Start-Up Investment in Latin America Continues to Transform Financial Inclusion

Marco Bottigelli / Getty Images

By Tyler Bridgeman, 2L

Latin American economies have, on average, grown faster than those of developed regions but still lag far behind the growth of other developing economies. The moderate growth rates forced Latin American governments to search for novel solutions, with many of those governments turning to digital and automation technologies to foster growth. The focus on digitization and technology prompted record levels of venture capital (VC) investment into Latin American countries in 2021.

While investment has been broad, spanning companies and industries beyond just technology, the financial technology “fintech” industry has captured the largest amount of capital investment. This is, in large part, due to significant portions of the Latin American population being left out of the current banking system. With a significant portion of the population underbanked or unbanked, there is an extreme demand for fintech companies to better serve existing underbanked customers and introduce unbanked consumers to the formal financial system for the first time. The pent-up demand from underbanked and unbanked paired with the rapid move towards contactless and cashless transactions created an explosion of fintech users in Latin America in 2020.

The proliferation of these new technologies has prompted conversations surrounding the rules and regulations that govern the nascent industries. Furthermore, the rapidly growing industry has presented challenges for central banks and government regulatory authorities. These challenges are primarily attributable to the pace and scale of financial adoption experienced by the many countries in the Latin America region. Moreover, these stressors have been exacerbated by the fact that the traditional regulatory and supervisory models are outdated. The shortcomings of the current models make it necessary that Latin America establish a more flexible framework that facilitates and fosters innovative business activity that allows for the continued growth and adoption of the novel financial service offerings in a controlled environment with minimal risks.

Currently, regulatory measures around the world offer incredible insights into what works and what hurts. Latin American regulators—primarily officials from Brazil and Mexico, as those two countries are experiencing the most acute stressors—would be wise to implement the positive regulations from abroad by cooperating with private industry in the financial technology sector, rather than forcing potentially stifling regulations onto the nascent sector. It is imperative that governments do not turn a blind eye to a reality that can deliver tremendous consumer benefits, contribute to economic progress, and generate wealth.

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