To become a successful payments FinTech in Latin America, it heavily relies on the ability to support local transaction options, according to Simon Davies, the managing director of EBANX in the United Kingdom.
The region is eagerly welcoming the digital world, with data from GSMA Intelligence suggesting smartphone adoption to be around 71% by 2020 – the global average is 66%. This high penetration of smartphones means there is a massive opportunity for FinTech solutions. The sheer amount of unbanked in Latin America opens even more doors for FinTechs, enabling consumers to finally access financial services previously locked off to them.
Simon Davies said, “Latin America (LatAm) has a large unbanked population: approximately half of the adults don’t have a bank account, and many of those who do, don’t have a credit card. However, this doesn’t mean they don’t have purchasing power. They still have jobs, pay their bills, shop for groceries and buy online.” This is one of the reasons payment processing unicorn EBANX was created, a way to help Latin Americans access international e-commerce websites. Prior to its launch, the only way to buy products on foreign websites was with a global credit card.
FinTechs like EBANX are showing the world the wealth of opportunities in Latin America. Earlier in the year, the company reached unicorn status after securing a funding round from growth equity firm FTV Capital. Although, digital bank Nubank is the one flying the flag for LatAm, having recently becoming the highly coveted ‘decacorn’, meaning its valuation has surpassed $10bn.
It is always easy to see success stories like these and think it’s easy; however, there are a lot of challenges with setting up in the region. Ignoring the usual barriers such as competition, funding and market adoption, there is one challenge which is rather unique to LatAm. Davies stated, “Since Latin America has a large population of unbanked people, every payment company in the region must have in mind that offering local payment options, such as boleto bancário in Brazil or OXXO in Mexico, is crucial to reach as many consumers as possible.”
Offering this has been one of the reasons EBANX has been able to reach such heights. The payments company operates across Brazil, Mexico, Argentina, Colombia, Chile, Peru, Ecuador and Bolivia, supplying an end-to-end, cross-border e-commerce transaction solution supporting over 100 Latin American local payment options to global merchants.
“Accepting local payment methods is crucial for companies that want to sell into Latin America’s growing markets.” Simons added, “Not only do you expand your Total Addressable Market, by reaching consumers who don’t have international credit cards, but you also enhance your approval rates, going from 15% to around 80% of approval. Merchants can increase two to three times their sales in Latin America by connecting with a local partner and accepting local payment methods.”
Simons noted several other unique challenges to building a payments company in LatAm than other regions. One of these was the key role smartphones play in internet access for locals, which FinTechs should bare this in mind when building a payment service.
An interesting quirk of working in LatAm, is getting to grips with how salaries are paid, as these often differ from the typical monthly pay seen in the US or Europe. He explained that most Latin Americans are paid monthly, but at the end of the year they also receive a 13th payment. However, in Mexico, wages are normally paid bi-weekly, but they also get a 13th salary (known as an Aguinaldo) which varies from 15 to 40 days’ worth of pay.
“Companies that want to make the most out of this must consider this financial flow, hence we offer instalments payments. Going beyond payment processing is also important; by offering marketing consultancy to merchants, for instance, paying attention to logistic issues, and providing local customer support to serve the merchant’s clients in their own language.”
Challenges are inevitable in any industry and should not put a business off. Desire for digital financial services is only going to grow. Data from Statista claims the e-commerce market in Latin America is set to rise from $49.8bn in 2016 to $79.7bn by the end of the year. Further testament LatAm’s appeal can be seen by the sheer amount of equity being invested, with it growing each year. FinTech Global data shows that across the first three quarters of 2019, $3.4bn has been deployed to FinTech startups residing in the region. This figure is five-times larger than the whole of the capital raised in 2018, suggesting companies are starting to understand the opportunity.
“It is not a coincidence that investors’ enthusiasm for Latin America has been growing year on year. The region has become “the apple of their eyes” for tech investors all over the world, thanks to the potential of its markets,” Simmons added.
While increased investment and startups in the region is going to offer consumers a wealth of new opportunities, for businesses, it means there will be increased competition. We’ve already seen FinTech giants from Europe and the US enter the market this year. Payments giant Stripe just opened an office in Mexico to support its push in the market and digital bank Revolut has begun a mass hiring initiative which will see 1,500 new employees spread across offices in eight new countries, including Brazil.
This might spell trouble from the startups trying to get their foot in the market, but it will be interesting to see how locals take to the competition and whether the LatAm-built businesses compete with those moving into the region. EBANX was able to excel in the Latin American market simply by being in the right place at the right time, Simons said. “Our timing at EBANX was good: at the time we were founded ecommerce was taking its first steps in Brazil and Latin America, customers were starting to buy online, either on national or international websites, and EBANX was there with a very well developed solution, to bridge the gap between these websites and the final customer.”
As the market grew, EBANX did with it. The payments company released new services as appetite in the region grew. One of the challenges it faced during this growth period was ensuring the company kept its employees facing the same direction and keeping the original dream alive. Having achieved a major step this year, the company hopes to continue its growth.
“The hardest thing about achieving the unicorn milestone is sustaining the continuous growth that brought us to this position.” Simons concluded, “We must not get complacent: we have to keep working and delivering, and there is still a lot to be done. EBANX aims to become the leading payments company in Latin America for global enterprises, with both cross-border and local payments. In order to do this, we need to move faster and to develop even better services and solutions.”
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