Publicado en SartUp Universal - 17-02-2020
In November 2019, Argentine personal finance app Ualá announced the closing of a US$150 million funding round led by Tencent (China’s leading provider of value-added Internet services and the owner of WeChat) and SoftBank’s innovation fund for Latin America. The news attracted attention from international media and investors and placed a spotlight on Argentina.
Ualá, which offers prepaid debit cards, transfers, payments, and savings & loan services, had already announced an initial investment of Tencent in April and subsequently, as its founder Pierpaolo Barbieri recently told the New York Times, his relationship with Tencent remained “very close.” The two-year old startup (founded in October 2017), is now valued at US$900 million according to Bloomberg, and is close to becoming the latest startup unicorn coming out of Argentina (along with MercadoLibre, Globant, Despegar, Auth0 and OLX).
AN ERA OF ECONOMIC CRISIS
To fully appreciate the rapid rise of Ualá, it is essential to understand the local economic environment in which it has grown. Argentina has been experiencing a strong economic crisis for at least the last two years. In 2018, the country accumulated an inflation rate of 47.6%. The year began with a US dollar equivalent to around 18 Argentine pesos, and ended the year worth 39 Argentine pesos. During the crisis, unemployment rose to 9%, poverty increased to around 34% and Argentina’s GDP dropped 2.5% (including a 6.2% drop in the last quarter of 2018). Far from improving, in 2019 inflation already exceeded 50%, the dollar is worth around 60 Argentine pesos, poverty levels are at almost 40%, and ECLAC *the Economic Commission for Latin America and the Caribbean) forecasts a 1.9% contraction of the national GDP.
GROWING INVESTOR INTEREST IN FINTECH
In spite (or perhaps because) of the economic conditions, both entrepreneurs and investors have begun to devote more time and capital in using technology to address the root causes of the crisis.
In an economy where virtually no item or sector shows green balance sheets or positive projections, the young sector of technological finance has not stopped growing. In 2018, the Argentine Chamber of Fintech, together with the IDB and Afluenta, carried out the first survey of the national fintech ecosystem, identifying 133 companies in the sector with an average annual growth (2017-2018) of 110%. By August 2019, in a new survey of the Chamber with the Central Bank and the Treasury, and despite even more adverse local economic conditions, the sector grew by 67% in number of firms, reaching 223 companies. This sector growth exceeds that of Brazil (49%), Mexico (51%) and Colombia (29%), the main economies in the region. In fact, the recent growth of fintech in Argentina has propelled the country close to becoming the third most booming fintech economy in Latin America. In this context, the case of Ualá may be a notable example, but it probably won’t be the only one going forward.
ARGENTINA´S FINTECH DIFFERENTIATORS
Argentina has several competitive advantages to develop a technological finance sector attracting global investors. Firstly, although the penetration of bank accounts is high (80%), the level of use is low (50%). This means there is an issue of usage rather than access, greatly simplifying the process of financial inclusion. Secondly, there are as many–or more–smartphones as there are inhabitants, and the level of connectivity is above the regional average. This smartphone penetration and connectivity bodes well for the entire Fintech industry. Thirdly, according to the World Bank, Argentina is the 7th country with the lowest private credit sector (measured as the ratio of credit to GDP). Lastly, the Argentine entrepreneurial DNA, strongly conditioned by the intrinsic adversities that its economy frequently goes through, seeks regionalization. According to a study carried out by the Argentine Chamber of Fintech, 70% of companies in the sector are already operating in at least one country in the region, or have it in their roadmap in the short term. Argentina is the birthplace, but Latin America is the market.
PUBLIC-PRIVATE PARTNERSHIP
On top of the advantages mentioned above, the relationship between the private sector and regulators has progressed through various round tables of public-private dialogue designed to expand the borders of the financial system through innovation. The Central Bank has its Financial Innovation Roundtable, the National Securities Commission has its Fintech Task-Force, and the National Insurance Superintendency recently inaugurated its Insurtech Board. The national government recognized, during the last 4 years, the need for greater financial inclusion and financial education, and recognized that technology is a great mechanism through which to close these gaps. The government has invested in transforming financial inclusion with a digital focus into a State policy, and with the change of administration, this trend will continue to deepen.
All these factors explain why, even with a headwind in microeconomic and macroeconomic terms, Argentina’s fintech sector is fertile ground for investment funds that bet on the long-term.
See below for a Spanish-language infographic surveying Argentina’s fintech sector.
Ualá, which offers prepaid debit cards, transfers, payments, and savings & loan services, had already announced an initial investment of Tencent in April and subsequently, as its founder Pierpaolo Barbieri recently told the New York Times, his relationship with Tencent remained “very close.” The two-year old startup (founded in October 2017), is now valued at US$900 million according to Bloomberg, and is close to becoming the latest startup unicorn coming out of Argentina (along with MercadoLibre, Globant, Despegar, Auth0 and OLX).
AN ERA OF ECONOMIC CRISIS
To fully appreciate the rapid rise of Ualá, it is essential to understand the local economic environment in which it has grown. Argentina has been experiencing a strong economic crisis for at least the last two years. In 2018, the country accumulated an inflation rate of 47.6%. The year began with a US dollar equivalent to around 18 Argentine pesos, and ended the year worth 39 Argentine pesos. During the crisis, unemployment rose to 9%, poverty increased to around 34% and Argentina’s GDP dropped 2.5% (including a 6.2% drop in the last quarter of 2018). Far from improving, in 2019 inflation already exceeded 50%, the dollar is worth around 60 Argentine pesos, poverty levels are at almost 40%, and ECLAC *the Economic Commission for Latin America and the Caribbean) forecasts a 1.9% contraction of the national GDP.
GROWING INVESTOR INTEREST IN FINTECH
In spite (or perhaps because) of the economic conditions, both entrepreneurs and investors have begun to devote more time and capital in using technology to address the root causes of the crisis.
In an economy where virtually no item or sector shows green balance sheets or positive projections, the young sector of technological finance has not stopped growing. In 2018, the Argentine Chamber of Fintech, together with the IDB and Afluenta, carried out the first survey of the national fintech ecosystem, identifying 133 companies in the sector with an average annual growth (2017-2018) of 110%. By August 2019, in a new survey of the Chamber with the Central Bank and the Treasury, and despite even more adverse local economic conditions, the sector grew by 67% in number of firms, reaching 223 companies. This sector growth exceeds that of Brazil (49%), Mexico (51%) and Colombia (29%), the main economies in the region. In fact, the recent growth of fintech in Argentina has propelled the country close to becoming the third most booming fintech economy in Latin America. In this context, the case of Ualá may be a notable example, but it probably won’t be the only one going forward.
ARGENTINA´S FINTECH DIFFERENTIATORS
Argentina has several competitive advantages to develop a technological finance sector attracting global investors. Firstly, although the penetration of bank accounts is high (80%), the level of use is low (50%). This means there is an issue of usage rather than access, greatly simplifying the process of financial inclusion. Secondly, there are as many–or more–smartphones as there are inhabitants, and the level of connectivity is above the regional average. This smartphone penetration and connectivity bodes well for the entire Fintech industry. Thirdly, according to the World Bank, Argentina is the 7th country with the lowest private credit sector (measured as the ratio of credit to GDP). Lastly, the Argentine entrepreneurial DNA, strongly conditioned by the intrinsic adversities that its economy frequently goes through, seeks regionalization. According to a study carried out by the Argentine Chamber of Fintech, 70% of companies in the sector are already operating in at least one country in the region, or have it in their roadmap in the short term. Argentina is the birthplace, but Latin America is the market.
PUBLIC-PRIVATE PARTNERSHIP
On top of the advantages mentioned above, the relationship between the private sector and regulators has progressed through various round tables of public-private dialogue designed to expand the borders of the financial system through innovation. The Central Bank has its Financial Innovation Roundtable, the National Securities Commission has its Fintech Task-Force, and the National Insurance Superintendency recently inaugurated its Insurtech Board. The national government recognized, during the last 4 years, the need for greater financial inclusion and financial education, and recognized that technology is a great mechanism through which to close these gaps. The government has invested in transforming financial inclusion with a digital focus into a State policy, and with the change of administration, this trend will continue to deepen.
All these factors explain why, even with a headwind in microeconomic and macroeconomic terms, Argentina’s fintech sector is fertile ground for investment funds that bet on the long-term.
See below for a Spanish-language infographic surveying Argentina’s fintech sector.
