Why fintech investment in LATAM more than tripled over the past year

The news: Venture capitalists invested a record $15.3 billion in funding in Latin American firms during 2021—triple the funding raised in 2020. About 75% of investments went to fintech, proptech, and ecommerce firms, per the Financial Times.

By the numbers:

• 650 deals in Latin America were backed by VCs in 2021, according to preliminary data from the Association for Private Capital Investment in Latin America (Lavca).
• The fintech sector led with six newly created unicorns, representing 39% of funding.
• Ecommerce followed with 25% of funding, and proptech with 9%.

Who got the money? Most of this was driven by mega-rounds, which made almost 70% of the funding in 2021, per Dealroom. Here are the top three hauls:

• Latin America’s biggest fundraise of 2021 was $1.15 billion, which went to the Brazilian neobank Nubank. When Nubank began trading on the New York Stock Exchange in December 2021, its valuation topped $40 billion.
• Next was the Brazil-based payment technology provider eBanx, with $430 million from Advent International.
• The fintech super-app Ualá raised the largest private investment round in Argentina ever, at $350 million.

The number of rounds in Latin America is also higher than ever. And a bigger chunk of funding is going to later-stage startups as the fintech ecosystem grows.

What’s the opportunity? There’s enormous latent demand for fintech services in Latin America.

• The current population of Latin America and the Caribbean is about 663,000,000 people across 33 countries. Its two largest countries, Brazil and Mexico, have populations of 210 million and 130 million, respectively, and GDPs of $1.8 trillion and $1.3 trillion.
• Yet within this large addressable market, only 56% of consumers in Latin America have traditional bank accounts, according to World Bank data.
• Latin American banks cater to the affluent through strict underwriting rules that limit access to a large proportion of the population: The number of bank accounts offered by traditional banks grew at just 3% to 5% per year through 2019.
• In some regions, more than 50% of the population remains unbanked. So there’s enormous pent-up demand among consumers historically locked out of the financial system by incumbents.
• Cash use dropped as a result of the pandemic: People became wary of handling it, and widespread lockdowns made it harder to access. Use of cash in the region is expected to drop 36% between 2020 and 2024, per Worldpay (owned by FIS).

What’s ripe for LATAM fintech disruption? Sebastián Vidal, an exec at the Puerto Rico-based startup accelerator Parallel18, pointed to the limited number of digital brokers in the region, as well as to the huge remittances market, which he saw as an opportunity for crypto.

• He mentioned the relative scarcity of neobanks in Latin America: “If you look at the market,” he told Insider Intelligence, “you have in Brazil about 40 traditional banks; in Mexico you have 30. While if you look at neobanks, you only have two or three.”
• Vidal also flagged the opportunity for fintechs that can make digital banking “super friendly and easy to understand for people who haven't had access to those types of services before.”