great initiatives that use new technologies and its platforms, like blockchaincrypto, to create tools and services that help with financial inclusion. I like the efforts in this sense that are being led by the Inter-American Development Bank lab.
IB: More than the innovation of financial products and services, what would be excellent for financial inclusion in the region would be finding a model that also provides financial education. The fintech model is innovative because it ends up educating users through the use and simplicity of products, which combine technology. However, we know that there is still a long way to go in terms of financial education and its ability to reach the population. Consequently, expanding financial products and making them more democratic makes people use these services for a good purpose (such as for credit). There is no way to talk about financial inclusion without talking about financial education.
Conclusion
In a world where need meets opportunity, the Latin American fintech world has found in the unbanked consumers/population a fertile ground for growth and inclusion. The current boom related to the fintech activity might be just the beginning of a financial transformation. Market dynamics and regulation make Latin America a promising place to start a fintech company. As a result, these new winds of change should also carry with them a path to economic growth and a bridge to financial inclusion.
Meet our Interviewees
Ingrid Barth: Ingrid is the founder and current COO at Linker Bank. She has also served as a member of the open banking board at the Brazilian central bank, acted as executive director of the Brazilian fintech association, and has been a member of the Comite de Jovens Empreendedores (young entrepreneur committee) at the São Paulo State Industry Federation. In addition, Ingrid is currently the Vice President of the Brazilian Startup Association.
Miguel Arias: Miguel is a Partner at K Fund. Miguel has over 15 years in the venture capital market, starting in the webcasting industry with his company Imaste, which was later acquired by ON24 Inc. Miguel later became an integral part of CARTO(DB), while working from its Madrid and NYC offices. Subsequently, he was appointed as Global Entrepreneurship Director at Telefonica, where he led investments in more than 130 startups in Europe and LATAM in fields such as Cybersecurity, Data, AI, and Fintech.
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