Latin American fintechs are gearing up for 2024 with increased momentum, rebounding from a year marked by rising delinquencies and a more cautious approach due to capital constraints. Leaders expect more integration in the financial market, especially as Open Finance moves forward in several of its major economies, and a more helpful macro environment stemming from lower rates and inflation.
Neobanks in Brazil and Latin America are bracing for a more favorable year relative to 2023, signaled by high interest rates and borrowers struggling to repay loans in a high-inflation environment. Most digital lenders pulled the brakes on lending during the year, as they assessed the impacts on the portfolio from the increase in delinquency ratios.
Still, some of the worst scenarios did not transpire for the largest fintechs in the region, and many expect a somewhat more benign economic environment for 2024.
“Next year, we are likely to have better interest rates, better inflation, lower delinquency and more convenient cost dilution because of growing size,” João Vitor Menin, CEO of Nasdaq-traded Brazilian neobank Inter, told Fintech Nexus in an interview. “We should have stronger tailwinds than headwinds for the next two or three years.”
Digital lenders managed to deliver positive results this year, with companies such as Nubank, Mercado Pago, PicPay and Inter itself all turning around losses and growing profits as they directed tight cost control. All of this while, in most cases, still signing up millions of customers.
“Everybody has realized that neobanks are here to stay,” Inter’s Menin said. The company recently reported over 30 million clients in Brazil, and $30 million in net income as of the third quarter. “In the beginning, neobanks were good at launching products and onboarding clients,” he said. “But the question was, can they be profitable? Do they have a sustainable business model? This year, we have proved that we do.”
In 2024, fintechs are shifting their focus to upselling and cross-selling, aiming to maximize revenue from each active customer. “2024 is more about reaping the harvest rather than planting the seeds,” Menin said.
Digital lenders, like Nubank, the largest digital bank in Latin America with 90 million customers, are slowly improving their average revenue per customer (ARPAC). “We are moving closer to what we believe is our full capacity, and our confidence remains high that there is still untapped potential for further growth here,” Guilherme Lago, CFO at Nubank, said.
LatAm fintech credit
Fintech experts anticipate that Latin American companies will increasingly venture into the lending segment as capital slowly becomes more available. The region’s loan market has so far seen fintechs remain on the periphery.
As part of a broader shift toward monetization, many companies have recently taken initial steps into the segment, which has long been dominated by a handful of major financial banks.
“There are a lot of repressed growth opportunities in the market,” Sandro Reiss, who leads the Brazilian Association for Digital Credit, said in an interview. “As capital becomes more available, there will be an opportunity in the collateralized lending segment while picking the slack on unsecured lending.”
Fintechs that have stepped into lending have done so through credit card lending and personal loans. Both bear significant risk, particularly as fintechs tend to lend to individuals without robust credit or income records.
In 2024, industry experts anticipate a move towards enhanced loan diversification, as fintechs venture into the realm of “soft collateral loans.” These loans involve collateral such as payroll, receivables, financial investments, or digital assets. According to Reiss, this segment presents an enticing opportunity for fintechs to expand credit while minimizing risk compared to unsecured lending.
“This would bring balance between growth and risk, which is something that banks have been doing for a long time, and fintechs couldn’t do because they were monoliners until now,” he said.
Open Finance and Pix
Opportunities for financial technology companies to expand their share in the loan market arise as the region moves forward with Open Finance regulation.
Chile’s fintech law came into effect in 2023, establishing a formal framework for the sharing of financial information among fintechs and banks. The goal is to reduce costs and enhance credit offerings. Colombia is reportedly progressing toward a similar framework, while Mexico’s fintech sector is anticipating secondary rounds of regulation to set the system in motion.
By far, Brazil is the most advanced ecosystem in regulation, where Open Finance has already been fully implemented. Experts see a huge potential for fintech lending. “If customers allow it, there is a giant trove of data available for underwriting,” Reiss said.
However, its success has not matched that of Pix, the instant payment system introduced by the central bank a few years ago, now adopted by almost the entire adult population in the country. Several features are expected for 2024, including direct debits, crucial for recurring charges and opening up new possibilities for Pix.
Clovis Miiller Jr, CEO of Nordmoney, expects a trend toward streamlining forex and cross-border market operations. In the past, the central bank has floated the idea of making Pix international, although there has not been as much progress yet.
For Bruno Diniz, a fintech advisor in Brazil, the importance of blockchain-based services will grow in Brazil, especially as the central bank will launch its own Central Bank Digital Currency this 2024, or CDBC, known as “Drex”.
“There will be efforts from major banks and fintechs to migrate traditional finance products to this new tokenized infrastructure,” he told Fintech Nexus. “Pix, as well, will continue growing and becoming more connected with Open Finance.”