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As Fintech Consolidates Worldwide, a New Crop of Unicorns Is on the Horizon

November 14, 2019

Latin America will continue to benefit from ongoing robust venture capital investment in fintech. With the huge demand for financial services, it has significant runway for new ideas and new development.

Tory Jackson

Director of Business Development/LATAM
But Latin America May Buck the Trend with More Fintechs and More Unicorns

Financial technology (“fintech” for short) is making a significant impact on the lives of people around the world—from providing mainstream financial services to those without previous access to the banking system, to receiving government payments, to sending and receiving money internationally.

Right now, there are 11,500 companies across the globe whose primary focus is fintech, with about 3,000 of those focused on payments fintech; that is, getting money from one person, business or government to another.

And for a decade, fintech has been the darling of venture capitalists.

In the first half of 2019, investors poured $15.1 billion into fintechs globally, with Latin America-based startups receiving nearly $800 million of that amount. Why so? Firstly, because venture capitalists are attracted to success and the most successful fintechs have generated stratospheric valuations. Every VC wants in on the next Stripe ($22.5B), Adyen ($19.5B) or Nubank ($10.0B). And, secondly, because investors recognize the tremendous opportunity inherent in expanding digital banking opportunities, which is an especially important driver of fintech growth in Latin America.

For much of the world, however, the trajectory of fintech is about to change, and the result will be fewer fintech businesses overall and more fintech unicorns; that is, privately held startups with valuations exceeding $1 billion. Look for the number of fintech businesses worldwide to drop by half within the next three to five years, while valuations of the remaining companies and the number of unicorns among them will soar.

Why? Because in the more developed fintech markets—like North America, U.S., Europe and Asia—venture capitalist will become more discriminating about the companies they invest in. Startups will face increasing difficulty obtaining funding. Consequently, the fintechs in those regions that disappear because they’ve exhausted their funding without gaining market traction aren’t as likely to be replaced by newly minted ones.

Other fintechs will be acquired; some scooped up by traditional banks or businesses to strengthen their payments operations. Still others will merge to create larger, stronger businesses. And the strongest will continue to receive support from investors, which will focus increasingly on proven companies in their later funding rounds. This transition is already underway, because a maturing fintech environment doesn’t need 11,500 participants.

The Anomaly in Latin America

Yet, Latin America may be the exception to this worldwide trend. On one hand, there certainly will be more Latin America-based fintech unicorns—up and comers likely include Ualá, Klar, Konfío, Clip and Billpocket—so in that sense Latin America is in step with the rest of the world. On the other hand, Latin America, likely will buck the rest-of-world fintech consolidation trend with a growing number of fintechs.

Why is Latin America the anomaly?

The answer is twofold: Firstly, because Latin America has a huge, burgeoning economy with a population eager for all kinds of financial services that fintechs are best positioned to deliver. And, secondly, because a regulatory environment is emerging, as in Mexico, to promote sensible and regulated growth of fintechs offering these services. It’s a perfect storm in the making for strong fintech growth.

Latin America’s Vibrant Fintech Future

Latin America will continue to benefit from ongoing robust venture capital investment in fintech. With the huge demand for financial services, it has significant runway for new ideas and new development. Along with investment capital fueling fintechs that are already proving themselves, it’s predictable that money will also flow to true startups just beginning their fintech journey.

Of course, the growth of fintechs and fintech investment will not be uniform across Latin America. The larger economies and those creating regulatory and infrastructure frameworks—like Brazil, Mexico, Colombia and Argentina—will continue to lead, at least for the foreseeable future.

And, the natural economic effects of a maturing market are still in the future for Latin America, where innovation still reigns.

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