Latin America’s Fintech sector is seeing meteoric growth
More money is flowing into Latin America since the emergence of COVID-19, with foreign direct investment in Latin America picking up after the pandemic-induced slowdown. According to the United Nations Conference on Trade and Development World Investment Report 2022, FDI flows to the region grew to $134 billion in 2021, up 56% from the previous year. This is after flows fell by 45% in 2020, the sharpest decline recorded in developing regions that year.
Fintech investment in Latin America in particular has seen significantly accelerated growth since the start of the pandemic. According to the non-profit organization Association for Private Capital Investment in Latin America (LAVCA), the region saw the amount of venture capital almost quadruple in a year, to $15.7 billion in 2021 from $4.1 billion in 2020.
And according to the third edition of the study Fintech in Latin America and the Caribbean: A Consolidated Ecosystem for Recovery, published by the Inter-American Development Bank, IDB Invest and Finnovista, the number of fintech platforms reached 2,482 in 2021, a growth of 112% from 2018 until 2021.
Almost a quarter of fintech platforms globally – 22.6% – are Latin American and Caribbean. The country distribution in the number of platforms changed little since the last edition of the study and is still led by Brazil (31% of the total), followed by Mexico (21%), Colombia (11%), Argentina (also 11%), and Chile (7%) .
“With its deep historical roots in the finance and banking industry, Latin America serves as a perfect breeding ground for fintech startups,” wrote Andy Tsao, CEO of Silicon Valley Bank, noting that it is “a large economic region, but has highly condensed, urban cities.”
Since Latin American banks have typically served only the wealthy customers, a large part of the population is still underbanked. This has served as a great opportunity for a startup like Nubank to disrupt the credit and lending sector. In addition, the region is also seeing a growing population of young people (about 40% of the population is under 25 in countries like Mexico and Brazil) who are more used to tapping on smartphones.
Those looking to invest in the region may want to consider EMQQ Global Next Frontier Internet & Ecommerce ETF (FMQQ), which seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield of the Next Frontier Internet and Ecommerce Index (FMQQetf.com). The fund has no China-based holdings.
Securities must meet a minimum market capitalization of $300 million and pass a liquidity screen that requires an average daily turnover of $1 million.
When the fund launched in September, Kevin T. Carter, founder and CIO of EMQQ Global, said the goal of FMQQ was to “be an attractive option for investors looking to capture the emerging opportunities in these ‘next frontier’ markets and / or complement their China technology allocations and balance out their current portfolio weighting.”
FMQQ has an expense ratio of 0.86%.
For more news, information and strategy, visit our Emerging Markets Channel.
