iProUP Finance 4.0 Green Sprout
Why, if the country is doing poorly, are they doing well?: how many Argentine fintechs are there and what is the “secret of their success”
Despite the macro situation, the ecosystem is growing by leaps and bounds with the digital payment segment in the lead. What does the future hold for them?
Fintech companies seem to operate in a parallel universe. A fertile ground in which they grow, multiply, diversify, innovate and bet on new businesses, with less fear of failure and following a path different from that of other branches of activity.
Indeed, the country shows its main indicators in red: inflation grows at 3.6% per month, unemployment climbed to 11% and the GDP plummeted almost 10% during 2020.
On the other hand, the fintech companies have been the big winners: they knew how to capitalize on the crisis, the confinement and advance with their services, attacking segments that do not find a quick response in the traditional offer.
According to the Fintech 2020 Study accessed by iProUP, prepared by Deloitte, the Inter-American Development Bank and the Argentine Fintech Chamber:
268 companies make up the local ecosystem (two years ago, only half existed).
Digital Payments (64) and Loans (60) are the business units with the largest number of companies
For its part, the Blockchain and Cryptoactive category brings together some 25 companies
The secret of your success
In order to understand why fintechs maintain a very good performance, contrary to the rest of the business universe that is suffering the ravages of the economic crisis, it is necessary to approach the phenomenon with a different logic and understand that they have their own nature, specialists agree.
“Fintech companies were created for the future and the future came early,” Julián Colombo, CEO of N5, sentences iProUP. In addition, they were born with certain very distinctive “genes”:?the relationship with their clients is characterized by ubiquity, less bureaucracy, intolerance to friction and immediacy in responses.
Ignacio Plaza, president of the Argentine Chamber of Fintech, adds to iProUP that, just as Netflix transformed content consumption, financial services are going through a disruptive process that has accelerated with the pandemic.
In this phenomenon, mobile devices, digitization and entrepreneurs have allowed the creation of more friendly, efficient products adapted to the needs of different audiences, allowing them to arrive with a financial offer in which there is no presence of traditional actors.
“All of this combined gives a successful model. In the pandemic there was a 100% growth in CVU accounts (there are already 14 million). There was an opportunity for progress in inclusion and it is also an industry that employs 10,000 people”, explain.
For Antonio Peña, managing partner of the Kamay Ventures fund, this is a turning point in which different service models are being tested.
“The traditional financial system is looking for where to evolve and fintech, in countries like Argentina, with constant economic problems, become relevant due to affinity and costs. But also because they offer innovative solutions, such as crypto-related products, for example, which are topics of high impact because it is a refuge from currency fluctuations”, he reveals.
We are bad, but we are doing well
Of the total fintech surveyed, 15 register revenues greater than $500 million per year.
Is it profitable for these firms to operate locally? Are they doing well? In relation to what other sector? These are some questions when measuring the ascending path of these companies.
In this sense, Colombo clarifies that it is not pertinent to measure its success in relation to that of banking, for example, or in terms of profitability. “Fintechs are successful doing something that only they fervently propose, while banks have a different set of objectives,” he explains.
And he adds: “They grow in number of clients, number of transactions, user satisfaction, but not necessarily in profitability. While an average traditional bank in the world earns US$12 per month per client, a digital one loses a dollar.”
“The objectives are very different. When one of these digital banks has a demand from its investors to make a profit, the first thing it does is charge fees and it is saying: ‘I am a traditional bank.’ so they look alike too,” he remarks.
Another of the characteristics that for Colombo distinguishes each firm are the owners. It indicates that “an average multinational bank has 4 million owners, through investment funds.”
“A fund that manages pensions just wants income predictability and not take risks. While someone who invests in a fintech is not surprised that they lose money because there is another bet,” he says.
In line with his colleague, the Kamay Ventures executive adds that the internal numbers of some fintechs are probably not good. “However, the bet is to consolidate the product, position itself and gain market share,” he says.
Plaza identifies two characteristics that change expectations in terms of results: one is that there is still a lot of capital available in the world to finance these startups and the other is that they have a very large market yet to conquer.
“If you look at the industry in general, I don’t know if there is profitability. The logic is to invest in something that grows, which is the future. It is a market with high potential. The important thing at this stage is to try to be a leader or to be in the first places, not so much to win money”, he emphasizes.
To infinity and beyond
With a promising future ahead, fintech companies are advancing in the design of more and new services. Despite the fact that the country’s situation is not the best, regulations such as Transfers 3.0 and the Knowledge Economy Law create a space to grow and develop.
For Plaza, electronic wallets have a lot of potential to expand, becoming super apps with a wide variety of services for users within the same application.
According to data released by COELSA to iProUP, in Argentina:
There are more than 105 million accounts for digital payments (12.2 million are wallets)
In January, almost 14 million electronic operations were carried out (against 670,000 in the same month of 2019)
Digital payments increased 2,000% last year
75 million operations were carried out between bank accounts and fintech (for US$10,000 million)
“Just as there are more cell lines than people, users may have more than one wallet. It would be interesting to generate an attractive ecosystem also for investors and the establishment of new companies. The export of talent and platforms to new countries could generate value for Argentina,” says Plaza.
In turn, Colombo highlights several?movements that will have weight?in the configuration of the ecosystem in the future:
The convergence between banks and fintech, which is already beginning to be outlined with Mercado Pago and the banks arriving with MODO
The governments understood that both sectors are great allies to reach with their social aid
“Argentina is a distinctive market due to the relevance of Mercado Pago. Objectively, I do not see room for so many players, because it is difficult to compete with all the banks as a whole, on the one hand, and with Mercado Libre, the largest fintech in Latin America , on the other. What I do see is a very marked open banking model and more collaborative markets,” he remarks.
Likewise, the cryptocurrency market is increasingly legitimized by large players such as Visa, which will accept transactions and payments with these assets; or Tesla investing
Another trend that is emerging is the incursion of players such as Rappi or Requests Now in the financial system. In fact, the first of them signed an agreement with Davienda for the creation of a digital bank in Colombia.
“Anyone that decides to become a bank tomorrow, for example, has more customers than any entity today. The same could happen with mobile operators that already have an extensive charging network for prepaid users. Any kiosk could be a place where that you can charge your phone and get money,” adds Peña.
He warns that the main difficulty in advancing in this direction is regulation. But if they find a way, “they have the data of the users, what they like, how they move, and the networks.”
“In Latin America there are 6,000 million cell phones and 86% are prepaid. All those phones are loaded on physical networks. Imagine everything that can happen there,” he completes.
Thus, the convergence between fintech and traditional entities results in better services, increasingly disruptive for users. The digital payment segment will continue to consolidate what has been achieved
during the pandemic and the crypto universe, increasingly legitimized, promises novelties in terms of regulation.
