Financing and competition, the biggest challenges facing fintech companies

The financial technology sector (fintech) has evolved and in recent years the growth of the sector has increased competition between entities in the segment and has aroused competition within banks, which seeks to serve the same public through digital proposals.

Added to the scenario is a shortage of financing compared to previous years, which has been pointed out by different funds and consultants. Prior to holding Finnosummit 2022, last May, it was warned that investment would move towards fewer companies but of higher quality.

“I think there will be a decrease in the number of financed businesses, and this is because there is a movement, all over the world, towards quality rather than quantity, investors in general are more demanding, this is good for the ecosystem,” said Antonia Rojas, a member of ALLVP.

In this sense, a recent study carried out by the consultancy Latitud indicated that investment in fintech companies that offer services to consumers (B2C) are advancing in Latin America, but continue to lag behind in a global comparison, although total financing for the segment in the region reached a record of 12.900 million dollars registered in 315 agreements during 2021, which represented 5.5% of the funding to financial technology companies globally.

The report indicated that different entities have migrated towards the specialization of figures focused on digital banking, integrated financial services, in addition, a tendency to create models on the existing infrastructure regarding digital payments such as Pix in Brazil or the Electronic Payment System is identified. Interbank (SPEI), in Mexico.

“During 2022, we observed a trend towards digital banking in Latin America, it was the great boom, that can be seen through the fintech unicorns that exist, in firms such as Ualá or Nu, in addition to two out of every three dollars invested in the business-to-consumer fintech, went into the digital banking services category,” said Brian Requarth, co-founder of Latitude.

In digital banking, fintechs differ mainly by focusing on different demographic data of their users, for example those that focus on Generation Z, another trend in categorization that is identified is the creation of specialized financial services that can be adapted to individual needs.

For their part, some banks have opted for the creation of digital entities, the most recent being Grupo Financiero Banorte, with its digital banking Bineo and Hey Banco, a Banregio brand.

Promotes regulation

The Latitud study also indicates that the existing regulation in certain sectors could favor the development of fintech segments, in terms of loans, they indicate that specialized firms take advantage of the limited regulation that exists in some countries, another factor that could favor these technologies are lacking in infrastructure from traditional entities, so they could benefit from various factors including user demographics.

Another area in which opportunities are glimpsed is in the implementation of open banking technologies. Depending on local legislation, their integration could open the door for new investment fintech and wealthtech opportunities.

sebastian.estrada@eleconomista.mx