Despite the fact that fintech is growing at a fast pace in the country, Argentina was third in the Latin American ranking of investments for the sector, with almost 8% and a total of US $ 152 million, of which US $ 150 million obtained it Ualá
According to the Finnovating study accessed by iProUP, disbursements in the region were $ 2,660 million in 2019 in 94 rounds, between capital investments and loans.
- Brazil led the first place, with 70% of the total (US $ 1,343 million)
- In second order was Mexico with 20% and 396 million dollars
- Behind Argentina were Colombia, Chile and Peru, adding 2% among the three
Analysts believe that there is a greater attraction for Brazil and Mexico, because they are markets with a larger population and little penetration of financial instruments. And they regret that Argentina, with the macroeconomic instability that began in mid-2018, moved capital away and missed a great opportunity.
Rain of investments?
"Argentina had an improvement when it came in third place, but it is a relative improvement, given that 152 million 150 went to Ualá," said Santiago Molina de Finnovating, who participated in the completion of the Fintech Investment in Latam 2019 report.
However, this sector was one of the few that showed growth in the country last year. There are three advantages that make it a land of opportunities:
- "Bank penetration is high, around 80%, but the level of use is low: 50%"
- "There are as many phones as inhabitants and the level of connectivity is higher than the average for the region"
- "According to the World Bank, it is in seventh place among countries with low credit placement"
"Argentina missed a great opportunity to attract capital in an area that generates employment and exports, and therefore dollars," says Ignacio Carballo, director of the Utech Fintech program, who says that economic instability was the first barrier of Entrance when it comes to seducing venture capital.
"With wind against, the number of companies grew 70% in 2019 and the 230 companies generate 10,000 jobs," he adds. In this same sense, Alejandro Cosentino, vice president of the Argentine Chamber of Fintech, believes. "Volatility, recession and instability punish investments a lot, because they generate fear," he says.
In addition, the founder of Afluenta trusts iProUP: "We had an important fund that told us that they wanted to invest, but they didn't know how much a dollar was worth in Argentina."
Cosentino, stresses that the country has a housing disadvantage with respect to Brazil and Mexico. "The financiers look for territories with large numbers of inhabitants to massify operations, and at the same time low level of credit products," he says.
In Mexico (130 million people) it is estimated that almost half of adults do not have financial services. To the combination of a huge unbanked segment is added the publication of the Mexican fintech law, which boosted the expansion. Currently, it is the largest ecosystem in Latam (282 companies), according to the Finnovating map.
What will happen in 2020?
Experts differ in how they could impact the changes introduced by the government of Alberto Fernández in this branch of activity, after years without regulations.
In January, as iProUP anticipated, the Central Bank established that the money in virtual accounts should be in local bank accounts, available immediately upon request, for the amount in which it was credited.
"The regulation is not bad a priori, but it could hurt the investment since it restricts the activities of the fintech, which previously had greater scope of action," says Molina, of Finnovating.
For his part, Carballo adds: "If in 2019 the capitals did not come mainly to Argentina, I do not have to expect changes in regulations to bring more dollars than the lack of regulation."
However, it highlights that the new rules are only for virtual wallets, so it impacts on no more than 10 companies, such as Yacaré, Mercado Libre or Ualá.
In addition, it indicates that the measures of the Central Bank are in line with what established other countries of the world and the region. "They are positive for the development of a healthy sector, which does not invest as a result of the new regulations because they already wanted to enter to handle themselves improperly," he says.
In this line, Cosentino, vice president of the chamber, believes that the rules imposed by the BCRA provide predictability and that there is still profitability in business.
"The regulations will give greater certainty to investors, businessmen and clients; and so companies will come," he remarks. He affirms that in Mexico, when the Fintech law came out, an order of almost 100 licenses was instantly generated to create collective financing companies like Afluenta, "says Carballo.
And he adds: "The problems do not arise from the regulations of the Central Bank, but from what could happen on the tax side.
"The tax modifications that may come would not seem to bring more foreign direct investment, the tax on the check is distortive and for an investor it will always be negative. It is noted that they are policies marked by the need for collection in a context of crisis," considers.
In addition, he adds that the suspension of the Law on the Economy of Knowledge generates noise in the face of uncertainty about what will happen with a law passed unanimously in 2019 by all parties.
Investor Interest
The only Argentine fintech among the ten with the largest amount of investments is Ualá. In 82 rounds in 2019, these ten accounted for 77% of the total.
- The first three were the Brazilian Nubank, Banco Inter and Creditas.
- In fourth place was Ualá: in a round he accumulated $ 150 million from Tencent, Softbank, Goldman Sachs, Soros and Ribbit Capital, among others. Thus, the startup of Pierpaolo Barbieri reached a valuation close to US $ 1 billion and left it one step away from becoming the sixth Argentine unicorn.
On the causes of why Ualá is so high in the ranking, Molina de Finnovating says: "It has an unparalleled user experience and wide acceptance, issued more than one and a half million cards, so the potential demonstrated in a short time is key for investors. "
The largest volume of investments was recorded in the fintech of the digital banking sector. "They are the ones with the greatest volume because the banks are capital intensive," explains Molina. "
- "The 90% disbursed was concentrated in digital banks (52%), loans (30%) and payments (8%)," he says.
- Regarding the number of agreements, the leading item was loans. "In Latin America, people cannot access credit in traditional systems because of the risk requirements, so fintech comes to replace that place," Molina details.
60% of the agreements focused on three categories:
- Loans (33%)
- Payments (17%)
- Digital banks (10%)
Far away are other companies related to investment, insurance or property. In 2019, the following stand out: Y Combinator, Kaszek Ventures, Qed Investors, Softbank Group, Ribbit Capital, Redpoint events, Tencent and General Atlantic.
In addition, there was a strong participation of traditional financial entities, such as Santander, Banco Votorantim, Goldman Sachs, Oiko Credit and Credicorp Bank. The Finnovating report has a section with seven Latin American firms that recommends financiers to watch their evolution during 2020. Two of them are Argentine:
- Ripio: founded by Sebastián Serrano in 2013. It is one of the region's leaders in digital currencies and blockchain. It has 400,000 users in Argentina, Brazil and Mexico, and will expand its services in mid-2020 to Peru, Chile and Uruguay
- Vu Security: specialized in cybersecurity for companies, it has more than 100 clients, not only in the fintech sector, but also banks such as Santander, ICBC and HSBC.
Thus, Argentina shows potential to continue advancing and be a reference in the region in this industry. It only remains to wait for the evolution of the economy and how these new companies allow access to financial services, even in times of crisis.
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