Latin American Fintech is Flourishing

12 January 2022

Entrepreneurs who have led Latin America’s fintech boom are increasingly seeking European-led financial expertise to grow their companies and help with tax implications.

The Latin American fintech explosion shows no sign of slowing. The region is teeming with successful start-ups, so much so, that commentators believe Latin America is where the next billion-dollar fintech companies will emerge.

Leading the charge are the neobanks such as Nubank, C6 Bank and Neon Bank.

The biggest of these is Brazilian Nubank. It is the largest neobank in the world, with at least 35 million customers and a market capitalisation of over $24bn.

Nubank’s listing on the New York Stock Exchange (NYSE) has a target valuation of around £40bn.

Other fintechs leading the way included the Argentine ecommerce platform, MercadoLibre. It owns a mobile wallet business valued at US$2bn and offers high risk loans. MercadoLibra is also about to pilot a scheme allowing users to invest in cryptocurrency.

Brazil’s PagSeguro Digital is another rising star. The company, dubbed Latin America’s PayPal, has experienced tremendous growth and was also able to shrug off the Brazil Central Bank’s decision to cap interchange fees on prepaid card transactions, fees

Fintech and financial empowerment

Nubank’s success and that of its fellow fintech has been driven by a global digitalisation of financial services, which is notable for how it has been embraced by many of the world’s emerging markets.

Digital banking in particular has thrived thanks to high interest rates in the region, regulatory sympathy, low take up of traditional banking and, of course the pandemic.

Demographics have been pushing things along too millennials prefer to do their banking, and most things, via a smartphone. This form of banking also benefits the many small and medium sized businesses that make up the backbone of the wider Latin American market. Latin America’s youthful and entrepreneurial population is not its only advantage.

Mobile banking also benefits the regions’ rural and remote populations for whom travelling to a physical bank branch is basically impossible.

André Faria, Latin America advisor at opening banking company Volt, told Verdict there was a saying in Brazil: “The best business to have in the world is a well-managed bank in Brazil. The second-best business one could have in the world is a poorly-managed bank in Brazil.”

According to GlobalData’s, half of the entire Latin American population is unbanked and only 113 million out of the 625 million people in the region reportedly have credit cards.

But with all this tech comes tax

Latin America’s taxation regime is adapting to harness the wealth of its vibrant economies.

The pandemic proved a catalyst which saw Latin America countries including Bolivia and Argentina introducing or expanding wealth taxes, according to Forbes.

Forbes predicted the next country to watch in the region was Colombia. “In April [2021] lawmakers there introduced, as part of a broader tax reform package, legislation for a one-off wealth tax that would apply a 1% tax on net assets over the equivalent of $1.3 million and 2% on net assets over the equivalent of $4 million.”

A more robust taxation system has helped benefit Latin America’s infrastructure and made it a more efficient and attractive centre for multinational corporations; as pointed back as far as 2018 in a report by consultancy PWC. But for entrepreneurs, increasing wealth taxation remains a barrier.

Increasing attention

The growing adoption of fintech and the success in the region has attracted the attention of both international new comers including European iZettle, Tink, PayU, and Adyen – and from US Venture Funds – all keen to capitalise on this moment.

How ZEDRA can help

ZEDRA’s team of trust, corporate and fund specialists cover can advise on all aspects of business in Latin American countries. Our team of native Portuguese and Spanish speakers have close ties to the region and support a large number of Latin American entrepreneurs, taking care of their operations in-market and internationally. For more information, please contact Tomás Alonso or Mario Cohn.

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