Latitud research: after the funding growth, fintechs should goal niches and financial institution failures
- December 3, 2022
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Latitud platform reports map main trends for fintechs in Latin America
Despite the increasing digitalization, consumer relations and the main banking services in Latin America are still in their infancy in terms of quality and agility, creating a fertile scenario for startups that strive to solve these and other problems in the sector.
The analysis is from an unprecedented study on the universe of B2C fintechs in the region, carried out by latitudea support platform for entrepreneurship and startups in Latin America.
The study “Latin America: Future of B2C Fintech” it is part of a larger report produced by Latitud on seven different industries, The LatAm Tech Report. The purpose of the report is to map the main trends and opportunities in different sectors of the economy — and consequently envision more promising paths for startups looking to stand out in the region.
Currently, the Latin America has more than 1,000 fintechsand Brazil leads the ranking with 689 companies.
In terms of investment in these companies, Brazil is also on the rise. Brazil accounts for nearly 80% of all funding raised in the region since 2014, followed by Mexico with around 10% of the total. In 2021, total fintech funding in Latin America reached a record high of $12.9 billion in 315 rounds.
Despite the greater volume of investments in consumer fintechs (B2C), investor predilection remains for digital banks and loans, which concentrate 89% of all financing of consumer fintechs since 2014. 5% of the record total funding.
What are the trends
According to Latitud, chronic problems in the region should guide the performance of fintechs B2C (business to consumer) from now on. Among them, dependence on cash, which still accounts for something like 85% of all personal retail spending, as well as high rates of unbanking and abusive bank fees.
Banking concentration is also mentioned. According to Latitud, the five largest banks in Brazil, Mexico and Colombia control 70% to 85% of all loans, deposits and bank revenues.
The scenario may collaborate with the rise of new competitors willing to fight for the attention of an increasingly demanding consumer, adept at new technologies and reticent to the exacerbated fees generally charged by traditional banks.
The study points to an exodus to digital banks, as well as to digital and more agile payments, like Pix. Other trends mapped are:
- Migration to embedded finance;
- Search for investments with greater profitability;
- Adoption of cryptocurrencies and digital currencies;
- Higher number of mergers and acquisitions (M&As) in the sector;
The study also details trends by sector of fintechs with services to the final consumer. They are: digital banks, loans, payments, investments, financial education and personal finance and insurance.
In the case of digital banks, the most common movement is to focus on new demographics and offer customized products are trends in the present and in the short term. An example is in product offer for generation Zmade up of young people between 18 and 26 years old.
In loans, the differential will continue in the offer of more flexible prices and more specific clippings targeting demographics and ancillary products. In payments, the tendency is to merge categories and go beyond transactions, entering areas such as loans and even cryptocurrencies, in combinations of services.
In investments, some opportunities are alternative assets capable of promoting social experiences, with an eye on the effects of the network economy. In the category of financial education and personal finance, the adoption of solutions related to Open Bankingcopying the movement already started by the big players, is the main trend.
Finally, in insurance, the trend mapped by Latitud is the massive offer of insurance by digital banks, in a synergy of insurtechs and fintechs, which now offer both types of products together.
what can get in the way
In addition to the trends, Latitud endeavored to also point out the main challenges for the evolution of fintechs and for the definitive adoption of these and other trends. The main imbroglios, according to the platform, are related to regulatory issues and lack of consumer confidence in financial institutions, in addition to impasses with personal data security and hiring talent, a common pain in the technology sector.
The report also highlights the slowdown in venture capital investments in 2022, compared to 2021. In this scenario, it is expected that the lower volume of resources available to these fintechs will also postpone technology launches, grandiose rounds and IPOs.