Bogotá, apparently, has become one of the most interesting ‘fintech’ innovation centers in the world. Thanks to its flexible and stable regulatory framework, Colombia has attracted a significant number of ‘fintechs’ that offer cutting-edge technological solutions to improve financial inclusion, especially in access to credit. In addition, Colombian banks are increasingly willing to collaborate with ‘fintechs’, to take advantage of their value propositions and innovations. Everything indicates that here we have a very good place for fintech entrepreneurship.
Finnovating has produced a report, published in March of this year, that analyzes the situation of the sector in 75 countries and has created a ranking based on the number of active fintechs and the capacity to create them per million inhabitants. The results are surprising: the United States leads the ranking with more than 5,000 fintechs, followed by the United Kingdom and India. Spain is in sixth place, being the third country in Europe with the most fintech.
In Latin America, Brazil, Mexico and Colombia top the list, but Uruguay stands out for its ability to create fintech per capita, being the only country in the region that enters the world top 20. The report also shows that the most digital countries with the most flexible regulations are the ones that generate the most fintech.
It is recognized that the fintech sector in Colombia has made significant progress due to digitalization, innovation and financial inclusion. Representatives of various companies constantly talk about the achievements and challenges in the field of electronic payments, digital wallets and informal credit. Likewise, the role of the Government and traditional banking as partners to extend coverage and access to financial services is highlighted. The fintech sector is “learning to play with traditional banking”.
Fintechs are companies that use technology to offer financial services that are more accessible, agile and cheaper than traditional banking. According to several sources, Colombia is the third country with the most fintech in Latin America, with companies that generate billions of dollars in digital payments and credits. These companies benefit individuals and small and medium-sized companies that are excluded or rejected by conventional banks, especially women, young people and those over 50 years of age. The fintech sector has companies of different ages, from mature ones that have been around for more than 20 years, to nascent ones that are less than five years old. All of them seek financial inclusion and innovation in the market.
In Colombia, there are at least 334 fintechs that offer innovative financial services. Well yes, and most are digital credit and digital payments, which are like the queens of the dance in this world. Besides, almost all of them are Colombian micro-enterprises that were born yesterday and that risk it for entrepreneurship.
The capital of the country, Bogotá, is the one with the most fintechs, with almost 70%, followed by Antioquia, which is not far behind. These companies are mainly engaged in information, communication and insurance, and almost all are in the service sector. Only a few dare with electronic commerce, which seems to be the ugly duckling of fintechs. Incredible as it may seem, fintechs are a winning sector full of opportunities.
Fintechs also have challenges to overcome, such as regulation, data protection, cybersecurity, education, and cooperation. These challenges are key for fintechs to grow sustainably and work with the traditional financial system.
Fintechs need a regulation that adapts to their needs and does not drown them. In addition, they have to be aware of the trends that are changing the sector, such as digitization, big tech, cybersecurity and regulatory innovation. What can fintechs do to overcome these challenges in Latin America? Well, they can seek alliances with traditional players in the financial sector, such as banks or insurers. Or they can join associations or unions that defend their interests and dialogue with regulators and legislators. This way they will be able to have more voice and weight in the sector. But it won’t be easy. Being a fintech in Latin America is like being a hero in an action movie: you have to have a lot of courage, a lot of creativity and a lot of luck.
Imagine that you have a great idea to improve the financial sector in Latin America. You want to create a company that uses technology to offer innovative and accessible services to millions of people. What do you need to make your dream come true? Well, among other things, money. A lot of money. But it turns out that money is what is most scarce in the Latin American fintech world.
Getting financing is more difficult than finding a needle in a haystack. The 10 most successful startups only received $1.1 billion in 2022. That’s a pittance compared to what they receive in other places like Silicon Valley, where a single company can raise that much in one investment round. What do fintechs do to survive? They look for other options, such as making friends, borrowing or passing the cap. So it’s not that they lack talent. They lack support.
But money is not the only problem facing fintechs in Latin America. There are also other obstacles that limit their growth and development. For example, many countries do not have laws that regulate these activities, which creates uncertainty and insecurity for both companies and users. Also, in many cases, some entrepreneurs copy ideas from other places without understanding the particularities of each market, which can lead to failure. And, as if that were not enough, you also have to deal with the lack of financial education, the mistrust of new technologies and the digital divide.
In conclusion, not everything is rosy in the fintech world. There are also problems and difficulties that slow down your progress. But that doesn’t mean there’s no hope. On the contrary, the fintech sector in Latin America has great potential and already has several success stories that demonstrate its ability to innovate and solve financial problems. What is needed is more support, more regulation, more adaptation and more inclusion. Latin American fintech has a lot of potential, but also many challenges.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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