Is globalization reversing? Will US tariffs derail global trade? Is the world splintering into geopolitical trade blocs? Answers to these questions will now come faster—if not in real time, then at least quarterly—due to the new DHL Global Connectedness Tracker.

Unveiled on Tuesday by global logistics and shipping company DHL and New York University’s Stern School of Business, this web-based platform features interactive charts that track globalization levels and trends worldwide.

Some recent findings may come as a surprise: Global “connectedness,” measured across trade, capital, information, and people flows, remains robust as of mid-2024, despite geopolitical turbulence. The Tracker shows resilience in international flows even amid wars in the Middle East and Ukraine, immigration pressures, bottlenecks in the Panama and Suez Canals, and an ongoing US-China trade war.

This attests to “the resilience of international flows in the face of geopolitical tensions and uncertainty,” Global Connectedness Tracker reports.

“Currently available data indicate a stable level of globalization in 2024, with the balance of international relative to domestic activity,” Steven Altman, a Senior Research Scholar and Research Assistant Professor at the NYU Stern School of Business, and lead author of the Tracker and its affiliated DHL Global Connectedness Report, tells Global Finance. That is, it is holding roughly steady around the record high level set in 2022.

The Tracker scales globalization from 0% (no cross-border flows) to 100% (frictionless trade, with no border or distance effects). Projections for 2024 suggest little change across its four main categories, Altman adds.

How does one square this with all the turmoil in the world? “We might be focusing too much on the largest countries and economies. Many see the US and China interacting less, Europe and Russia decoupling, and the UK leaving the EU as signs of ‘the end’ of globalization,” says Tobias Meyer, CEO at the DHL Group, in the report’s introduction.

Still, maybe the election of Donald Trump in the US will change things? Trump has proposed tariff increases across all trade partners and especially large tariff increases on China.

If these tariffs are implemented, “they would put negative pressure on all US imports and exports, because trade partners are sure to retaliate,” answers Altman. “This implies especially great pressure on the 2.6% of world goods trade that takes place directly between the US and China, and some pressure more broadly on the 22% of all goods trade that is to or from the US,” i.e., 13% of world imports and 9% of exports.

Elsewhere, countries that are neither close allies of the US nor of China grew their share of world trade from 42% in 2016 to 47% in 2024, according to the Tracker, with the United Arab Emirates, India, Vietnam, Brazil, and Mexico seeing especially large trade share gains over this period.

Put another way, the vast majority of trade does not directly touch the US. “So what matters most for the global level of trade integration is whether a potential US-led escalation of trade barriers spreads further and begins to constrain trade between other countries,” Altman says.

He doesn’t foresee most countries retreating from cross-border trading. For one thing, most international trade is already between countries that are friends. Also, smaller countries, as a rule, are more dependent on trade than larger countries. “The US is actually the major advanced economy that relies the least on imports,” i.e., has the lowest imports-to-GDP ratio, says Altman. 

Nor is there much evidence yet that cross-border trade is becoming regionalized. Countries continue to trade with other countries far, far away. During the first seven months of 2024, “goods trade traversed the longest average distance on record (4,970 km),” according to the Tracker.

There is some evidence that trade between rival geopolitical blocs (e.g., US allies v. China allies) may be diminishing, however, mainly because of Russia’s international flows. According to the Tracker:

“The share of world trade crossing between close allies of the US and China and the opposing bloc fell from 13% in 2016 to 10% in 2024, but excluding Russia only from 11% to 10%.”

What about the longer-term prognosis—beyond the next decade or two: Should one expect globalization to grow, retract, or remain about where it is today?

“I think the most likely scenario is that we will see modest increases in globalization,” says Altman. Globalization often advances by fits and starts, with temporary reversals, but the long-range trend is positive.

That said, “we’re still far from a ‘flat’ world and I don’t think we’ll come anywhere close to complete or unfettered globalization in the coming decades,” he adds.

The current “depth,” or connectedness on the Tracker’s scale (i.e., 0% to 100%) is 25%, where 0% would mean that no flows cross borders at all, while 100% means that borders, distance, and cross-country differences have ceased to matter, and interactions are just as likely to happen between countries as they are within them.

This means that most of the overall business conducted around the world is still overwhelmingly domestic.

“And it’s going to stay that way because people and companies naturally tend to have stronger roots at home, and very few manage to achieve equal levels of success all around the world,” he comments.

While the Tracker is highly unlikely to reach 100%, “I wouldn’t be surprised if we eventually get from 25% up to 30% or maybe even, perhaps several decades into the future, up to 35%,” Altman says. 

Fraud attacks that enlist AI-generated deepfakes that impersonate high-level executives and AI-created synthetic identities are only rising. According to SWIFT, the global industry estimates the total cost of fraud in financial services to be $485 billion in 2023.

“Bad actors are using increasingly sophisticated tactics to commit financial crime, and the global financial industry needs to raise its defenses higher to ensure their customers can continue to transact globally with confidence,” said Jerome Piens, chief product officer at SWIFT.

The project relies on the billions of transactions that transverse SWIFT’s network annually as learning data for the AI engine. SWIFT strips identifiers from the data to protect privacy and replaces them with pseudonyms.

“The technology will identify suspicious patterns in real time, reducing fraud risk and ensuring a safer banking experience for clients,” added John McHugh, head of CIB Operations and Control at Standard Bank, in a prepared statement.

The new technology builds upon the cooperative’s Payment Control Service, which numerous small and midsize financial institutions use, and is part of SWIFT’s portfolio of AI innovations.

Participating banks in the Asia-Pacific region, Europe, the Middle East, and North America completed the pilot with SWIFT earlier this year.

Additionally, the organization is working with major financial institutions to explore other ways they could share data among institutions while maintaining data privacy. One such technology they are investigating is federated learning, a machine learning technique that trains models across multiple decentralized servers or devices without revealing proprietary data.

Data sharing also earned a panel discussion during SWIFT’s 2024 Sibos conference in Beijing. Representatives from Deutsche Bank, Intesa Sanpaolo, UniCredit and SWIFT recognized the benefits of data sharing but called for regulators to define a minimum level of data that could be shared to improve fraud detection, Finexta reported. Until such regulations are in place, financial institutions will likely hesitate to share transaction data.

The use of Large Language Models (LLMs) to increase efficiency, improve customer service, and enhance decision-making has been part of the conversation since the launch of ChatGPT by OpenAI in November 2022.  

While LLMs represent a significant advancement in the capabilities of AI, particularly in how machines understand and interact with human language, banks are taking a cautious response owing to concerns around regulatory compliance, data privacy and security, model accuracy and reliability, bias, and fairness.  

“Banks have been awash with data forever, but there is no prioritization, and tagging is incomplete or inconsistent,” states Andy Schmidt, vice president and global industry lead for Banking, CGI. “To be able to simply train a large language model to find the data, you need to have enough confidence in the data that it is usable enough.”  

“I think the important part that people need to sort out first is really getting the data sorted out. Setting out your data governance and making sure that the data is of a decent quality. Being able to de-dupe it and then figuring out where you need to enrich it,” he says.  

Standard Chartered is delivering AI-driven solutions and Margaret Harwood Jones, global head of Financing and Securities, says the bank has been working hard to solve data-management challenges. “You get so many instruction requests that come in in a very unstructured format, so we are using AI to turn those into structured data formats that we can then process efficiently.”  

At a Women in Tech Sibos event hosted by EY, panelists discussed how the only way to avoid biases in AI is to train LLMs to represent everyone from their inception, not just white males, and the only way to do this is to employ a more diverse range of staff.  

IBM believes that organizations need to proactively detect and mitigate risks; monitoring for fairness, bias, and drift. Updates to Granite Guardian 3.0, a widely used network monitoring tool in North America by Granite Telecommunications, allow developers to implement safety guardrails by checking user prompts and LLM responses. This includes checking for things like social bias, hate, toxicity, profanity, violence, and jailbreaking on 10 of the largest LLMs. 

Because of the potential risks and ethical implications, banks need to take responsible AI seriously, which includes taking a stringent approach to their data. 

As CFOs navigate an increasingly complex and interconnected world, understanding how to leverage data effectively can be a game-changer in mitigating risks and safeguarding financial institutions.

One of the key themes that emerged from the panel was the power of collaboration during one panel discussion, reports Finextra. By sharing relevant data, financial institutions can create a more comprehensive view of potential threats and identify emerging fraud trends.

This collaborative approach can help detect and prevent fraud more effectively, ultimately protecting institutions and their customers.

However, due to existing privacy laws and regulations, banks remain hesitant to share financial data. If data is shared, it is done via lateral agreements. The approach, while available today, has its limitations. From a technology perspective, relying on lateral agreements doesn’t scale well, and participation is entirely voluntary.

But something must be done and soon, said Sergio Antonio Dalla Riva, head of GTB product development solutions at Intesa San Paolo. “Hesitation is causing fragmentation and the fraudsters are laughing.”

Advanced technologies such as artificial intelligence (AI) and machine learning (ML) are increasingly crucial in fraud detection. These tools can analyze vast datasets to identify patterns and anomalies that may indicate fraudulent activity. By leveraging AI and ML, financial institutions can automate many aspects of fraud detection, freeing up resources for more strategic initiatives.

Data sharing and a technological initiative like SWIFT’s Federated Learning AI initiative, launched at last year’s Sibos, could provide the critical mass for an industry-backed solution.

While the benefits of data sharing are significant, it’s crucial to address the privacy concerns associated with handling sensitive information. The panel underscored the importance of robust data governance and security measures to safeguard customer data. This includes implementing strong encryption protocols, conducting regular risk assessments, and adhering to relevant regulations.

“The skeleton in the room is the concern that this data falls into the wrong hands…privacy is a key element,” said Michele Gentile, head of group correspondent banking, APAC, UniCredit, during the panel discussion.

By embracing collaboration, leveraging advanced technologies, and addressing privacy concerns, financial institutions can fortify themselves against the ever-evolving threat of fraud. As the financial landscape continues to evolve, the ability to effectively utilize data will be a critical factor in ensuring long-term success.

Representatives from China, the Bahamas, Kazakhstan and Europe each addressed the nuances of this burgeoning subgroup of the financial technology sector, according to Finextra.

The big takeaway: A more complete ecosystem is needed for widespread adoption of CBDCs to become a reality.

For Changhun Mu from China’s Digital Currency Institute, improving the legal environment is necessary in order to properly integrate the CBDC or eCNY (digital yuan or digital renminbi) and raise public awareness.

“Let every participant in the market understand what you are doing, what your products are, and what kind of incentives you can provide,” he said. “Then we can make the whole ecosystem for the market.”

Mu also highlighted China’s tiered wallet system for the digital yuan, which allows users to open a basic wallet with just a phone number. This system balances privacy and anti-money laundering (AML) efforts, with caps on wallet balances to prevent illicit activity. Mu stressed the importance of AI and big data technologies in securing transactions and protecting user privacy.

Evelien Witlox of the European Central Bank outlined progress on the Digital Euro, which has not yet been officially launched but is currently in the development and exploration phases.

Privacy concerns remain at the forefront of the design. In order for it to be structured for retail use, with both online and offline functionalities, central bankers want to ensure that online transactions would be anonymized once settled by the central bank.

Offline transactions, meanwhile, would resemble the privacy level of cash exchanges.

Witlox emphasized that stakeholder feedback and ongoing research are crucial as the Digital Euro moves toward standardization.

Henry Campell of the Central Bank of the Bahamas, shared insights on the Digital Sand Dollar—the world’s first fully deployed CBDC.

The coin, which launched four years ago this month, made the Bahamas a pioneer in the field of digital currency.

Currently in limited production, the Sand Dollar is expected to be fully operational by 2025 and integrated into tax management, decentralized finance (DeFi), and cross-border payments. Campell noted that the CBDC is reducing the costs and risks associated with cash and increasing circulation.

Assel Marchenko from the National Bank of Kazakhstan focused on curbing corruption, enhancing cross-border payments, and integrating with DeFi. Transparency in public spending is a priority, with the CBDC providing citizens with insights into the use of public funds.

Marchenko predicted that CBDCs will gain global traction due to their interoperability and efficiency in facilitating cross-border transactions.

The panel concluded with advice for central banks: Collaborate closely with private sector entities and develop clear business strategies in order to foster adoption.

Treasuries’ top challenge is securing financial investments focused on environmental, social and governance (ESG) concerns. Matt Cox, EY Global Commercial and Commercial Banking Leader, says that while expecting an ESG retracement, the opposite was true, as participants around the globe all thought banking ESG products and services were lacking.

The three subsequent challenges are digitizing treasury functions, managing real-time data feeds for accurate reporting and benchmarking performance. “I think we pick up a sense that treasurers are feeling under some pressure to evolve how they run operations in the context of this new technology-driven, digital world,” Cox suggests.

Adding: “I think it presents a huge opportunity for banks and other institutions, as only one in four corporate treasurers thought that their company was capable of delivering that capability in-house.”

The fifth challenge is accessing capital funding from non-bank lenders. “We see a high proportion of corporates accessing finance now from non-banks, and we expect that to increase in the future, and this is also something banks could get involved in facilitating from private credit,” states James Sanky, EY EMEA Corporate, Commercial and SME Banking Leader.

“In our mind, there are a lot of opportunities where banks could provide managed services for clients,” Sanky continues. Of the top five opportunities for banks to enhance treasury solutions, the top three areas they are willing to outsource are treasury risk functions, payment processing and cash and liquidity management.

If treasuries were to outsource those operational functions, they could focus on more strategic things, such as more analytics and decision-making, which can really help drive business growth.

On data-driven insights, 87% of the respondents said they would be comfortable with strategic advice based on aggregated internal and external data. In comparison, 92% said they were comfortable incorporating artificial intelligence into treasury operations. The desire for sector-specific offerings driven by data and insights also polled 92%.

“Although treasuries are moving to more strategic functions, they are still seen more of a cost center, while banks spend and invest a lot in technology,” remarks Cox. “So, if they can actually deploy that out to their clients, they could monetize treasury management services.”

In moving to Beijing from Toronto, SWIFT hopes to enhance its position as a global provider of secure financial messaging services, since the city is home to most of China’s biggest companies and the largest number of Fortune Global 500 companies in the world.

In a welcome video released before the Sibos conference opened Monday, Wang Ying of the Beijing Municipal Bureau of Local Financial Regulation says Beijing is the only city in China that benefits from programs that are a part of its Pilot Free Trade Zone, nicknamed “Two Zones.” The pilot program, which commenced in 2020, allows Beijing to test a wide range of innovative policies and keep pace with prevailing international economic and trade rules.

“Beijing is taking the lead in the opening up of China’s financial sector and is closely connected to the global financial networks,” she says. “Hosting Sibos in Beijing will definitely help advance the communication and cooperation in the financial community across the world.” 

Two Zones has resulted in more than 10 special reform plans being introduced, covering around 500 measures—leading to almost 50 policies being implemented nationally. Over 19,000 projects have been registered in the Two Zones, with more than 12,000 already launched. 

The China Financial New Development Index Report 2023 says that in addition to having a favorable environment for financial innovation and development Beijing has made significant achievements in areas such as fintech applications, the development of green finance, the promotion of inclusive finance, the innovation of pension finance, and the construction of digital finance. 

The Year of the Dragon is said to be a prosperous year where innovation and business can flourish, while the theme of this year’s Sibos conference: connecting the future of finance, makes Beijing, with its proactive approach to furthering innovation, the ideal location to debate the future of finance, with all its challenges and opportunities.  

Few financial reports coming out of Argentina sound hopeful; the slew of economic calamities that have plagued the South American nation for the better part of the last decade can seem endless. Yet, Argentina has continued to register as a bright spot in two significant areas: resilient entrepreneurialism and technology adoption and innovation. This includes the current boom in generative artificial intelligence (GenAI), a market niche that is expected to be worth over $110 billion by 2026 according to Statista, a German data-gathering research firm. Argentina currently ranks fourth in Latin America and has the region’s fifth-largest regional overall potential for producing AI-centered solutions, according to Statista.

“Argentinian companies, especially startups, are at a different maturity level than other Latin American markets,” says Pablo Gottifredi a technology specialist and an entrepreneur and former director of Systems Technology at the Ministry of Justice. “In Brazil and Mexico, the two largest regional economies, they’re still advancing on primary market needs such as fintech, supply issues, Warp and marketplace spaces.” Argentina, by contrast, had its first wave of tech startups 15 years prior to Brazil, “so many of the companies here are already dealing with the advancements of AI integration and development, but by integrating it in their natural flow of operations and not as a separate niche.”

Most larger Argentinian tech companies have already incorporated AI predictive model analyses into their business flow, Gottifredi notes. “They were not born as native AI companies but are using those tools in advanced form due to their maturity level. This is different from other, newer Latin markets, where some of the startups are AI-native.”

According to startupable.com, Argentina is currently home to 238 tech startups and unicorns, 20 of them native-AI startups, or roughly 8%, a figure that aligns with other developed countries and regions. Most local native-AI startups are still at a pre-seed or seed stage, with a handful in series A funding rounds. Market data compiled by KPMG and Statista show that over the past five years and across verticals—and in spite of government-imposed hurdles and a lack of incentives—the Argentinian tech sector had an approximate output equivalent to 63% of the heavily subsidized automobile industry.

Within the DeepStage segment, which encompasses tech startups with licensable or patented models, Argentina captures 30% of total investment in Latin America, says Gottifredi, who is also a co-founder and chief technology officer of MatchIT.

“This is huge, and this includes many biotech companies,” he says, “but this doesn’t mean that venture capital is flowing to these companies because of their AI component or the AI tools they employ. Rather, investments are being made because the business plan is sound, innovative and scalable.”

One factor favoring Argentina as a seedbed for innovation and entrepreneurialism is the quality of its educational system. Data for the past 30 years from the UN Development Program (UNDP) places it among the top 30 globally and the best in Latin America. Additionally, the country’s many crises over the past several decades have produced Argentinian entrepreneurs who are highly adaptable in the face of economic uncertainty and adept at reading the marketplace.

“Argentina has a small domestic market, and you can’t count on it for your business to thrive because of misguided government policies,” says Gottifredi, “so it is natural for local businesses to think global—or at least in terms of regional scalability—right from the start. This is in contrast to what you see in big domestic markets such as Brazil, Mexico, or even the US, where startups are often born to offer a specific solution demanded by their domestic markets.”

Out of this landscape come startups such as Bioceres, a biotech crop productivity company, and Satellogic, producer of earth-observation nano satellites. “AI is deeply ingrained in the technology used by such companies, as well as by local fintechs and retail companies,” Gottifredi says. “This is nothing new, and it would be logical for the next big tech evolution to come from countries thinking beyond their borders, like Argentina.”

While the government’s capital control policies have damaged the country’s business climate, including for venture capital, the announced removal of many such restrictions by President Javier Milei’s government could create singular opportunities for investment in Argentina, despite a lack of trust in the markets.

“Recovering market confidence could take some years, but it will happen,” Gottifredi predicts. “We’ve been there before, and I am optimistic that once the political-economic equation is resolved, Argentina will be very relevant in the global tech and startup space.

Now is the time for foreign investors to start deep-mapping the market, he urges. “Seed and pre-seed tickets in Argentina are significantly cheaper than elsewhere, and among startups in Series A or B funding rounds, it’s possible to find companies which already have market-fit products and only need capital to go global.”

Mexico continues to post record numbers for many of its economic indicators. And with what is projected to be a $30 billion-$40 billion nearshoring bonanza in its sights, financial institutions of all sorts are rushing to stake their claim.

The $644 billion-in-assets banking sector remains dominated by a few brick-and-mortar, multinational giants. BBVA México, Santander, and Banorte account for nearly 50% of the market, while Banamex, HSBC, Scotiabank and Inbursa contribute another 27%. But 66 million Mexicans, or 51% of the population, remain unbanked, creating cross-border payment and remittance opportunities for nearly 1,000 fintech startups.

Now is the time for anyone who wants to be in Mexico for the long term, specifically in the finance sector, according to Gilberto García, partner at Miranda Financial Advisory. “If you wait because you don’t know what’s going to happen when there’s more certainty, you’re going to tell yourself you should have done this before.”

Online-only neobanks have begun to have a significant impact. Although they haven’t broken into the upper echelons of Mexico’s financial market yet, they are promoting greater competition and improved access to financial products.

Described by CNBC as “one of the most disruptive companies in the world,” Kapital Bank is one such neobank.

A year ago, it acquired a nearly 50-year-old Mexican automobile loan provider, Grupo Autofin. Having injected $50 million to date into the lender, Kapital has watched deposits double from 3 billion Mexican pesos (approximately $150.3 million) to more than 7 billion pesos, says co-founder and CFO Fernando Sandoval.

“Since we took over banking operations, usage has almost tripled,” he adds. “Instead of competing with commodities, we decided to compete with technology.”

Concentrating on small and midsize enterprises (SMEs), Kapital saw a need for a one-stop solution for businesses. It now offers over 15 services via its Automated Intelligence Dashboard (AID) all day, everyday.

“SMEs represent almost 70% to 80% of all employees in each Latin American country and they produce 50 to 60% of GDP, but they only receive 15% of the finance [from financial institutions],” Sandoval notes. “The only ways to grow are through friends and family or the usual providers [legacy banks and traditional financial institutions].”

Meanwhile, Kapital has expanded into Colombia and looks to exploit market similarities in Peru, Chile, Argentina, and Brazil as well.

Traditional banks like BBVA and Santander are highly dependent on Latin America—more than half of BBVA’s roughly €5 billion net profit came from Mexico last year—and they have clearly heeded the warning from the fintech camp. Banorte launched an online expansion this year via Bineo, its first fully digital banking platform. Santander’s Openbank and Banco Regional’s digital platform and app Hey are also now in the market, while at least five foreign banks, including Plata, Banco Masari, Banco ION, Konfio and Nu are awaiting licenses.

In May, Citi took a minority stake in trading platform operator Cicada Technologies, which trades 28 Mexican government bonds and plans to expand to other types of securities. At the same time, industry observers continue to eye Citi’s separation from Banamex ahead of a 2025 IPO.

“We need to stop thinking the bank is an impediment and start thinking the bank is going to be an enabler,” says Kapital’s Sandoval. “Mexico is a big bet right now, but each country has its own rules. Why was Walmart successful here and Carrefour wasn’t, but in Argentina it was the opposite?”

Making the most of financial services opportunities afforded by Mexico’s prospective economic expansion will take a collective effort, however. For all sides of the banking industry to continue to develop, better consumer education is needed, he argues. To fill that need and reduce costs, tech startups, legacy banks and everyone else must work together.

Latin America has established itself as a magnet for fintech investment.

The region received $15.6 billion in investments for financial technology providers over the past 10 years, with Brazilian companies making up 66.7% of the total, according to consultant Distrito’s Fintech Report 2024. Digital services—e-wallets, accounts, and digital banks—attracted the most money, with $5.3 billion. But the most numerous deals, and those most often targeted for acquisitions, were in credit fintech, with 477 reported.

“The region has a large unbanked or underbanked population,” notes Andrés Fontao, co-founder of Finnovista, a Mexican venture capital firm focused on fintechs. “A significant portion of the population, both consumers and small to medium-sized enterprises, still lack full access to traditional financial services, creating a substantial opportunity for fintechs offering innovative and accessible solutions.”

Distrito charted 1,658 rounds of financing in the decade through first-half 2024, including 1,034 in Brazil. But this year alone, through June 30, has seen 83 deals worth $800 million, equal to 80% of all investments in fintechs in 2023. The two largest rounds this year were from QI Tech and Celcoin, for $250 million and $150 million, respectively. The QI Tech offering turned it into a unicorn, with an estimated value of over $1 billion.

Explaining the success of the company he co-founded six years ago, QI Tech CFO Marcelo Bentivoglio notes, “We have been growing more than 100% per year and held 300 clients, the biggest of each sector. I think we filled a gap in the financial market, as the company is focused on technological infrastructure for credit, banking, payments, collections, onboarding, anti-fraud, and all the necessary tools to boost financial services.”

Regulation and innovation have been key factors, he says.

QI Tech helps companies from different segments set up digital banks and provide financial products to their customers. If a company in retail, for example, wants to open a finance company offering payment options, billing, and credit issues, it can do so using QI Tech’s infrastructure. That, in a nutshell, is banking as a service (BaaS), which enables non-financial institutions to partner with QI Tech—or one of its rivals—to offer financial services to end users. BaaS started with tech companies that license their software for a monthly payment (SaaS) rather than selling a full operational software package for a one-time payment.

Last December, QI Tech purchased brokerage firm Singulare, which has $120 billion Brazilian reais ($24 billion) in custody. That acquisition came on the heels of an announced investment of R$1 billion ($200 million) in QI Tech in a Series B round led by General Atlantic with the participation of an existing shareholder, Across Capital, which is doubling its initial investment in the company.

Latin America counts 2,712 active fintechs, the majority in Brazil (58.7%), followed by Mexico (20.7%), according to Distrito. What gives Brazil such a strong lead? First, it’s region’s most populus country, and second, the Central Bank of Brazil contributes a lot to regulating fintechs, a process started more than 20 years ago. Without regulation, fintech services would not be allowed.

“As five banks concentrated 80% of the financial services, the competition was really low,” says Diego Perez, president of the Brazilian Association of Fintechs (ABFintechs). “In 2013, there were only two means of payment, and today we have more than 200 agents offering this service. As a result, there is more competition, and it’s positive for customers.”

Not everyone succeeds. Statistics from ABFintechs reveal that for every 10 new fintech companies, two will be successful in five years. This is similar to the public market equivalent for Brazil as a whole: 80% will fail and 20% will survive. In contrast to a decade ago, big banks are now joining successful fintechs for acquisitions or even collaboration.

“We are still in the beginning,” says Perez.

While the majority of Brazilian fintechs are focused on means of payment, in Colombia entrepreneurs are exploiting mainstream banks’ reluctance to provide credit for the bulk of the population. They are busily filling a niche between the banks and the coterie of illegal lenders known as “drop-to-drop,” which typically lend money at abusive rates of interest to needy people. 

“Those moneylenders applied up to 280% of the original value of money credited in 24 hours, which is extortion,” says Eduardo Montañes Silva, CEO of Bogotá-based consultant LiSim International. “In the legal system, it’s around 2.5% monthly. So fintechs became a suitable option for millions of people.”

While a traditional bank can take five days to approve a loan, fintech startups have found a practical way to lend money in two hours.

The Colombia Association of Fintechs has around 200 members, but estimates the country has 300 fintechs in all. Many are small operations with little investment, making growth difficult in the short- to medium-term. In this scenario, Montañes foresees, it will take a wave of mergers and acquisitions to develop the business.

“If two small companies join, they together can have more clients and attract more investments,” he says. “Colombia is an opportunities country and foreign investments are very welcome.”

Argentina poses greater difficulties, due to high inflation and a lack of circulating money. Fintechs there are focused on means of payment and investing in services that help customers protect their money, such as Mercado Pago, a digital wallet and payments platform, and Ualá, a mobile app used for managing Mastercard prepaid debit cards.

Regulations focus on the means of payment, banking transfer, and new technologies for mobile banking. “Both banks and fintechs are unable to offer credit, so they have to think about other services,” says Fausto Spotorno, director of consultant OJF & Asociados and director of UADE Business School.

Regulation makes a significant difference in Latin America, notes Finnovista’s Fontao, and countries are at different stages of development in this respect.

Mexico is a standout with its 2018 Fintech Law, the first in the region to lay out a clear legal framework, facilitating innovation and the entry of new players into the market.

“This law focuses on the widespread adoption of open banking and creates a safer environment for consumers and businesses,” Fontao says. “Countries like Chile and Peru are taking a more gradual and consultative approach, with recent efforts to strengthen fintech regulation and improve competitiveness in the sector.”

The pros of investing in fintechs in Latin America, he adds, are a strong talent pool, increasing access to technology, a young and adaptive population, and continued interest from investors themselves. “However, there are still some challenges to face in the region, such as the underfunding of the ecosystem compared to, for instance, the US; economic uncertainty; lack of access to funding in some regional markets; and political volatility.”

That said, Latin America’s fintechs are robust and growing, despite economic, political, and regulatory barriers. With appropriate investment, technological innovation, and a proper regulatory environment, the sector expects to continue positioning itself as an important agent in the region’s economy.