Latam Fintech Ecosystem 2024: Insights from the Finnovista and IDB Report
The Inter-American Development Bank (IDB) and Finnovista presents the fourth report in the Fintech in Latin America and the Caribbean series, a collaborative effort since 2017 between. This study, unveiled at the fifth annual FintechLAC meeting in Bogotá, Colombia, with the support of the Grand Duchy of Luxembourg, provides a comprehensive and updated analysis of the state and evolution of the fintech sector in the region. Despite global economic challenges, the fintech sector in Latin America and the Caribbean has demonstrated significant growth and resilience, solidifying its role as a crucial component for innovation and financial inclusion.
Geographical Distribution of the Fintech Sector
In 2023, Brazil and Mexico maintained their positions as the main fintech hubs in the region, hosting 23.53% and 20.14% of the total fintech companies, respectively. Together, these two countries represent almost 44% of fintech companies in Latin America and the Caribbean. Colombia, with 13.33% of companies, Argentina with 10.17%, and Chile with 9.94%, complete the group of the top five fintech markets, which together account for 77.1% of the total companies in the region.
Countries such as Peru, Ecuador, the Dominican Republic, Uruguay, Costa Rica, and Guatemala show emerging growth, accounting for 14.8% of the total. The remaining countries in the region, including Panama, Bahamas, Paraguay, El Salvador, Bolivia, Jamaica, Honduras, Venezuela, Belize, Barbados, Nicaragua, Guyana, Haiti, Trinidad and Tobago, and Suriname, represent 8.1% of the total.
Predominant Business Models
The fintech ecosystem in Latin America and the Caribbean exhibits notable diversity in its business models. Business-to-business (B2B) solutions are the most prevalent, representing 40.1% of fintech companies. This model underscores the sector's role as a facilitator of efficiency and innovation.
Another 29.95% of companies offer platforms that connect businesses and individuals with financial institutions, highlighting fintech's role as intermediaries improving access to financial services. 22.28% focus on providing financial services directly to consumers (B2C), covering services such as digital banking, personal loans, insurance, and investments. Consumer-to-consumer (C2C) and collaborative consumption models are the least common, each representing 0.99% of the total.
Financial Expectations and Growth
Financial analysis of fintech companies reveals positive trends in terms of revenue and growth. In 2022, 39.6% of companies reported revenues in the lowest range, a figure that increased to 44.06% in 2023, indicating more companies entering the market or an adjustment in revenue expectations. However, there was also an increase in higher revenue segments, with more companies expecting revenues between USD 500,000 and USD 15 million.
Financing remains a significant challenge for fintech companies. In 2023, 58.85% of companies reported raising less than USD 1 million, although there was an increase in fundraising in the USD 1-USD 5 million and over USD 5 million ranges. This trend suggests a more robust investment environment and greater maturity among companies.
Challenges and Opportunities
Fintech companies face several challenges on their path to sustainable growth and expansion. 41.21% of companies identify scalability as their main challenge, followed by access to financing (19.16%) and innovation (10.76%). Regulation, product and service marketing, and cybersecurity are also areas of concern for fintechs.
Despite these challenges, the fintech sector in Latin America and the Caribbean remains attractive to investors. Although venture capital investment in technology has declined from its peak in 2021, interest in the fintech sector remains high, with a trend towards diversifying sources of financing and focusing on strategic growth.
Regulatory Environment
The creation of enabling regulatory frameworks is crucial for the development of the fintech sector in Latin America and the Caribbean. A robust regulatory environment can facilitate financial inclusion and innovation, allowing fintechs to contribute to the efficiency of the financial system and the real economy. The adoption of regulatory innovations such as sandboxes and innovation hubs is on the rise, and public-private collaboration is recognized as essential for informing public and regulatory policy decisions.
The fintech sector is experiencing constant evolution, with new emerging trends and opportunities. Crypto assets and open finance are segments with great transformative potential in the region. Additionally, competition within the sector is intense, with fintechs perceiving traditional financial institutions and other fintechs as their main competitors.
The fintech sector in Latin America and the Caribbean continues to evolve, demonstrating resilience and adaptability in the face of challenges. With sustained growth and diversification in business models and sources of funding, the fintech ecosystem is well-positioned to continue driving innovation and financial inclusion in the region. Collaboration among ecosystem players and a favorable regulatory environment will be key to seizing opportunities and overcoming challenges in the future.
To see the full study, click here.