Why LatAm’s fintech boom is more than hype and superlative venture investment

Fintech in Latin America is one of the hottest startup markets in the world. Capital is pouring into the region’s financial technology companies at a breakneck speed, resulting in a slew of new businesses that are amassing private-market value at an incredible rate.

The massive amount of money pouring into Latin American fintech firms may appear to be excessive, but there are multiple reasons for this. This is not to suggest that every transaction and subsequent valuation markup is rational. 

However, there a number of factors at play that make the soaring venture capital totals these businesses are raising more acceptable than they look at first glance.

Regulatory tailwinds in a few nations are helping fintech products gain traction. Several firms are also striving to develop infrastructure that will assist bring new financial services to market — we’ll talk about Pomelo and Belvo later; Swap is another example.

Finally, the Latin American fintech industry is experiencing an increase in exit volume, meaning that cash may be returned to investors who bid up the region’s firms, as well as monies formerly held in private-market amber and now made liquid, creating a virtuous loop. Before we get into the reasons for the inflow, let us take a brief look at how much more money fintech firms in Latin America are raising this year.

Despite significant growth from 2015 to 2020, when Latin American fintechs raised $138 million and $3.14 billion, respectively, according to CB Insights statistics, 2021 stands out in terms of growth.

In recent quarters, it has been rather normal to see growing dollar volume for any single venture capital market or startup category achieve new highs. 

However, we have seen such milestones frequently accompanied by flat or even decreased deal volume. That is not the case with LatAm fintech; the region’s money and agreements are set to blast through the superlatives of 2020 and 2019, and have already done so. The dollar figure will be more stunning than the deal amount, but both will smash previous highs.

When we look at quarterly performance rather than annual and year-to-date results, Latin American financial firms recently had their second greatest quarter ever. The startup cohort’s Q3 2021 period only surpassed by Q2 2021; excluding the second quarter, Q3 2021 is more than twice as large as any previous quarterly record.