Fintech for Financial Inclusion in Latin America: A Reflection from Credit Suisse’s Latin America Investment Conference
Last week I had the opportunity to participate in Credit Suisse’s 2017 Latin America Investment Conference (LAIC) in São Paulo, Brazil. The annual conference brought together over 2000 people and is designed to provide investors as well as business, political, and economic leaders with insights into the region’s investment landscape and key trends. The conference featured a high-profile set of speakers and participants from across Latin America, making for many fascinating conversations and interactions.
It was great to see that in addition to an array of sessions on important macroeconomic issues, policy insights, and investment trends, Credit Suisse also dedicated a session for participants to discuss fintech and its power to drive financial inclusion in Latin America. Our panel included Sergio Furio, Founder and CEO of BankFacil (Creditas), a leading digital lending platform focused on secured lending in Brazil, and Gioia Deucher, CEO of swissnex Brazil, a platform for exchange of knowledge and ideas in science, education, art, and innovation.
I represented Accion Venture Lab on the panel and had the opportunity to share our insights as a seed-stage impact investor that works to drive financial inclusion globally, and with substantial presence in Latin America. We invest capital in and provide support to innovative fintech startups that increase access to, improve the quality of, or reduce the cost of financial services for the underserved at scale.
Our discussion focused on recent fintech innovations and trends, the promises and the challenges of the fintech space in emerging markets, and the opportunity for investing in this space, especially in Latin America.
Fintech for Financial Inclusion: Opportunities and Challenges
Our panel discussed the opportunities we are most excited about in fintech that will increase access, quality, and affordability of financial services — particularly for underserved customers. We believe that technology brings immense potential for financial institutions to be able to expand their customer reach, optimize costs, and enhance their product and service offering by using new digital channels, tools, and data analytics. If done right, tech innovations can enable banks, fintech startups, and other financial institutions to serve customer segments that have traditionally been too costly or too difficult to serve — presenting immense, currently untapped, commercial opportunities while contributing to advancing financial inclusion.
However, tech innovation on its own is not a silver bullet for financial inclusion or commercial viability. It is important for providers to center their innovations based on a thorough understanding of the customers they are trying to serve. Any tech innovation can only be effective if it presents a solution for a particular customer pain point that existing products or services have yet to successfully address. Fintech innovators also need to carefully assess the context of their target markets, particularly with regard to the level of tech proliferation and adoption, to ensure product-market fit. The reach of tech adoption among underserved segments could be narrower in some markets due to factors such as less robust national IT infrastructure, prohibitive costs, or constraining regulatory environment.
Ensuring a solid consumer protection mechanism is also a key element to factor in as we advance the role of fintech in financial inclusion. As digitization becomes increasingly widespread, substantial amount of data about an individual customer is being captured by product and service providers. Without responsible use of personal data, customers could be at risk of harmful practices such as privacy infringement or predatory marketing. It is critical that any use of customers’ data is done with customers’ consent and with full transparency.
As we advance fintech for financial inclusion, beyond expanding access and improving quality of financial services, we are keen to explore opportunities for fintech to catalyze initiatives on building financial health and financial capabilities for underserved customers, as well as to enable customer engagement models that create meaningful and delightful user experiences.
The Fintech for Financial Inclusion Space in Latin America
The Latin American market is ripe for fintech innovations, mainly due to the enabling environment that the region poses. Latin America has seen a rapid increase in mobile phone penetration and has also benefitted from smart policy initiatives. Take for example, the mandated electronic invoicing (e-invoicing) policy that governments in Mexico, Chile, Brazil, Argentina, Ecuador, and others have been spearheading. The policy requires all buyers and sellers to register invoices with the tax authorities electronically when a transaction takes place. This digitization of invoices leads to a creation of a rich pool of transaction information for micro and small businesses (MSMEs) that enable lenders to better assess creditworthiness — leading to increased access to capital for these MSMEs.
To put this in context, Brazil has more than 5 million MSMEs that employ almost 60 million people. However, only 7% of those MSMEs have easy access to credit and two-third of those MSMEs has difficulty accessing financial services (according to studies by McKinsey and Ernst & Young). Current providers have been unable to fully serve MSMEs due to high acquisition and transaction costs, which also keep the lending interest rates high (~40%). Fintech solutions that leverage positive changes in the market, such as using this new stream of data from e-invoicing for underwriting, provide opportunities for both incumbents and new players to tap into this highly underserved market.
Investing in Fintech for Financial Inclusion in Latin America
At Venture Lab, we are excited by the massive opportunity that Latin America presents in terms of investing for financial inclusion. We are encouraged by the performance of our portfolio companies in the region, from both the angle of commercial success and from the perspective of social impact. Our portfolio in the region includes online SME lender Konfio, mobile point of sale payment solution Clip, healthcare lender Salud Facil, small retail inventory financing provider Tienda Pago, and alternative credit scoring platform Destacame.
As we continue to explore investment opportunities and build our portfolio of companies across Latin America, we look to tap into events such as LAIC to gain deeper insights into the market, to exchange insights and forge partnerships with other investors, financial sector actors and regulators. We enjoyed the ability to be able to connect with and work alongside industry leaders in our effort to drive fintech innovation for financial inclusion in Latin America. Credit Suisse’s focus on fintech for financial inclusion and their ongoing support of Accion Venture Lab have helped us support and scale our portfolio. Congratulations to Credit Suisse for a wonderful event!