This piece was originally published for Forbes.
This is the final post in the series exploring how fintechs have tackled inequality. While part two examined how biases and systemic discrimination persists in AI and mortgage lending, part three concludes with a spotlight on a region that has come to the forefront in the fight to narrow the income gap: Latin America.
Fintech in Latin America has been grown exponentially
Fintech investing in Latin America reached all-time highs in 2019. According to research from CB Insights, “In 6 years, Latin America fintech funding has grown from less than $50M to top $2.1B across 139 deals.” Fintechs in the region received an impressive 31% of total funding. This exponential increase was driven by three key factors: an improved regulatory environment, strong foreign investment, and huge technological advances in adoption.
The importance of this last point cannot be understated. Latin America boasts some of the fastest internet and mobile adoption rates in the world – internet penetration for the region is 66%, compared to the world average of 53%. As per CB Insights, “These massive technological shifts have been a boon for fintech startups to build filly digital products and services and past cost savings through to consumers.”
More importantly, Latin American presents a huge untapped market potential – almost 70% of consumers in the region do not have a bank account. While part of this is driven by inequality, another factor is the complicated regulatory environment. Traditional banks often require proof of a job. With some sources citing informal employment as high as 50%, this requirement poses a significant obstacle.
How women have emerged as fintech leaders in Latin America
This combination of inequality and technological advancement has created a perfect storm for fintechs to disrupt the status quo and improve access to financial services and products in Latin America. What’s more, women founders have been at the forefront of this revolution. “In 2019, investments into mixed female-male founding teams represented 16% of dollars invested in Latin America,” reported TechCrunch. This figure stands in stark contrast to that of the US, where approximately 9% of startups that receive VC funding have female founders.
One such example is A’govest. A’govest is an online company with two female founders – Marisol Pérez-Chow and Maria Fernanda Cuadra – created for women, that aims to reduce the gender wealth gap in Latin America. Using financial education and automated tools, the platform aims to reduce barriers that keep women from accessing the wealth escalator, and level the playing field for those who want to achieve financial power and independence.
Pérez-Chow summarizes the unique circumstances that her company faces: “A region with 70% smartphone penetration but with 70% of its population unbanked, is a region that offers a unique opportunity for fintechs to democratize access to financial services. Fintechs can help reduce wealth gaps, but for true financial democratization to occur and reduce inequality, they need to ensure usage; which cannot be achieved without being inclusive to the currently underserved population. Fintechs and regulators need to work together to remove barriers for those that lack traditional financial access and level the playing field for everyone, regardless of gender, income, or education level.”
Having more women in leadership roles isn’t just good for diversity figures. The ramifications on the broader ecosystem are huge. According to Crunchbase, “Companies with at least one woman founder hire 2.5 times more women, and those with a woman founder and a woman executive hire six times more women.”
Other bright spots
Latin American fintechs not only lead the way in female representation, but also, on reducing income inequality. Victor Cortés is the founder of a news platform focused on Latin American startups called Contxto. He explains, “I do see some players that are truly turning things around step by step. Mercado Pago, for instance, is helping small businesses all across the southern cone become more digitized and optimize their financial processes.”
MercadoPago initially began as a payment enabling system for its parent company, MercadoLibreMELI. However, the founders quickly noticed something else. “[We] observed that individuals, micro merchants and small and medium-sized enterprises in the physical world were being underserved or overlooked … and that a very large number of retail transactions were settled in cash throughout the region.” This realization sparked MercadoPago’s pivot towards a mobile point-of-sale (POS) system. Today, sales from this portion of the platform represent more than half of all off-platform mPOS flows.
Regulatory challenges persist
Cortés, however, recognizes that challenges persist. “Other countries have it harder; such as Mexico, which has lower internet penetration rates than Argentina and Chile, and informal, cash-only businesses are still extremely common. However, affordable POS terminal tools such as Clip and Billpocket, definitely represent a big step forward.” In addition, “Regulatory constraints, derived from financial malpractices, put a lot of pressure on small fintech companies, who may be trying to do the right thing, but past performance of their predecessors set a tough stage to operate in.”
The future of fintech in Latin America may be uncertain, one thing is clear. In a few short years, the region has made enviable strides towards not only improving access for underbanked communities, but also advancing women in leadership. Here’s hoping that the next ten years of innovation in Latin America prove as revolutionary as the last.