Colombia’s ‘fintech’ ecosystem is the one that has grown the most in the region

Although Brazil and Mexico, due to the size of their economies and population, are the countries with the largest number of ‘fintech’ in Latin AmericaColombia is the one that has registered the highest growth in new entities in recent years, as can be concluded from the most recent report by the IDB and Finnovista ‘A consolidated ecosystem with the potential to contribute to regional financial inclusion’.

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The report indicates that the number of platforms that make up the financial technology (fintech) ecosystem of Latin America and the Caribbean has grown 340% since 2017, and more than 23% since the last report, with data as of 2021, to reach 3,069 platforms by the end of 2023.

The payments and remittances segment (632 companies, 21% of the region’s total) is the most important of the verticals or sectors of the fintech ecosystem and is followed by loans (19%), business finance management (13%), followed by technology for financial institutions (12%), and wealth management (8%).

In terms of distribution by country, by number of platforms, Brazil (24% of the total) continues to lead the region, followed by Mexico (20%); Colombia (13%) and Argentina (10%).

The IDB – Finnovista report points out that in recent years specific regulations were published for the system of interoperable low-value instant payments and for open finance and “As for regulatory innovations, it is worth highlighting the progress made with the implementation of the regulatory sandbox.”

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According to the presentation made by Anderson Caputo Silva, head of the IDB’s Connectivity, Markets and Finance Division, one aspect to highlight is that despite the slowdown in venture capital investment, the fintech sector continues to be an important segment. for foreign direct investment in the region.

And with better public policies and investmentto address the gap in formal financial services in the region, the potential of ‘fintech’ to improve financial inclusion is evident through the development of payment ecosystems and the implementation of open finance.

For his part, Andrés Fontao, managing partner of Finnovista and CEO of Finnosummit, “Fintech companies have played a fundamental role in supporting small and medium-sized businesses (SMEs), facilitating their digitalization and ensuring their survival in a challenging environment. The ability of these companies to innovate and adapt has been key to continuity and regional growth.”

With the number of fintech platforms in the region (3,069) in 26 countries, the report reveals that the evolution of the ecosystem in the region presented a growth of more than 340% in the number of ventures.

The report highlights that These dynamics reflect a stabilization of the markettowards long-term solidity and resilience.

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While venture capital investment declined since the last 2021 report in the region, the percentage of investment in fintech increased within the technology sector, growing 46% to reach US$1,873 million.

The report mentions that startups are diversifying their financing sources and exploring new growth strategies, such as mergers and acquisitions.

Likewise, he warns that Access to financing is a crucial challenge for 20% of the platforms consulted, which highlights the importance of aligning financing strategies with market expectations and capabilities.

The trend toward more institutional sources of financing, along with the growing presence of venture capital investments – both local and international – suggests cautious optimism.
However, “The most marked challenge for the sector continues to be scalability, identified as such by 41% of the fintech companies surveyed within the framework of the IDB – Finnovista study.”

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The report highlights that in Colombia the fintech sector has registered a significant growth of 387% since 2017, increasing the number of fintech startups from 84 to 409 by the end of 2023.

And he says that the country “It has an average annual growth rate of 30%, it is positioned as the fastest expanding market in the region during the analyzed period. Without a doubt, it will be essential to observe the impact that the implementation of the Open Finance regulation will have on the sector and on the financial inclusion indicators.”

Additionally, it says that with 27.8% representation in the total number of the Colombian fintech ecosystem, the Loans segment is the most prominent in the country.

Specifically, solutions focused on credit to individuals They are a notable characteristic of the Colombian market due to factors such as limited access to traditional credit, fintech innovation in credit scoring with advanced technologies, and favorable regulation that encourages the growth of the sector.

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Fintech

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According to an estimate by the firm McKinsey, the fintech sector represented the equivalent of 5% (up to US$ 205 billion) of the net income of banks in 2022 worldwide.

It is considered that by 2028, the sector’s share could exceed US$400 billion, which implies an annual income growth rate of 15%. Evolution will be driven, to a large extent, by emerging markets such as Latin America and the Caribbean, which projects an increase in its share of net income, from 5% in 2022 to 9% in 2028. Another estimate predicts that by 2030, global fintech sector profits would reach $1.5 billion (according to Boston Consulting Group and QED Investors). And Latin America is projected to experience a considerable boom, with a compound annual growth rate of 29%.

The World Economic Forum and the Cambridge Center for Alternative Finance They estimate that the region is 18% of the global ecosystem in terms of the number of companies, ranking third after Asia-Pacific, with 27%, and Europe, with 23%.

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HOLMAN RODRÍGUEZ MARTÍNEZ
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