February 22, 2016
Latin America is one of the hottest emerging regions that can offer a tremendous opportunity for FinTech. As we have recently started discovering local FinTech ecosystems, it became clear that mobile has made a significant impact across industries and that FinTech companies looking to enter the market should think mobile-first.
There is another important hallmark of the market in Latin America that opens endless opportunities for newcomers. According to the most recent data and insights published by the Center of Financial Inclusion a week ago, 70% of people in Latin America do not have a bank account. Hence, it is an especially hot market for mobile-focused challenger banks to make an impact on the lives of a vast majority of the population. Mobile can become a gateway to the large market of the underbanked. It's become such a powerful tool that it has changed the behavioral patterns across industries and has a great potential to become a primary channel for all kinds of interaction.
Image source: GSMA, 2015
Even though mobile is a primary channel for connection and service delivery, mobile money didn’t quite fly in the region as it happened in Africa. In fact, of the 480 million adults in Latin America, there are a mere 15 million registered mobile money users (3% penetration) of which only 6 million were active in the past 90 days. Deficient agent networks, technological illiteracy, non-interoperability, and the plain old convenience of cash are all cited by CFI as reasons for poor mobile money penetration.
Bright entrepreneurs will see an opportunity in the extremely low mobile money penetration rate in the region. By default, mobile money platforms around the world target feature phone users in developed countries assuming that underbanked regions are too poor to provide a significant smartphone owner base. And that is a big mistake converted into the mainstream. The CFI data shows that smartphone penetration in Latin America was at roughly 40% in 2015, totaling about 156 million, and forecasted to grow 12% annually through 2019. This is much faster than the rate of bank product adoption by the unbanked.
A report on mobile money in the LAC region by GSMA provides additional evidence to the growth potential of mobile money in the region. According to the report, LAC witnessed a 50% growth rate in the number of newly registered mobile money accounts between December 2013 and 2014, making LAC the world’s fastest growing region in this area.
LAC has also surpassed the global average active customer rate (42% compared to 35% globally). And most encouragingly, in 2015, five more (in addition to the existing 37) mobile money platforms were launched in LAC with over a million registered customers. Each of those platforms counts at least 0.5 million, 90-day active customers, and together represent an extremely diverse set of markets.
CFI offers some interesting examples of countries in Latin America that demonstrate an impressive rate of smartphone user growth over the past few years. By 2019, 73% of Chileans will have smartphones; in Mexico, that number is 70%. And here is the most important part: while mobile penetration is growing, the number of underbanked is not changing significantly. For FinTech companies, it creates an amazing opportunity to serve the population that is technically completely ready to be banked.
Aside from the growth of smartphone usage, CFI suggests another reason for new players to target the Latin American region and high-tech consumers. The center assumes that mobile money uptake has been so low in part because its main users are marginalized, poorly educated, and highly suspicious of banks and technology. However, there is a large group of young, lower-middle-class urban dwellers, which are underbanked and in many cases, have smartphones. This group should be the main focus of the companies as they are tech-savvy and more likely to trust mobile money. They are able to switch the mindset and trust that their cash is stored safely in their phones and be more excited about sending money to friends electronically than other consumer segments.