Why China Brings Huge Investments in LatAm Fintech? Six Compelling Reasons
Today, Armada Labs shares the reasons for China’s growing interest in LatAm fintech to raise your awareness of that debated topic.
After the Chinese Tencent invested in Nubank $180 million, it was worth $4bn. When Alipay partnered with Openpay, a Mexican payments provider, it significantly broadened its market outreach. AliExpress makes thousands of deliveries to Chile, competing with Amazon and MercadoLibre. God knows how many use cases are there, but one is for sure: China is now heavily involved in the LatAm fintech sector. Follow Latin America’s fintech news for a month, at least, and you won’t doubt that no longer.
The decision to invest in this region is strategic for China. On the surface, we understand that Latin America is one of the fastest-growing fintech clusters ripe for foreign investments to ensure sustainable growth. But what can be uncovered on a more profound level? Time to shed light on this mysterious topic.
Does LatAm Attract Chinese Investments or China is Attracted Already?
Still Not Enough Fintech Solutions
The middle class of millennials is what drives the boom of fintech in Latin America. The number of smartphone users is consistently growing, with these active WhatsApp and Facebook users who pay online most of the time.
Indeed, digital progress is everywhere. For example, Trocafone is one of the largest e-commerce retailers in LatAm. Yet, its growth would be paralyzed if Aihuishou, a leading Chinese C2B platform for recycling and selling, wouldn’t come for help with investments. Both companies needed to expand their influence across the LatAm market, and they got it.
However, the market is yet far from being mature. The Mexican startup Fairplay has recently started offering loans for eCommerce businesses as no other company did before in Latin America. These facts signal the eCommerce industry’s nascence compared to the U.S or Eastern Europe, which became the homes for many top app development companies. At this point, China’s investments and ideas are just in time.
It’s Easier to Jumpstart Business There
CB Insights reports about the threefold increase in LatAm fintech startups from 2018 to 2019. A positive “fresh-starting” climate attracts investments, and even regulators now welcome innovation. Not surprisingly, since open banking is almost there.
Consumerism is Everywhere
The middle class grows rapidly in LatAm, and now it is practically proportional to China’s level. An average Latin American family spends considerable amounts of money on food, health, technology, apparel, transportation, and other needs.
Rising consumption inevitably leads to the high demand for payment services, credits and loans in particular. And this factor conditions the following reason that we uncovered.
Despite Everything, the Payments Market Grows Fast
McKinsey “pointed” at Latin America as the fastest-growing payments market in the world in its last year’s report. Only in 2018, its revenue reached $200bn and is expected to grow further. Especially remarkable here is how Mercado Libre’s Mercado Pago, an Argentina-based platform for digital payments, managed to reach 99% growth in a single year. This tremendous growth just can’t be ignored by other countries, and of course, the largest and most developed ones, such as China.
As businesses continue discovering the untapped potential for growth on the LatAm fintech market, investors, and not only Chinese, “pour” even more money into the cluster.
A Hotbed for Experienced Tech Talent
Due to its cost of living, Latin America’s software engineers are more affordable in terms of costs than their colleagues from, say, the U.S. The quality of their work will be the same, if not higher. Why overpay, then?
Also, tech accelerators around Latin America contributed to the overall growth of experienced tech workers. Plus, Latin America and the United States are in the same time zone, which favors outsourcing, but hardly scares away China, whatsoever, with its time lag of 12 hours.
Outsourcing LatAm developers is not a popular strategy in China; instead, these are investments, branches, and even expanding Chinese startups in LatAm, though the latter are not fintechs so far (such as TopBuzz, Ofo, Didi Chuxing, and others).
Talent Engages More in Startups
For now, Latin America is a place of birth for hundreds of startups. At the early stages, all investors are concerned about is to jumpstart the new business. For this purpose, they look for skilled talent that willingly takes their offers, eager to be a part of an innovative solution.
Besides, old players are likely to deplete their potential because of their “stickiness” to legacy software. And since the market has enough potential and plenty of room for fresh-starters, for the talent, there’s no dilemma in most cases.
Plus, we shouldn’t underestimate the role of investments that startups receive, especially at the growth stage. Funding from some “big-name” investor creates a positive image of the company among potential employees, so skilled ones join the ride.
An Analytical Look
For the reasons discussed in this article, Chinese fintech startups and accelerators view Latin America as a new growth opportunity. And though they compete with other countries for that market, China’s role is hard to miss or underestimate.
To summarize, here are the main reasons why China is so attracted to LatAm:
- Undiscovered market and mostly unbanked population;
- “Technology-friendly” climate.
In the future, we will see how Chinese influence in LatAm fintech will be increasing. New deals, partnerships, and openings are going to follow. And perhaps, for us, there will be a place for a more granular breakdown with a hand on statistics. For now, however, China’s growing presence already impresses.
