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Fintechs looking to provide U.S. stock market access to Latin Americans

In a region with high market volatility, some Latin Americans turn to developed economies to invest a part of their savings.

Technology is now making it possible.

Whereas retail investors had limited access to country diversification in the past, it can now be provided at an affordable rate. Growing demand for investing overseas is driving fintech companies to cater new investment products to Latin Americans through the convenience of a smartphone.

Harry Temkin
Harry Temkin

“The retail revolution that stemmed from the pandemic also marked the beginning of an era of borderless investing,” said Harry Temkin, Chief Information Officer with U.S.-based DriveWealth, said. “Technology provides the opportunity to empower these emerging investors,” he said.

Previously, adults in emerging economies had no easy gateway for investing in U.S. equity markets at an affordable cost.

“Throughout the region, investing previously felt unapproachable to first-time investors–the markets only felt accessible to high net worth individuals and those who had developed an in-depth understanding of how to invest,” said Temkin, whose firm specializes in fractional technology.

Sproutfi partnership opens doors

Last month, the embedded finance firm announced a partnership with online investment platform Sproutfi to cater these investment services to Latin Americans. The technology allows clients to purchase fractions of an asset, providing an entry barrier of as little as a dollar.

But DriveWealth is not alone, as other companies such as Flink and Vest also offer Mexican citizens access to stocks and exchange-traded funds in the United States.

The demand for overseas investments has been growing in large Latin American countries, where volatility has pushed domestic investors to alternatives for diversifying country risk. Faster digitization during the years of the pandemic, and a surge in mobile internet usage, have led to profitable business opportunities in the fintech sector.

Research shows that less than 10% of households in Latin America have some equity investment in the local market, let alone overseas. In some countries, it is estimated to be as low as 2% or 3%, instead of above 50% in the United States.

According to Sergio Jiménez, CEO and Co-Founder at Flink, Latin America has suffered from “multiple entry barriers” to the broader investment ecosystem. He argued that lack of tailor-made products had been a critical detriment of adoption, while limited available information related to investment opportunities failed to advance financial education.


Educational task challenging

To be sure, Latin America continues to have a relatively low rate of banked adults, making the educational task even more challenging. Companies work a great deal on advancing awareness and breaking through taboos when it comes to investing.

It is common for investment fintech companies to offer online courses or financial educational content through digital channels. XP Inc, the Brazilian billion-dollar fintech, has grown into a sizeable financial education area. It has also executed a strategy to offer diversification strategies for Brazilian retail investors.

Although most fintech companies were initially aimed at payments or traditional banking services, now many firms are providing more sophisticated financial services such as investing.

Flink has recently announced plans to set up shop in Colombia. It incorporated investment products into its suite, offering Mexicans access to the New York Stock Exchange.

“As technology has continued to grow, so has consumers’ understanding that markets can be accessible to anyone directly from the palm of their hand,” said Drive Wealth’s Temkin. “First-time investors have learned that they can enter markets just like anyone else, and they are turning to investment apps to learn the skills they need to build long-term wealth.”