LatAm Payments and Banking outperforms the F-Prime Fintech Index

by James · March 3, 2023

With last year’s addition of Nubank, the number of Latin American companies in the F-Prime Fintech Index grew to five, including PagSeguro, MercadoLibre, Stone and dLocal. The F-Prime Fintech Index is designed to track the performance of emerging publicly traded financial technology companies.

While the public market correction over the past twelve months has been broad, tech and fintech stocks have seen the biggest declines — the Fintech index was down 72 percent in 2022. The decline is particularly pronounced for the 10 biggest exits in the peak years of 2020 and 2021, including dLocal (down 77 percent) and Nubank (down 54 percent).

Despite the correction, scaled LatAm fintech companies (those with more than $5B market cap) are still growing at high rates. Nubank grew LTM revenues by 117 percent while MercadoLibre grew 54 percent, outperforming the average of 48 percent across the Fintech index.

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Payments lead the way

Four out of five Latin American companies in the Fintech index (PagSeguro, MercadoLibre, Stone and dLocal) have a payment business model. In fact, PagSeguro’s $669 billion in annual payment volume – 84 percent more than 2021 – was the third largest in the sector last year.

Thanks to its diverse revenue streams – ranging from payment processing commissions and mobile POS to consumer loans – MercadoLibre had the highest gross revenue as a percentage of total payment volume, at 8.6 percent. The second highest was dLocal at 4.2 per cent, followed by Stone at 2.7 per cent, and PagSeguro at 2.2 per cent.

LatAm payment service providers also have the highest cap rates, ranging from PagSeguro’s 4.1 percent to MercadoLibre’s 7.6 percent — far higher than the one-to-two percent charge rates in the United States. There are a couple of factors that could explain the higher adoption rates in Latin America, including the higher cost of service delivery in the region and a lack of options. However, the cost of providing services is likely to be much higher in Latin America, which dampens these net charge rates.

Banking thrives with the Super App model

Nubank has more users than any other neobank globally with an incredible 70 million users – more than Chase, an incumbent bank with 66 million users. Given the low banking penetration in the region and the underserved nature of the local population, the ceiling is very high for Nubank.

The company has become a financial super app, an achievement that American counterparts like Chime or Dave must envy. The financial superapp model (being a one-stop shop for all customer needs) tends to resonate better in emerging markets. Nubank enjoys the highest ARPU of the Fintech Index companies at $338, thanks to its “cross-selling mix” – pitching bank accounts, credit cards, investment accounts and loans to existing customers. As a result, Nubank has an average of 3.8 adopted products per active customer.

Bright prospects

Although LAVCA reported a 50 percent drop in VC investment compared to 2021 – from $7.8 billion in 2022 to $15.9 billion in 2021 – fintech remained the leading sector for invested capital. The category captured 43 percent of all dollars in 2022, up from 39 percent in 2021.

Meanwhile, Latin America still hit first-time records across all major markets despite the general pullback. Seed funding has always proven resilient through downturns, and this time a growing number of local fund managers continued to invest in early stage entrepreneurs.

While it takes time for LatAm companies to mature and go public, we remain active and optimistic about the region’s early-stage startup ecosystem.