The Rise and Impact of Fintech in Latin America
NOTE/2023/003 The Rise and Impact of Fintech in Latin America Bas B. Bakker, Beatriz Garcia-Nunes, Weicheng Lian, Yang Liu, Camila Perez Marulanda, Adam Siddiq, Mariusz Sumlinski, Dmitry Vasilyev, and Yuanchen Yang FINTECH NOTE The Rise and Impact of Fintech in Latin America Prepared by Bas B. Bakker, Beatriz Garcia-Nunes, Weicheng Lian, Yang Liu, Camila Perez Marulanda, Adam Siddiq, Mariusz Sumlinski, Dmitry Vasilyev, and Yuanchen Yang March 2023 ©2023 International Monetary Fund The Rise and Impact of Fintech in Latin America Note 2023/003 Prepared by Bas B. Bakker, Beatriz Garcia-Nunes, Weicheng Lian, Yang Liu, Camila Perez Marulanda, Adam Siddiq, Mariusz Sumlinski, Dmitry Vasilyev, and Yuanchen Yang * DISCLAIMER: Fintech Notes offer practical advice from IMF staff members to policymakers on important issues. The views expressed in Fintech Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. RECOMMENDED CITATION: Bas B. Bakker, Beatriz Garcia-Nunes, Weicheng Lian, Yang Liu, Camila Perez Marulanda, Adam Siddiq, Mariusz Sumlinski, Dmitry Vasilyev, and Yuanchen Yang, 2023. “The Rise and Impact of Fintech in Latin America.” IMF Fintech Note 2023, International Monetary Fund, Washington, DC. ISBN: 979-8-40023-547-4 (Paper) 979-8-40023-698-3 (ePub) 979-8-40023-702-7 (PDF) JEL Classification Numbers: G23, O16, O54 Keywords: Fintech; financial inclusion; financial development; financial risks; financial regulation; Latin America Authors’ email addresses: BBakker@imf.org; BNunes@imf.org; WLian@imf.org; YLiu10@imf.org CPerezMarulanda@imf.org; MSumlinski@imf.org; DVasilyev@imf.org; YYang6@imf.org Abstract In the past decade, fintech has shaken up the financial sector in Latin America providing innovations in lending, payments, insurance, and regulation and compliance. This paper examines this development by focusing on both fintech services and regulation. Exploring fintech’s macro-critical impact using country- and bank-level data, we find that booming financial technologies in Latin America have helped boost competition in the banking sector and inclusion. Additionally, we demonstrate that fintech firms in Latin America experienced robust growth even during the pandemic supported by external funding. Finally, we discuss how regulators are addressing the risks associated with financial technologies and how they are leveraging fintech tools in their supervisory activities. * We thank Patricia Alonso-Gamo for her guidance, as well as Maximiliano Appendino, Parma Bains, German Villegas-Bauer, Marianne Bechara, Ke Chen, Martin Cihak, Gabriela Conde, Dimitris Drakopoulos, Ender Emre, Takuji Komatsuzaki, Jim Morsink, Mustafa Saiyid, Maria Soledad Martinez Peria, Mauricio Villafuerte, and Central Banks of Brazil and Costa Rica for their valuable comments. We also thank the Cambridge Centre for Alternative Finance for some important discussions in the run-up to this project. Contents Glossary ........................................................................................................................................................ 4 Introduction and Executive Summary ....................................................................................................... 6 I. Fintech Verticals: Trends and Funding .................................................................................................. 8 Main Fintech Verticals ........................................................................................................................... 10 ▪ Digital Payments ................................................................................................................................ 10 ▪ Digital Banks ...................................................................................................................................... 12 ▪ Alternative Finance by Fintech ........................................................................................................... 14 ▪ Insurtech............................................................................................................................................. 16 ▪ Bigtech ............................................................................................................................................... 19 Funding of Fintech ................................................................................................................................. 19 II. Causes and Impact of the Fintech Boom ............................................................................................ 21 Factors Fueling the Fintech Boom ........................................................................................................ 21 Fintech’s Macro-Critical Impact .......................................................................................
