Over the last few months, fintechs have been facing a critical period in Latin America, triggered by a banking and inflationary crisis with consequentially high-interest rates that has put the period of high venture capital investments in the region on pause.
The share of fintechs in total venture capital investments had declined considerably in recent quarters when compared to previous periods when fintechs secured almost infinite funding to develop products as innovative as they were risky.
According to a recent report by the consultancy firm CB Insights, by 2022, the global volume of investment in fintechs was down 46% from the previous year, which had a record $139.8 billion.
Connecting ecosystems to offer more complete products
Amid this hostile economic scenario, fintechs are diversifying their businesses to survive, adding solutions to monetize their customer base and thus reduce dependence on currently riskier lines of companies.
“We will see more fintechs moving towards becoming something like a ‘super app,’ connecting ecosystems where users can manage their money, make purchases, take out insurance, and more,” highlights the CB Insights report.
An example is the high adherence of Brazilian fintechs to open finance.
Two years after the Brazilian Central Bank integrated its open finance system in the South American country, the initiative already registers more than 17 million active data shares.
And this number is growing exponentially and has guaranteed space for discussing data-sharing implementation in other sectors of the economy.
Fintechs such as Banco Pan, PagSeguro, and Neon have seen the possibility of radically increasing their scope of financial products with the use of open finance. Today, they can position themselves in the market with services such as payroll lending — which was previously almost exclusive of large traditional banks in Brazil — thanks to the greater knowledge of customers migrating from traditional financial services to the digital ones offered by these fintechs.
Greater focus on B2B clients
Financial institutions have also begun to focus more on B2B business models in 2023. Brex, for example, has stopped servicing traditional small and medium-sized businesses, focusing instead on significant companies and startups that have already raised funds.
This shift in focus has meant that by creating a whole new set of products dedicated to corporate clients, the fintech could step out of the shadow of other more advanced neo-banks and save its business in a less explored sector.
CB Insights’ research also cites the example of Nubank, which has expanded its solutions offering.
The strategy of the Brazilian neobank, which went from facing financial problems in its IPO in 2021 to making profits for the first time in the last quarter, was to build an infrastructure in-house, close partnerships, and make acquisitions to advance in other markets, such as insurance, investments, and crypto.
In 2023, Nubank’s platform is one of LatAm’s finest. And most importantly, it no longer relies mainly on the credit card to secure profit.
“While the old assumptions about seemingly infinite growth for fintechs no longer apply, new opportunities will continue to arise for startups willing to reinvent themselves,” concludes CB Insights.
Jorge C. Carrasco is a Contributing Reporter at Fintech Nexus. He reports on fintech, economy, banking, startups, and technology, covering the most impactful stories from a Latin American perspective.
He has contributed to several international publications, such as Foreign Policy, The Spectator Australia, Estadão, Época, Washington Examiner, and Quillette. Originally from Havana, Cuba, he is now based in Brazil.