Latin America Poised To Lead The Lending Space

Credit is notoriously difficult to come by in Latin America. The Credit Card rates in Brazil peaked at 450 percent a few years ago, and now they've dropped to 250%, which is still amazingly high. In Chile, credit cards charge between 60-100 percent annual interest. Meanwhile, not everyone can access these cards.

Less than half of Latin Americans obtain a credit score history, so commercial and personal loans need more collateral, paperwork, and interest rates than in the United States. As a result, banks and payday lenders have to develop innovative ways to access creditworthiness and risk based on direct user behaviors. This makes it harder for most citizens with low-income rates to obtain loans.

One of the major factors contributing to the lack of financial services is that Latin American banks only favor the rich. For instance, in Mexico, more than 50% of the population is unbanked. Over 30% can't access any financial products, and only 31% have access to credit.

As a result, there is a great unmet demand from customers who have been left out of the financial system by the local financial institutions in the past. Technology is also another problem affecting areas in Latin America where most banks have ignored the digital banking sector. For instance, people still need to physically go to the bank to open a bank account in Columbia.

Latin American Fintechs are Taking Control of the Lending industry.

For the first time in Latin America, there is an explosion of Fintech activities spreading wide across the region. This is due to the extreme demand from the majority of customers who need an alternative option that is more accessible to everyone. While this growth may seem sudden, change has been building up for a long time.

There is now Fintech-friendly regulation to support the growth of Startup agencies. For instance, the Fintech law or "Ley Fintech" was passed in Mexico in 2018 to create a policy that ensures that fintech companies offer innovative products while adhering to the same regulatory and supervisory criteria as traditional financial institutions.

In addition, the rise of neobanks (online financial companies) has paved the way for more people to obtain loans and bank with consumer-friendly institutions with low-interest rates. For instance, Nubank is currently the largest neobank worldwide, with 33 million customers, and it's valued at $25 billion.

Also, there are over 25% million Brazilian applicants for Nubank's online credit card service with interest rates as low as 35%. Nubank also features an option for users to withdraw money from any ATM through the bank app.

Payday lending businesses in the fintech sector in Latin America

The payday lending industry is not left out as fintech companies focus on lending to Latin Americans with low credit ratings. Their goal is to transform the current narrative and offer services that benefit short-term borrowers and grow their credit and educate them about good money spending.

Creditas is one of the largest fintech companies in Latin America. It has raised $255 million as a cash advance loan agency. The company offers payday loans to customers based on their incomes, and it provides different payback periods and methods. The company's overall credit portfolio is over $196.66 million, and the company is currently valued at $1.75 billion.

Similarly, Graviti, a startup based in Mexico, raised $2.5 million in a seed round managed by Active Capital to start a buy now, pay later model for millions of low-income, unbanked Latin American families who find it difficult to purchase household appliances. Baubap is also a Mexico-based lending platform that raised a $3 million seed round from Grupo Alfin for promoting financial inclusion and education in its region.

Other fintech startups have also gotten huge investments, such as Facio, a $5 million seed round led by Monashees and ONEVC. It developed a financial education model where customers get free lectures and courses and salary advance services.

In addition, Josh Sanchez, co-founder and CEO of FloatMe created the financial app after a personal brush with Payday Lenders. The app provides interest-free and credit-free "floats" as high as $50. It also offers account monitoring to avoid overdrafts and savings and education tools to prevent customers from running into debt.

In conclusion, with emerging cash advance loans options through the fintech industry, Latin America is ready to take over the lending industry. According to CBinsights, the massive technology shifts, central bank regulators, and continued foreign investments indicate the support for LatAm fintech lending businesses.