Investment in Latin America is drying up because of the global pandemic.
COVID-19 is expected to dent Latin America’s fast-growing fintech market this year, as investment freezes up while waiting for the pandemic to stabilize.
“Growth will fall a lot,” concedes Ignacio Carballo, director of the executive program in Fintech and Digital Banking at Universidad Católica Argentina Business School. “It’s hard to see how last year’s levels will be replicated.”
Last year saw a whopping 180% investment jump to $2.7 billion, as 94 startups piqued investors’ interest, notably Colombia’s delivery app Rappi, Brazil’s digital bank Nubank and Argentine mobile wallet Ualá.
According to regional consultancy Finnova, 82 firms drew equity injections while 12 received loans. Brazil led the frenzy, attracting $1.3 billion in investment. Mexico followed, with $396 million, and Argentina with $152 million. Digital banks attracted most of the investment dollars, with loan and payment unicorns (companies valued at more than $1 billion) following closely behind. Healthcare, insurance and tax payment firms also wooed expansion currency.
While fintech investment could decline sharply, it may still eclipse flows into other asset classes such as IPOs, bonds, loans or real estate, experts say. “Fintech is on a growth highway of its own,” says Carballo. “When one looks at growth in the past few years, the sector grew at a much faster pace than other asset classes, even in some economies that were seeing paltry growth, such as Brazil, Mexico or Argentina.”
Jorge Ortiz, who leads fledgling Mexican mobile-payments and digital-identification app Tan Tan, agrees that the pandemic will stunt the sector’s rapid growth. Still, it is expected to spur digital payments and contactless interactions to avoid contagion. “This will drive investments, and I would not rule out we could still get around $1 billion [in 2020],” enthuses Ortiz. “We are seeing a brutal opportunity to develop technologies that reduce the risk of contagion, such as digital ID apps.”
And as governments force citizens to stay home, the region’s highly unbanked population should also fuel demand for mobile payments, prompting the likes of Facebook’s WhatsApp and Stripe to enter the market and take on established players such as Nubank, Ualá and Mercado Libre, analysts say.