What can Messi, Neymar and Suarez tell us about banks and fintech companies?
On May 26, 2013, a tweet from FC Barcelona confirmed that the 21-year-old Brazilian striker Neymar Jr. had accepted a multi-million dollar contract to join five-time Ballon d’Or winner Lionel Messi in the Catalonian soccer team. Fourteen months later, the same club hired the Uruguayan star Luis Suarez. A couple of weeks later, Barcelona’s legendary player Johan Cruyff suggested that the new hiring could ruin the team: “The three of them are too individual; I can't see how Barça intends to continue playing…” Fintech firms, the emerging financial service sector of the 21st century, are flourishing across Latin America and the Caribbean with no exception. The Inter-American Development Bank and Finnovista have identified more than 700 Fintech firms in 15 out of 18 countries in the region. Bullish observers believe the emergence of Fintech companies represent the end of traditional banks; the skepticals claim Fintech firms are not meant to last. Though it is difficult to anticipate how tech innovation will shape financial intermediation in the future, market participants have more to win in a collaborative “ecosystem”, rather than playing a zero-sum game. Business opportunities are huge for all participants and every player has something to bring to the table. The field for FIs and Fintech firms in the region Credit still represents, on average, less than 45% of the gross domestic product (GDP) in Latin American and Caribbean countries, well below the average 150% in developed countries. For example, in Argentina, one of the richest countries in the region, credit represents less than 15% of GDP. On top of this, half of the adults in the region do not have a banking account and, in some countries, such as Nicaragua or Peru, this ratio hits three out of four citizens. Cash continues to be the most used mean of payment in the region with 90% of utilities paid in cash, according to some studies. [clickToTweet tweet="Credit represents less than 45% of the GDP in #Latam and #Caribbean countries" quote="Credit represents less than 45% of the GDP in Latin American and Caribbean countries" theme="style1"] However, the region benefits from a huge advantage: technology adoption is incredibly fast. Mobile penetration reaches 70% of the population, comparing relatively well with the 84% enjoyed by Europe, the world’s most developed continent mobile-wise, according to GSMA. On top of this, Latin America is expected to be the second fastest growing mobile market in the next five years, setting the perfect platform for fintech companies’ growth. Fintech firms’ biggest assets are their accessibility through digital and mobile channels, their agility and velocity to adjust to a changing environment, and their capacity to maximize the customer experience. According to Capgemini, almost 70% of costumers would refer their fintech service provider to a friend, but roughly 45% to their bank. On the contrary, though the gap is closing, traditional banks take the lead when talking about trust. 60% of consumers completely trust their banks, no matter the quality of the service, indicates the study. In the same line of thinking, although fintech companies are gradually diversifying their funding sources, banks have a wider reach in terms of access to capital and cheap and stable retail deposits. And banks also benefit from the regulators’ blessing. A new game strategy for Latin America and the Caribbean At the Inter-American Development Bank Group (IDB Group), we believe collaboration should be the rule and not the exception. That’s why, in the context of the 2017 Mobile World Congress, we launched FINCONECTA, a 10-month program dedicated to create the first interconnected ecosystem of solutions between financial institutions and leading fintech firms to foster the exponential growth of the financial industry. The results will be announced in the FOROMIC 2017, to be held at the end of October in Buenos Aires. [clickToTweet tweet="1 out of 3 #banks operating in #Latam are already partnering with #fintech companies" quote="One out of three banks operating in Latin America are already partnering with fintech companies" theme="style1"] “Messi knows that the players around him make him a better player, and he makes his mates better too,” affirmed former Barça’s head coach Luis Enrique in an interview. In the last three seasons, Messi, Neymar, and Suarez have scored more than 300 goals by playing together. According to a study conducted by PWC, one out of three banks operating in Latin America are already partnering with fintech companies, and more than 80% expect to be doing business together in the next three to five years. The ball is rolling. It’s time to let banks and fintech firms play together and consumers will be as happy as Barcelona’s fans. You can also see more on the impact of the fintech revolution in Latin America and the Caribbean on this full report. Subscribe to receive more content like this! [mc4wp_form]
Five Fintechs Disrupting MSME Finance
Big data is changing everything from the way we shop to how we travel. Financial technology companies (fintechs) are now following in the footsteps of giants like Amazon, Airbnb and Uber to transform the banking industry in the digital age. Fintech solutions have shown particular promise across emerging markets where big data is used in advanced credit analytics to help determine a borrower’s creditworthiness based on non-traditional indicators like cell phone usage and social media activity.
Securitization: What Can It Do for Lending Techs in Latin America and the Caribbean?
Fintech lenders in the region identify financing as one of their major challenges. Securitization can help them in accessing more investors and drive down financing costs.
What kind of support from the public sector do Fintechs need?
Creating regulatory frameworks, opening doors to dialogue and a flexible attitude toward change are key factors for generating development in Fintechs for Latin America and the Caribbean.
TechFins, MSMEs and ecommerce are reshaping the economic development of the LAC region
First it was the FinTechs. Now, TechFins and their expansion through MSMEs lead a new digital economy in Latin America and the Caribbean.
Financing value chains: A need for speed
The technological revolution has come to stay in finance, bringing with it a transformation in how small and medium enterprises (SMEs) in value chains obtain financing and streamlining relations between anchor companies and their suppliers, customers, and collaborators. How does it work? Imagine a company that manufactures aluminum auto parts in Mexico, the principal anchor between the metal supplier and the customer who buys the finished product. The supplier requests the payment as soon as possible, within 30 days, due to its limited working capital. However, 270 days elapse from the time when the company receives the supplies and produces the parts until the sale of the final product. Clearly the money cycle does not match, and the company must pay for its purchases before producing the parts, making the sale and even charging the customer. Existing market conditions make the situation even more difficult, and the increase in aluminum prices does not allow price adjustments from the company to the customers at the same pace that price metal fluctuates. This means that costs for the company increases more rapidly than the final price of its products. Not only Mexico’s automotive industry suffers from the complexities of the cash flow ratio (between the average period to pay the supplier, process the supplies, and collect from the customer), it is even worse in other industries, such as supermarkets. Moreover, the World Trade Organization says that half of all SME requests for financing are rejected, compared to only 7% of the requests made by multinational companies. Access to appropriate and timely financial services for all actors in the value chain is key to achieving successful results. Not only large companies, large producers and traders need access to appropriate financial services suited to their money cycles; small producers need them even more for their survival and financial balance. Thus, value chain financing seeks to fill the gaps created in the anchor company-supplier relationship, as well as to mitigate the perceived risks through innovative ways of providing financial services. But what is the relationship with technology? Value chain financing requires trusting and durable relationships among the different actors and financial institutions. Each party involved must know and understand the other. Access to innovative and flexible financial products and services is vital. Financial technology (fintech) companies help to make this happen and ensure that financing is flexible, transparent, reliable, and accessible 24/7. Fintech companies are a bridge between the anchor company’s requirements and its suppliers and collaborators, through technologies applied to banks’ middle and back offices. By using internet platforms, fintech allow millions of SMEs to access loans, under conditions equal to those enjoyed by larger and more established companies, the missing piece in the puzzle without any doubt. Most financial innovation companies in Latin America and the Caribbean have arisen in the region’s largest markets, including Brazil, Mexico, Colombia, Argentina and Chile. Alliances between fintech companies and financial institutions have been key to bringing promising solutions to scale. But it is not simple. IDB Invest is an essential part of the value chain financing circuit in the region, through strategic alliances with its clients (the region’s large anchor companies) and fintech firms. These alliances allow IDB Invest to support the base of the pyramid in Latin America efficiently. The first step was taken in Mexico, where a framework contract was signed with the fintech eFactor, a Mexican company that offers electronic factoring services for the discount of credit rights derived from the demand for goods and services by large buyers. This marks an important milestone for IDB Invest in its value chain financing transactions and in the creation of scalable and efficient solutions. You can also see more on the impact of the fintech revolution in Latin America and the Caribbean in this full report. Subscribe to receive more content like this! [mc4wp_form]