Why Latin America’s thriving Fintech landscape is gaining global attention from business leaders

The fintech ecosystem in Latin America is growing stronger thanks to a combination of unprecedented market opportunities, digital transformation in the financial sector and growing investor interest across the region.

There are now more fintechs operating in the Americas than in any other region, with 13,100 registered companies, more than the 10,969 companies in second place in Europe. Latam’s key economies such as Brazil and Mexico have become driving forces in welcoming new, innovative startups locally.

Additionally, forecasts suggest that Latin America is not resting on its laurels in terms of fintech development. While the size of the Latam fintech as a service industry is estimated to reach $26.9 billion in 2024, it is expected to reach $1.59 trillion by 2034 at a CAGR of 19.3%.

It is these impressive forecasts that have drawn increased global attention to the region’s vast fintech landscape, and given the favorable regulatory environment across Latam, much of this growth can reasonably be expected to be driven by international interest in the unique market opportunities that Latin America offers.

Growth plans in Brazil and Mexico

Brazil has gained a reputation as the heart of Latam’s thriving financial and technological innovation center. Considering that five of the top 10 banks in the region are from Brazil, it is not surprising that the country also manages 40% of VC deals in Latin America and 70% of the share of VC dollars compared to neighboring countries.

There is also ample evidence that the Brazilian fintech ecosystem is gaining momentum on a global scale. The jewel in Brazil’s fintech crown is Nubank, a challenger bank that has managed to amass a market capitalization of over $72 billion, making it larger than traditional peers such as Santander, UniCredit and PNC Financial Services at the time of writing.

Brazil is home to the largest number of unicorns of any Latin American country and the largest neobank in the world along with Nubank, and David Velez, the company’s founder and CEO, attributes much of fintech’s growth to Latin America’s status as one of the “largest and most profitable” financial markets all over the world.

Similarly, Mexico has seen significant growth in fintech in recent years, with investors comparing innovations that came to Brazil five years ago. Both regions have demonstrated significant growth potential thanks to a network of passionate entrepreneurs, increasing availability of capital and regional success stories such as Nubank.

Perhaps most importantly, a perfect storm of an underbanked population, smartphone penetration, and a thriving regulatory landscape have combined to accelerate the growth of the fintech industry across much of Latin America. Most importantly, these regional trends are helping to create innovative startups outside the two leading local countries in the industry.

Latam’s positive regulatory framework

Latam countries have sought to build an enabling framework for fintech that supports the development of innovation hubs and regulatory sandboxes.

This framework can foster greater regulatory cooperation between innovators and their compliance obligations, while the use of sandboxes helps more companies develop their products under the supervision of regulators.

As a result, more fintech companies have the freedom to allow companies to operate under a specific set of rules to reduce the red tape and regulatory costs associated with bringing new products to market.

In Brazil’s vibrant fintech environment, innovation centers such as Brazil’s Laboratório de Inovação Financeira e Tecnológica (LIFT) have been established to test technology readiness in order to accelerate the development of new fintech technologies, promote the creation of new products and facilitate the introduction of new players to the market.

Other Latam countries, such as Mexico and Colombia, have experimented with sandboxes, organizing various supervised innovation competitions aimed at improving the quality of products entering local markets.

Elsewhere, other Latin American countries are also following the example of Brazil, Mexico and Colombia by launching sandboxes and favorable regulatory frameworks for innovation. In Caribbean countries such as the Dominican Republic, it is possible to take advantage of a more productive compliance landscape to, for example, enter Latam markets while maintaining proximity to the United States.

Increasing financial inclusion

According to World Bank data, much of Latin America remains unbanked, which could provide fintechs with a unique opportunity to reach an untapped market.

While the percentage of Latinos with bank accounts during the pandemic increased from 55% in 2017 to 27% in 2021, data shows that 26% of the region still lacks access to banking services. For context, this means approximately 122 million citizens without access to banking services.

These broad market opportunities for fintechs are driving international interest in opening up to Latam markets.

Even though 26% of the region’s population does not have access to financial services, GSMA data shows that 80% of the region’s population owns a smartphone and 65% has access to mobile Internet. Evidence of greater and growing smartphone penetration means that competitor banks in particular could benefit from the growing Latam market if they decided to expand in the region.

Tapping into the pool of fresh talent

Latin America is also attracting attention from fintechs around the world due to its deep wealth of industry-relevant talent. With many countries boasting a pipeline of skilled software professionals and data scientists, ambitious fintech companies have plenty of opportunities to set up shop in Latam while benefiting from profitable salary expectations and lower regulatory expenses.

By leveraging Latin America’s technology talent pool, international startups can improve their technical skills and become more competitive globally by establishing operations in the region.

Unlocking Latam’s potential

Latin America has a strong combination of low-cost talent, market opportunities and a supportive regulatory framework that can help drive fintech innovation well into the future.

For challenger banks, open banking companies and fintechs with diverse USPs, Latin America is a region ripe with expansion opportunities.