Growing numbers of experienced chief financial officers are abandoning the corporate grind to take freelance roles for multiple clients—whether in parallel or on a serial basis.

“The demand for [freelance] professional CFOs has approximately doubled” in recent years, says Eusebi Llensa, co-founder and CEO of Outvise, a Barcelona-based marketplace for high-end independent contractors.

Indie CFOs come in two flavors. Both enjoy growing popularity. And both differ from old school consultants because they become trusted members of company teams rather than serving as outside advisers.

Fractional CFOs work mostly with start-ups and growing midsize firms that need high-end financial services but cannot afford or don’t yet want a full-time employee. They work for extended periods with a portfolio of clients to provide the full gamut of CFO services, albeit on a part-time basis.

Two years ago, only about 2,000 LinkedIn accounts featured people promoting C-suite fractional services. This number currently stands at approximately 114,000, according to Sara Daw, CEO of The CFO Centre and The Liberti Group, and author of Strategy and Leadership as Service.

Interim CFOs take on short-term project-based assignments that cater to their expertise and interests; for example, an M&A specialist might sign on for a few months to oversee a transaction. When the deal is done, they move on.

People who define themselves as interim were more likely to be engaged in January (73%) than during the same month last year (67%) or two years ago (55%), according to the 2024 European Survey conducted by the International Network of Interim Manager Associations (INIMA).

Interim work is growing for all relevant functions, but C-suite and board services run ahead of the pack: They represent 55% of all gigs, said the INIMA report. Individuals skilled in “change management and process optimizations” are in high demand.

To facilitate the trend, a new global industry of independent management platforms and marketplaces is emerging to match C-suite and other high-end freelancers with potential clients. Some handle contracts, payments, back-office tasks, and other services. Top names include Outvise, Malt, True Bridge, Talmix, and Catalant. The CFO Centre, Fintalent.com and iFinance Director count among a subset that specializes in CFOs and top financial pros.

These companies report impressive rates of growth in revenue, such as: up 180% over the past two years; a threefold jump in monthly recurring revenue over the last 11 months; and an increase of 15% to 20% last year.

Chelsea Williams, founder and fractional CFO at US-based Money Management, a financial coaching company, and Core Solutions Group that works with law firms in the US, says she recently had to “Stop growing” lest things get out of hand.

The grandmother of them all, The CFO Centre, has evolved into a £60 million ($78 million) multinational organization since it was founded in 2001.

The industry has come a long way since Sara Daw co-founded that firm. Descriptive terms had yet to be coined. “Most people didn’t understand what we were talking about,” she recalls.

Despite the recent growth, the phenomenon still flies under the radar of many business screens. “I spent a lot of time having coffee with people to explain the model,” says John Frank, a fractional CFO and founder and CEO at Third Road Management, a business he has gradually grown over the past decade.

Frank echoes fellow industry leaders when he says, “The sky’s the limit” for the future of CFOs as independent contractors. As Dow travels the world, she says, “I get people asking when we are coming to their country.”

Sometimes people don’t wait. Take Rafael Estrela and his partner in São Paulo; seven years ago, they launched what has become BR Experts for the Brazilian market.

The trend is fueled by several developments including supply and demand, as well as from the evolution of the CFO profession in the corporate world.

The first has become obvious. We live in a “take this job and shove it” zeitgeist whereby many individuals embrace the lyrics of that Johnny Paycheck country song to pursue a better work-life balance, more flexibility, and new and more interesting professional challenges.

Take Phil Christmas, for example. As a British fractional CFO based in Spain, Christmas builds his portfolio of clients through platforms such as Outvise.

“I can help out with my two small kids. I can take my 6-year-old to school,” he says. “I am not fully employed as a fractional CFO, but I don’t want to be.”

But it can get complicated. For example, freelancing is often temporary. Nascent entrepreneurs take gigs to stay afloat as they bootstrap their companies.

“They need to fund their lives,” says Matthew Horrocks, head of Private Equity British Isles & North America at Malt, a platform for interims. “It allows them to spend time on what they want to do.”

That’s the sell side. On the buy side, there are two groups: SMEs and startups combine for one; then there are the corporates. For the latter, the use of freelancers is related to the evolving role of CFOs.

When SMEs and startups begin to grow, they increasingly need sophisticated financial services. But they can’t afford to hire a top-notch CFO. What is an entrepreneur to do? Hire a fractional.

For startups, the demand often emerges during early funding rounds. “When they are required to provide financials and data rooms, startups tend to hire fractional CFOs,” says Ömer F. Güven, founder and CEO of Fintalent.com, a platform for M&A and post-acquisition integration experts.

And it’s flexible. “Maybe it’s two days a week, but during the peak fundraising period, it could be 60 hours a week,” says Güven.

For small companies, whether seeking investors or not, a fractional CFO “really serves as a trusted adviser” for the entrepreneur, Frank notes. Says Christmas: “I am 62. My clients are often in their 20s. They are CEOs. They are highly intelligent, but they have no clue” about the financial side of the business world.

If smaller companies fuel the fractional world, corporates dominate the interim one. Sometimes it is something as simple as hiring a temporary replacement for a vacated slot or someone on parental leave.

But corporate leaders are also beginning to understand that they can boost productivity by hiring experts for specific tasks and projects, such as M&A, carve outs and post-acquisition integration. This is related to the growing sophistication of the CFO role, moving from computational to strategic and operational roles; thereby opening up sundry specialist tasks that might be better filled by temporary or part-time workers. Top financial people now need to be “strategic” says Llensa. “They need to ensure that there is a proper ROI.”

As individuals, fractional and interim CFOs might be one and the same, depending on the circumstances. They generally create portfolios of clients, sometimes tapping old contacts, sometimes platforms, and sometimes other networking tools.

Almost everyone agrees on one thing: To be a successful freelance CFO, one needs to be good at self-marketing. In other words, introverts need not apply.

“You have to find clients every day through marketing and networking,” says Christmas. “The type of person who is usually an accountant doesn’t have that kind of expertise.”

To make the roster of The CFO Centre, candidates must pass the barbeque test. Everyone is invited to a cookout. Those who help put sausages on the grill and talk to everyone make the team. Those who “stand in the corner” get cut.

Ilham Aliyev, the 62-year-old president of Azerbaijan, should be feeling pretty content. Being chosen to head the COP29 Summit in Baku, attended by over 190 countries, is a big honor.

It is also controversial; Azerbaijan is the second petrostate in a row to host COP following Dubai in the United Arab Emirates last year, and the summit president will be Aliyev’s natural resources minister, Mukhtar Babayev, who has spent 26 years of his career at the State Oil Company of the Republic of Azerbaijan (SOCAR). The event nevertheless gives this country of 10.3 million—the world’s first major energy producer, whose iconic Flame Towers in Baku symbolize the “Land of Fire’s” huge natural gas wealth—an impressive 12 days in the international spotlight.

COP29 follows a spell of good economic news for Azerbaijan. GDP growth has been picking up from 2023’s sluggish 1.1% pace thanks to a boost in demand for energy exports among consuming countries keen to diversify away from Russia and a stronger than expected non-oil economy. Growth increased by 4.3% year-on-year in the first half, leading forecasters to raise their full-year projections. 

“We are currently expecting 3.2% for 2024, but with the likelihood of an upside,” says Erich Arispe, senior director and the head of Emerging Europe Sovereigns at Fitch Ratings. “Growth is taking place against a background of falling average inflation—from 2022’s 13.9% and 2023’s 9% to around 3.5% this year—and a strengthening external balance sheet.”

Azerbaijan’s net sovereign asset position, at 71% of GDP in 2024, puts it among the highest of its BBB-rated and A-rated peers, as does government debt, at just 21.5% of GDP in 2024. Fitch upgraded the country’s sovereign rating to investment grade in July, to BBB- from BB+, with a stable outlook, and upgraded several Azeri commercial and banking entities, including SOCAR and ABB, the International Bank of Azerbaijan.

Aliyev is hosting COP29 at a time when most world leaders see his country as “relevant and useful,” says Tinatin Japaridze, South Caucasus analyst with the Eurasia Group: an alternative energy source to Russia, a possible bringer of stability in the notoriously unstable Caucasus, and an attractive destination for foreign direct investment not only in oil and gas but in the non-oil economy, given Aliyev’s promise to diversify.

Azerbaijan has, in fact, long been committed to boosting its non-oil economy and diversifying away from fossil fuels, which account for almost 48% of GDP and 92.5% of export earnings. The government aims to lure foreign direct investment (FDI) into such sectors as tourism, information and communication technology, logistics and transport, and agribusiness.

But progress has been slow. Poor corporate governance, corruption, high levels of state capture, and lack of transparency are all problems, according to Transparency International, which ranks Azerbaijan 154 out of 180 countries, alongside Tajikistan and Turkmenistan, in its Corruption Perceptions Index (CPI).

“All these sectors have potential,” says Fitch’s Arispe, “but because of domestic business environment factors have seen little in the way of FDI, while domestic investment has been partly held back due to constraints on access to financing. If Azerbaijan is to boost long-term growth away from the 2%-to-3% a year long-term trend, development of the non-oil economy is essential.”

Investment zones may be part of the answer; the Alat Free Zone south of Baku offers a range of incentives, including independent dispute resolution procedures in accordance with international standards.

An area receiving special attention—despite Azerbaijan’s image as an oil-dependent economy—is renewables and sustainable projects. The government is committed to reducing greenhouse gas emissions by 40% by 2050 and increasing renewable power capacity to 30% from today’s 7%—mainly accounted for by three hydro projects—by 2030. Boosting green energy is seen as not only good for the environment but, with much of it to be used domestically, a way to free up gas that can then be exported to Europe via various pipelines.

The multinational development banks are encouraging the shift. The European Bank for Reconstruction and Development has allocated €3.7 billion ($4 billion) to various projects, including, in April, Azerbaijan’s first renewables auction, for a 100-megawatt solar power development in Garadakh, and has been working closely with the Ministry for Energy to develop a new legal and regulatory framework for renewables, including a new Renewables Energy Law.

A series of major private-sector initiatives are underway as well, including Masdar, a huge solar energy project with UAE participation, and ACWA Power, a wind power project signed with Saudi Arabia that, when completed, will generate one billion kilowatt-hours, enough to power 300,000 homes.

Azerbaijan will be keen to use its role as COP29 chair to initiate more renewable and sustainable projects and speed existing ones, even as it maintains its lucrative role as a fossil-fuel exporter.

“Azerbaijan is in the active phase of green transition,” Aliyev said in a TV interview earlier this year, “but at the same time, no one can ignore the fact that without fossil fuel, the world cannot develop, at least in the foreseeable future.” Gas exports will remain a key source of foreign earnings, underscored by the European Commission’s agreement to double energy imports from Azerbaijan by 2027 in order to further reduce its dependence on Russian gas.

Renewables investments are expected to contribute to the $10 billion that Aliyev plans to invest in Nagorno-Karabakh, the mountainous region that Azerbaijan wrested control from Armenia last year, alongside major infrastructure investments.

“The government’s fiscal consolidation strategy has been adjusted to enable the government to meet its reconstruction and development commitments in Karabakh, but it will be also keen to attract foreign investment,” says Arispe.

Turkish and Russian companies will probably be among the more active investors, but Azerbaijan will be eager to lure Western companies, their presence further conferring international recognition of the region as a part of Azerbaijan. But some observers warn that improving the investment environment and tackling corruption and poor governance will be critical, both in Karabakh and more widely in the non-oil economy.

“Sustainable partnerships in green energy will be key going forward,” says Japaridze. “Although it may be increasing gas exports now, Azerbaijan must be realistic about how long this can be maintained, especially with the economy probably underperforming over the longer term.”

Surveys suggest production is poised to decline in another five to eight years, she notes. “Like every other country, it really has no real alternative to looking seriously towards a greener, more sustainable future.”

At last year’s COP28 conference in Dubai, the participating governments—197 countries plus the European Union—committed to a tripling of renewables targets and a doubling of energy efficiency. When they check on their progress at COP29, officially known as the Conference of Parties, which opens on November 11 in Baku, the capital of Azerbaijan, their agenda will be, if anything, more ambitious. It will range from protecting biodiversity to capacity-building for carbon markets to climate education and youth action to inclusiveness for Indigenous people and other marginalized groups.

Added to that should be grid and storage targets ensuring that countries have the capacity to store renewable-generated energy, says Dave Jones, Global Insights program director at Ember, a UK-based energy think tank. COP29 has already called for a sixfold increase in global energy storage by 2030, to 1,500 gigawatts of capacity. “To reach this goal,” Michael Bloomberg, the UN’s special envoy on climate ambition and solutions, has said, “it’s critical that we increase collaboration among private, public, and nonprofit leaders.”

Key to all these goals is climate finance, which is expected to be a central focus of this year’s gathering.

“This year is known as the finance COP,” says Natalia Alayza, manager in the Sustainable Finance Center of the World Resources Institute (WRI). This year’s participants are expected to adopt a new target for the collective investment they pledge to make each year toward climate action. That target was set at $100 billion in 2009, a goal they only met in 2022.

“Adopting the new collective quantified goal (NCQG) which will replace the $100 billion goal will be the key priority,” says Alazya, “not only because it will bring trust into the international climate finance negotiations but also because it will be crucial to supporting developing countries’ climate ambition commitments.” At a minimum, she urges, the participants should pair the new target with a clear delineation of what it will fund—adaptation, mitigation, loss and damage, for example—who the providers and recipients will be, and the timeframe for delivery.

Bridging the often-considerable gap between ambition and accomplishment has been one of the biggest hurdles to meaningful implementation of climate change goals. The Climate Bonds Initiative’s Partnership Program is just one of many attempts to boost the use of climate bonds, particularly in the areas of GSS (green, social, and sustainability) markets. This year’s Climate Finance Summit, held in Kuala Lumpur in August, and the Climate Investment Summit held in London in June, underscored the importance of governments and the private sector working closely together, particularly as climate mitigation becomes a priority.

With dramatic storms and floods in many places becoming more common, some observers argue that countries will have to be ready for a once-in-100-years storm pretty much every year—which raises the urgency of securing financing now.

“One of the most important needs in Central Asia is sustainable infrastructure,” says Ludger Schuknecht, vice president of the Asian Infrastructure Investment Bank (AIIB), “everything from dealing with effluent water from the Aral Sea to the enhanced connectivity of transport infrastructure between the five countries of the region.” The AIIB held its annual general meeting this year in Samarkand, Uzbekistan, focusing closely on meeting climate goals.

“Private capital mobilization is one of the main priorities for doing so,” says Schuknecht, adding that the AIIB has already exceeded its 2023 climate finance goal of 55% of total investment, typically $10 billion a year, with 60% of total invested funds going toward green infrastructure, connectivity and regional cooperation, private capital mobilization, and technology-enabled infrastructure.

“There is now almost no project that we sign or initiate that doesn’t have a climate change dimension,” he notes.

Mobilizing private capital is the only realistic way to bridge the “trillions of dollars wide” climate finance gap, argues Dimitri Gvindadze, director of Climate Strategy, Regional Delivery at the European Bank for Reconstruction and Development (EBRD). Last year, the bank’s annual green finance investment totalled close to €7 billion ($7.3 billion), nearly half its total outlay.

“Through our investment, we mobilized a total of $27 billion in private sector finance toward climate-related projects,” he notes, “meaning that for every $1 billion of our own investment, we mobilized over $3 billion in the private sector.” 

Aside from boosting climate finance generally, Gvindadze would like to see COP29 prioritize Article 6—carbon trading—as well as areas that align with the EBRD’s activities. The bank is working on a new strategic and capital framework, to be published next year, that will focus on three priorities: green, inclusion, and governance.

But he sees a green dimension in just about every sector, including finance, transport, agribusiness, municipal, industrial and energy. Scaling up private investment in renewables often requires additional investment in public infrastructure such as electrical grids, he notes, which generally means major involvement by the state. Going forward, a faster-paced green transition will depend on politics, the business climate, macroeconomic stability, land rights, various regulations and licenses, budgetary and financial constraints, and concerns about energy security. These must be tackled as and when they arise.

“In terms of country ambition, our view is that where there’s a will, there’s a window,” Gvindadze argues. “Yes, there is a correlation between projects and geopolitical risk aversion, but our view is that the green transition is about enhancing the long-term competitiveness of your economy,” adding that COP29’s aims should be seen in these terms.

Another key priority, says the WRI’s Alayza, should be to find ways to boost public-private cooperation.

One option, Alayza says, could be to “explore or increase the use of financial instruments that mitigate the risks of private investments, such as guarantees, which still have space to grow when looking at, for example, the multilateral development banks’ climate finance portfolio.”

While many critics complain that the COP process is moving too slowly, Ember’s Jones is broadly positive. He points to the recent decision by the UK—the world’s first industrial nation, whose prosperity was built on coal—to phase out its last coal-fired power station by next year. Since the Paris Climate Change Agreement of 2015, he notes, 27 of the 38 OECD countries have committed to becoming coal-free by 2030, and since then, coal generation has dropped by 52%.

“We’ve seen action where you’d maybe least expect it,” Jones says, “with Saudi Arabia committing to having half of its electricity generated by renewables by 2030 while two-thirds each of the wind turbines and solar energy plants now installed worldwide are in China.”

With COP29 only weeks away, the world is not sitting still, however. The US presidential election will have already been held by then; with one of the two candidates highly skeptical of the realities of climate change, the outcome could significantly undermine US involvement and commitment to COP goals. On the other hand, the meeting of the G20 Rio de Janeiro Summit on November 18-19 will overlap with COP29. That, and the fact that Brazil is scheduled to host COP30 next year and is committed to serious action to mitigate climate, could bring more intensity to the proceedings.

“COPs are inherently complex, because they represent a platform for multiple stakeholders,” says EBRD’s Gvindadadze. “But they are useful for drumming up a sense of urgency.”

After a year of unprecedented climactic volatility—ranging from heat waves and drought to high-intensity storms, hur- ricanes, and major flooding—the urgency is already there.

The post-pandemic inflation that tormented consumers and politicians in many economies was an enormous gift to banks. Rapid rate hikes by the US Federal Reserve (the Fed), European Central Bank (ECB), and other authorities enabled banks to raise their own interest rates faster than their deposit rates, leading to an avalanche of net interest income and record profits.

Now the party is winding down as inflation recedes and central banks ease up, but not too fast. The Fed’s key interest rate is now at 5%, compared to 0.25% in early 2022. The ECB’s rate is now at 3.4%, after having reached 4.5% in September 2023 and stayed there until a series of cuts began in June of this year. “The general mood is cautiously optimistic,” says Jens Baumgarten, Frankfurt-based global head of financial services at consultancy Simon-Kucher & Partners. “We’re not going back to the horror scenario when bankers were asked to make bread without flour.”

Rumors of recession have meanwhile proved exaggerated across major economies, leaving banks’ asset quality in good shape. “The important question is why interest rates are dropping, and right now they are dropping because the economy has proved resilient,” remarks Sandeep Vishnu, a San Francisco–based partner at consultant Capco.

One conspicuous vulnerability for US and European banks is the area of commercial real estate loans, which seems to be easing—or at least not deteriorating. “It looks like some light is showing at the end of the commercial real estate tunnel,” says Johann Scholtz, who follows European banks for market analyst Morningstar. “Offers to buy assets are falling into line. The market is rightsizing.”

Fears of a crisis in midsize US banks exploded in March 2023 with the sudden collapse of Silicon Valley Bank (SVB) and two others. That seems a distant memory now. The Fed deftly managed acquisitions by stronger partners, and competitors have quietly hedged the bond portfolio mismatches that started the trouble at SVB. “There were factors very specific to these institutions,” says Christopher Wolfe, head of North American banks at Fitch Ratings. “Other banks learned some lessons and are in better position to manage the downward rate trajectory.”

News from the rest of the world is also broadly positive. Big Japanese banks are growing their loan books at a 6% annual pace, the fastest in decades, as interest rates nudge above zero and animal spirits spread among their corporate customers, says Nana Otsuki, a senior fellow at Pictet Asset Management in Tokyo. “Corporates have become more aggressive, wanting to borrow more now rather than waiting,” she says.

Indian banks’ loan growth is roaring at double digits as state banks fund Prime Minister Narendra Modi’s infrastructure drive and private ones ride a consumer credit wave, according to Aditya Gupta, who manages the Simplify Tara India Opportunities ETF out of Mumbai. The bank scandals and busts of the 2010s are all but forgotten.

Even in China, banks are getting some respite from the intertwined crises of real estate and local government debt, as the central bank cuts interest rates and lowers reserve requirements, among other measures. “The central bank has become more active in injecting liquidity, and banks are seeing less immediate pressure on their liabilities,” says Logan Wright, who leads China markets research at New York–based Rhodium Group.

Not that bankers are ending 2024 worry free. The macroeconomic soft landing is still far from certain, particularly in the euro area, which has been sputtering at the edge of recession for the past year. The razor’s-edge US election could take the world’s biggest economy in unpredictable directions. China looks increasingly unreliable as an alternative global growth driver. Tensions in the Middle East oil bucket are unabating. “We are not out of the woods with respect to the prevailing operating environment,” notes Amit Vora, global head of credit and lending solutions at Mumbai-based global analytics company CRISIL, a subsidiary of S&P Global.

Localized risks lurk within robust national systems. Japanese regional banks are struggling even as the big banks are thriving, Otsuki says. Customer bases are literally shrinking in many provincial areas.

The main growth driver for Indian private sector banks is unsecured personal loans, often to novice borrowers with short credit histories, Gupta notes. The mortgage market, though also expanding, is too competitive for banks to make much margin. The Reserve Bank of India “began sounding the alarms” a year ago about unsecured lending, which was growing at more than 20% a year, says Gupta. Since then, “banks have started to sound a little cautious on asset-quality issues.”

US consumers have been releveraging, too, despite elevated borrowing costs, creating a potential trouble spot if the economy dips, Wolfe says. “Loss rates on credit cards and auto loans look unsustainably low,” he comments. “Card defaults are right at prepandemic levels but continuing to deteriorate.”

China has slapped some Band-Aids on its multifarious financial mess but lacks the transparency for a comprehensive cleanup, according to Wright. “Local governments don’t want the [central government] to know how much debt they have, and the [central government] wants to keep it ambiguous how much support it will give,” he says.

Global banking’s biggest challenge, though, remains losing market share to nonbank financial institutions (NBFIs) in two core competencies: lending and payments. Lending at the top-15 US banks increased by an anemic 0.9% year-on-year in the most recent measured quarter, according to S&P—a natural consequence of tighter money. Private credit AUM continued to surge by double digits to nearly $2.5 trillion, according to BNY Mellon data. “The growth of private credit is one of the big themes now,” CRISIL’s Vora says. “Banks have not been best placed to meet many borrowers’ needs.”

Incursions by nonbank payment systems are still more dramatic. “Adoption of payment apps—including Venmo, Apple Pay, Google Pay, or Cash App—now rivals adoption of credit cards,” a core business for banks, Undersecretary for Domestic Finance Nellie Liang recently told a symposium hosted by the Federal Reserve Bank of Chicago. Experience beyond the US is the same or worse, from the banks’ point of view, with services from Kenya’s M-PESA to China’s Alipay becoming the standard.

That leaves banks wondering how to grow—particularly incumbent brick-and-mortar banks, which are also under attack from newborn online-only rivals like Nubank in Latin America, Revolut in Europe, and Rakuten in Japan. “Banks’ next challenge will be avoiding a postgrowth scenario,” Morningstar’s Scholtz predicts.

With top-line expansion hard to come by, and no immediate crisis to combat, bankers are renewing their focus on technology to squeeze costs and enhance customer interaction, Vora says. “Clients are telling us now is the right time to reflect on how they are set up, to undertake transformation across the board,” he adds.

Generative artificial intelligence (GenAI), the tech that has the world abuzz, could turbocharge that effort, Capco’s Vishnu suggests. “A GenAI bot could produce the first draft of a credit narrative in 60 seconds,” he explains. “Add review by the loan officer, and the whole process is down to 30 minutes from half a day now.”

Simon-Kucher’s Baumgarten states the case more starkly: “Bankers need to be replaced, but not by humans.”

Better technology could also help banks individualize customer relationships—tailoring rates and product offerings to specific needs—and win back some of the turf grabbed by nonbank “originators,” Baumgarten adds. “Banks are sitting on a huge treasure chest of customer data,” he says. “A lot of them are using surprisingly outdated tools to work with it.”

Given the warp speed of GenAI development, though, today’s expensive, cutting-edge IT investment could be tomorrow’s surprisingly outdated one. “Banks are not in a hurry” to transform, Vora says. “They want to develop something bespoke, not grab a third-party solution.”

Another avenue to growth is joining forces with nonbank competitors, funneling banks’ cheaper, deposit-driven capital into lending structures that may be more dynamic. That’s not a new phenomenon. US bank lending to NBFIs has tripled over the past decade to $300 billion and now accounts for a quarter of the banks’ term loans, the New York Fed reports.

New tie-ups between big banks and private credit are making headlines, though. Citigroup announced in September that it will partner with private equity giant Apollo Global Management on a $25 billion fund. JPMorgan reportedly followed with its own $10 billion private credit vehicle.

Regulators are starting to express concern about these bets by deposit-insured banks. “A key observation is that nonbank financial intermediation involves significant liquidity and funding risk,” the New York Fed’s economists write in its Liberty Street Economics blog.

Fitch Ratings is watching that space, too. “Understanding what’s going on with banks’ increasing participation in private credit is important to us,” Fitch’s Wolfe says.

But the rush into private credit has not stopped yet.

Strong balance sheets and constrained organic growth will also push banks toward growing by merger and acquisition, where politics allow it. Major banking deals have gone quiet in the US since a flurry of post-SVB acquisitions. But the enormous herd of smaller institutions continues to consolidate, down by 138 last year to 4,577 (including credit unions).

Japanese banks are keen to deploy capital into faster-growing Asian economies. Notable recent deals include Mitsubishi UFJ Financial Group buying into India’s DMI Finance, while competitor Sumitomo Mitsui Financial Group took a stake in Vietnam Prosperity Bank. More may well be on the way, Otsuki says. “Return on equity in Japan remains extremely low,” she notes. “The banks will be looking for M&A opportunities in the region.”

The unlikely hub of banking consolidation, however, could be Europe. Despite the European Union’s unified trade in goods, banks have remained locked within national borders, unable to match the scale of US peers. “Most European players are tiny dwarves compared to the US top five,” Baumgarten observes.

Italy’s UniCredit is looking to shake this status quo with a hostile bid for Commerzbank, one of Germany’s biggest. It’s bought nearly 10% of the target’s stock and asked German regulators’ permission to hike that to 30%. Success in this deal could open the door for a raft of cross-border mergers, in theory.

The Berlin government is less than enthusiastic about the takeover. But ultimate authority lies with the ECB, whose head, Christine Lagarde, is a vocal consolidation advocate. Morningstar’s Scholtz thinks Germany will have to back down. “The probability of the deal going through has increased,” he says. “It will come down to price.”

The spotlight for banking regulation has meanwhile shifted to the US federal prosecutors who rocked the financial world in October, forcing Canada-based TD Bank to pay $3 billion to settle charges of laundering money through its US network. The plea agreement also capped TD’s US assets, constraining its growth in the much bigger market.

A month earlier, Washington regulators found “deficiencies” in money laundering controls at Wells Fargo, one of the US giants. Wells Fargo has been under an asset cap of its own, imposed last decade for opening accounts without customers’ knowledge.

More systemic drama surrounds Washington’s implementation of the global Basel III accords on bank safety. In July of last year, the Fed floated a plan that would increase the biggest US banks’ capital requirements by a whopping 19%, provoking a firestorm of protest from financiers and their political allies. In September, Vice Chair for Supervision Michael Barr revised that down to 9% and exempted midsize banks, between $100 billion and $250 billion in capital, from any increase.

Barr’s proposed compromise satisfied no one. Democratic Sen. Elizabeth Warren condemned it as a “Wall Street giveaway,” while Bank of America CEO Brian Moynihan waxed ironic. “Show them death and they’ll take despair,” he remarked.

The battle continues. “An overwhelming concern among US bankers is whether they will be faced with new regulatory burdens,” Capco’s Vishnu comments. “And fines have gotten so big, they can wipe out all sorts of efficiency gains.”

Big banks turned to governments for rescue during the 2008 global financial crisis and have been living with the consequences ever since. Stiffer postcrisis regulation opened broad swathes of the lending market to less-encumbered nonbank competitors. The lower-for-longer interest rates deployed for postcrisis recovery bit into bankers’ margins. The global profusion of mobile internet access meanwhile enabled a new universe of digital-native rivals and challenged banks themselves to overhaul business models.

Resurgent inflation since 2021 has returned rates to something like historical norms, giving bankers back the flour they need for the bread of profitable lending. The other challenges remain very much in force. Private credit funds and other nonbank entities continue to mushroom. Regulators are far from asleep. Banks, and the broader societies around them, continue searching for the optimal tradeoff between safety and economic dynamism. AI promises a technological challenge, which can also spell opportunity. Bankers have plenty of work to do.

A small West African country that is one of the world’s biggest phosphate producers, Togo displays a resurgent economy and the prospect of more to come. Its industrial sector is reviving after a long period of stagnation, new investors are coming in and those already ensconced are expanding operations.

The picture is clouded by security challenges arising from attacks by bandits in the northern region and sea pirates’ raids on the coastal south. Rising resentment of a decades-old political hegemony compounds the threat of instability. Together, these issues could pose significant threats to economic growth and social progress, analysts warn. 

None of which, however has thus far discouraged foreign direct investment. A leading foreign company operating in Togo is Heidelberg Material, which is planning new investments in environmental and industrial sectors and funding sustainable solutions in cement production using alternative materials.

Agriculture is attracting investment, as well. Olam, the Singapore-based agro-food group, acquired a 51% majority stake in Nouvelle Société Cotonnière du Togo (NSCT) for €15.3 million in 2021 as part of the government’s privatization of the state-owned cotton company. Designed to boost cotton production, which had declined due to bad weather in the north and poor seed quality, the deal left the government and the federation of cotton farmers with a 24% and a 25% stake in the company, respectively.

Last year, another Singaporean company, NutriSource, started NPK (nitrogen, phosphorus, potassium) fertilizer production in Togo. The new plant is part of a bigger project valued at CFA4.9 billion ($7.8 million). In the energy sector, France’s TotalEnergies is the leading retailer of petroleum products.

Chinese and South Korean companies are operating in Togo as well, including Leopard Moto (bicycle sales), Amina Togo, West Africa Battery (batteries for bikes and cars), YSO Dairy Products Manufacturing, Sofina (nylon thread, fishing nets, spool thread, packages, ropes) and China Sinomach-Hi West Africa (equipment manufacturing).

A lively FDI contribution gives Togo a favorable economic outlook, augmented by structural reforms and critical investment projects, according to the African Development Bank.

The AfDB expects real GDP to grow 5.3% in 2024 and 6% in 2025, driven by a dynamic agricultural sector and private investment, although the International Monetary Fund projects growth to “soften” slightly to 5.3% over 2024-2025 due to fiscal consolidation before recovering to its long-term trend, projected at 5.5% annually.

The rating agencies, too, paint a positive picture on balance. In a note published in September, Moody’s upgraded Togo’s economic outlook from negative to stable and maintained its B3 rating for foreign and local currency borrowings. Moody’s cited improved budget management as a key reason for the upgrade, noting a reduction in the public deficit from 8.3% of GDP in 2022 to 6.7% this year. Standard & Poor’s had previously reported a positive economic assessment.

Togo’s National Development Plan 2021-2025, also known as the Presidential Roadmap, provides the fulcrum for its economic transformation, stating as its goal to “help develop innovative and sustainable solutions to identify financing resources, attract more investments with great socioeconomic impact and consolidate [the country’s] strategic positioning.” The road map also envisions developing infrastructure to support economic activity, including transportation and energy, and enhance economic stability through higher government spending and private-sector investment.

Underpinning these projections is some solid infrastructure. Togo has one of the best ports in West Africa; in three years, the Port of Lomé has achieved a significant drop in congestion thanks to improved berthing windows, maintaining a 48-hour ship turnaround time. As a result, it has become a port of choice for importers even from Nigeria as well as for landlocked countries in the Sahel region, including Niger and Burkina Faso. 

However, the opposition parties have accused the ruling party, Union for the Republic, of playing gimmicks with the change, which they say was designed to increase President Faure Gnassingbé’s stay in office through a shift in title. Togo’s next presidential election is slated for next year.

All this suggests future political instability that may threaten Togo’s economic achievements, if it has not already, Marcel Okeke, former chief economist of Nigeria’s Zenith Bank warns: “Togo is contending with a political hegemony that is stagnating the country’s economic progress.”

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.

The year 2023 cost Latin American economies an estimated $20 billion in destruction from natural calamities: the highest total since Hurricane Maria hit Puerto Rico in 2017.

Numbers-wise, the regional impact and cost are in line with such events elsewhere on the planet. According to the World Economic Forum, globally reported economic losses attributed to climate and water extremes reached $1.48 trillion in the decade ending in 2019: a 47.9% increase over the previous decade. However, compared to other regions, Latin America is uniquely positioned to leverage its natural riches to become a focal point of economic opportunity through green solutions at comparatively lower transition costs—if it manages to accelerate locally as well as regionally coordinated efforts.

The region is grappling with the economic impact of rising temperatures, shifting weather patterns and an increased frequency of natural disasters. Slow-to-act governments and a lack of coordinated proactiveness are the main hurdles preventing several Latin countries from catapulting to the forefront of the global ESG agenda.

“Without a decision to coordinate on following a specific path, we risk letting the single biggest economic opportunity for Latin America this century slip through our fingers,” says Marina Cançado, head of Converge Capital, who has worked for 15 years connecting investors, corporations and ESG/green economy solutions in the region.

Ana Luci Grizzi, partner at EY and Latin America deputy-lead for Sustainability and Climate Change, underscores the need for the public authorities to step up.

“We still need decisions that become state policies instead of the policies of a government,” she says. “There’s gigantic regional opportunity in the transition to a low-carbon economy, the bioeconomy, and the circular economy. We have natural capital available here both in quantity and in quality and this could give us a leadership position.”

According to Boston Consulting Group (BCG), if the world implements the Paris Accords by 2030, limiting temperature rise to no more than 1.5°C by 2100, the world will suffer less than an 8% loss of GDP to disasters and climate change. But at current levels, temperatures will rise 2.9°C by then, causing losses estimated at 24% of the global economy.

Latin America is already impacted in many ways.

“If we look at Colombia, loss of arable and forest land is one of the greatest risks,” says Bogotá-based economist Jorge Farfan, a partner at Brazilian venture capital firm KPTL. “We lose an average of 300,000 hectares of land annually, especially in the Amazon and in woodland, to nature degradation. We are also highly impacted by the stronger and more frequent Caribbean tropical storms and hurricanes reaching points farther south in the region. Chile and Mexico are already suffering extreme droughts, converting large tracts of land into barren deserts unusable for anything at an alarming rate.”

Research by the World Resources Institute places both Chile and Mexico, two of the most important Latin American economies, in the top 30 countries impacted by baseline water risks, the highest in the Western Hemisphere, while Peru is at 32nd place.

Flooding in the southernmost Brazilian state of Rio Grande do Sul in April and May vividly illustrates the challenge.

In just five days, cities and towns across the state saw rainfall equaling one-third of the annual average. The results were catastrophic. A study by EY showed 90% of the municipalities in the state were adversely affected; 30% declared a public emergency. Civilian authorities put the death toll at 183. Damage to public and private infrastructure was so extensive that the Brazilian Confederation of National Insurance Companies classified the disaster as the single largest claim-generating event in Brazil’s history.

Much of the blame, according to Cançado, lies with the expansion of single-crop agriculture over the years in Rio Grande do Sul, especially soybeans, which has adversely impacted the soil and exacerbated the potential for flooding.

“The effects of this incident go beyond the immediate tragedy,” she says. “Accounting for the potential of another event like this now impacts and alters the market value of assets, the feasibility and price of insurance, how public infrastructure concession bids need to be drafted and valued and what municipal spending priorities need to be.”

Climate and nature risks involve physical impacts that must be measured through risk-analysis methodologies, EY’s Grizzi points out, and these need to be revised to include forward-looking capabilities.

“Risks associated with shifting weather and nature can be dealt with either through mitigation or adaptation,” she notes. “The impacts filter down through the entire economic system, and that’s why financial institutions are also concerned about the systemic risks associated with contagion or holding assets and investments in places and companies that do not comply with transition goals.”

The good news is that Latin America has the potential to become a global leader in green solutions; according to BCG, Brazil is already the brightest star in the region, with the potential to double its yearly foreign direct investment and attract up to $3 trillion by 2050. It has the capability to generate excess green energy through renewables and increase sustainable regenerative agricultural output at scale while protecting and restoring biomes: distinct geographical regions with specific climate, vegetation, and animal life. And it could become a key player in providing cost-competitive green industrial products and services.

Brazil will host the COP30 climate summit next year, Grizzi notes; its own record has been mixed, but she remains hopeful.

“We have many good projects still in Congress,” she says, “such as the Brazilian System for Emissions Trade, which will be functional by them. But Brazil still lags behind the global north; they had more time to adapt while facing many more natural-resources restrictions. While Brazil is still catching up with the European CBAM [Carbon Border Adjustment Mechanism] or the American Inflation Reduction Act, the end results will still be positive and can place the country among the global players.”

BCG ranks Brazil as the world’s leader in profiting from regenerative agriculture at scale; first as a carbon-offset supplier through nature-based solutions, forecast to create up to $50 billion in revenue locally by 2030; and as a protagonist in wind, solar and green hydrogen generation. Brazil is expected to become a leader in biomass fuel development and a worldwide hub for low-carbon industrial products, which benefit from clean energy, ample natural resources and circularity.

“Brazil has 40% of the world’s biodiversity and one-third of the global biomes, but we don’t yet have a single global product tapping those resources directly,” says Danilo Zelinski, head of KPTL’s Forest and Climate Fund.

KPTL just concluded a round of investment in a company that taps molecules only available in the Amazon to create new products aimed at extending longevity and guaranteeing health in old age. “The opportunity to explore this biome in a sustainable way, protecting the forest, is tremendous,” Zelinski says, “and the economic incentive for this is there, too. It is much more lucrative to have such products and science coming out of the Amazon than to simply clear it for cattle pasture.”

Brazil could also see increased international investment in the relocation or construction of major data centers in its northeast, according to research from Santander, much of it built on advances in generative artificial intelligence. A simple query on ChatGPT requires 10 to 15 times more electricity than a query made through regular search engines. Brazil could capture a significant share of the $440 billion market simply because it can offer what most other countries cannot: cheap, clean, renewable energy and water to cool data centers at scale. Additionally, it has geographic proximity to Chile, a global supplier of the copper needed for the critical electrical applications required for servers.

“We have all the sectorial assets in place in Latin America in general,” says Cançado, “and in Brazil specifically: mining, energy, food, agriculture. We are the only region able to sustainably develop all of these assets while transitioning to net-zero carbon emissions. And we are able to do this propelling development, spawning economic growth, creating jobs, and generating income.”

Her conclusion couldn’t be more poignant.

“At this point, we are only missing one thing: a shared vision and a regional call-to-action,” she says. “We need to decide if we want to be the global power and global hub of climate solutions for the planet. This decision needs to be shared across governments, the private sector and societies throughout our countries. But we need coordination. The risk, if we don’t do that, is we’ll once again only be the region that could have been, but never was.”   

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.

Multinational and behemoth private banks increasingly view Latin America as a cornerstone of their growth strategy.

Recently, global giants including Citi, UBS, BBVA, and Santander have revamped their teams and opened new divisions in the region, aiming to leverage their leading global offerings for a larger piece of the wealth pie. Meanwhile, local players such as BTG Pactual and Bradesco have been opening their wallets to increase the breadth of their services in asset classes and geographical reach.

The ultimate prize is an evolving market projected to reach $1.3 trillion in assets by 2029, according to a recent report by Research and Markets. “Banks need to grow, and there’s little room for that in markets such as China or Europe right now,” explains William Trout, director of Securities and Investments at Datos Insights.

Getting to the pot of gold at the end of this particular rainbow may prove challenging, however, as the investment preferences of Latin America’s superwealthy grow more sophisticated.

“As individuals become wealthier, their needs become ever more global,” says Alfonso Castillo, global head of Santander Private Banking. “They tend to increase investments in hard currencies while seeking a more sophisticated, comprehensive value proposition.”

These evolving demands do not replace but rather add to the “complexity of wealth in Latin America,” argues Trout. “The interconnections between businesses and families and the way the relationships are structured make the landscape particularly complex, and good planning an imperative.”

The region also faces structural changes in both demographics and wealth composition, says Antonio Gonzales, head of Latin America at Citi Private Bank. “Women already control more than half of the financial decisions in the business ecosystem in several countries, contributing to a more diverse and profound decision-making process when it comes to preparing the next generation of wealth owners.”

Furthermore, as customer needs grow more complex and global, traditional family offices are progressively looking to the big banks for support in meeting parts of their function.

“Although a family office has many advantages, it doesn’t always have the scale and resources of a private bank,” Santander’s Castillo notes. Last year, Citi Bank’s proprietary research found that just 30% of investments from family offices in Latin America were directed toward their own region, whereas 80% of investments from their counterparts in the US and 54% from Europe, the Middle East, and Asia remained within their respective geographic boundaries.

Yet, despite banks’ growing ability to provide more tailored services, there are no signs that the family office model is being abandoned. “I don’t see banks gobbling up family offices anytime soon,” says Datos Insights’ Trout. In fact, the number of single-family offices in Latin America serving one family exclusively, grew by an astonishing 200% over the past decade, according to recent research by Capgemini.

To meet the plethora of evolving needs, banks have been pouring massive investments into the region.

Under Gonzalez’s leadership, Citi Private Bank recently laid out an ambitious plan to double its LatAm presence.

“Considering the estimated projections of wealth generation in the region,” he says, “we believe it is possible to double our business in Latin America in the medium- to long-term, focusing on UHNW [ultra high net worth] individuals and families with at least $25 million.”

Boosted by its takeover of Credit Suisse early last year, Swiss powerhouse UBS recently made its LatAm division an independent unit, “recognizing its significantly increased size and potential,” the bank said in a memo.

Similarly, Santander has added 90 new private bankers to its Latin America-focused Miami office and in Mexico. The Spanish financial services giant expects to reach €500 billion ($556 billion) in assets under management (AUM) by 2025 and sees Latin America accounting for the bulk of that growth.

Aiming to boost clients’ already growing demand for global investment products, Brazilian behemoth BTG Pactual has gone on an acquisition spree. Recently, the bank took over New York-headquartered M.Y. Safra Bank and completed the acquisition of FIS Privatbank in Luxembourg. BTG has also opened offices in Miami, Portugal, and Spain.

The bank’s focus lies firmly on the offshore business, where it expects to reach $30 billion in AUM by next year, according to Rogerio Pessoa, head of wealth management.

Bradesco Private, another local giant, has followed a similar path. Focusing on improving its offshore offering, the Brazilian bank has ramped up investments in Luxemburg and acquired BAC Bank in Miami, Florida, now rebranded Bradesco Bank.

Also placing offshore at the center of its growth strategy, BBVA Private in March opened a new advisory office in Miami, fully focused on Latin America. The Spanish powerhouse also disclosed plans to expand its private banking teams in Brazil and Chile, two countries where it lags behind the competition.

“Due to the higher degree of uncertainty of policy in Latin American economies, we find a strong preference for offshore assets,” says Citi’s Gonzales.

However, many clients still seek geographic protection without having to go offshore, notes Juliana Laham, chief investment officer at Bradesco Global Private Bank. “Offering global portfolios within local market investments has been a highly successful strategy,” she says. “In these cases, choosing between dollar-based strategies remains an interesting option.”

As Latin America grows into a key battleground for the ultrarich, the same cannot be said of the Caribbean. Due to tighter banking regulation in the US and in the region, several key players have found it challenging to keep their operations running.

The “de-risking” trend has led to the exodus of around 40% of corresponding banks from the region over the past 15 years, according to the Economist Intelligence Unit, reducing its access to global finance offerings.

“The island offshore market is getting increasingly fragmented globally as the US grows increasingly interested in closing financial loops,” Trout says. “That doesn’t bode well for the region, given that most of its AUM growth is not organic to the region as it is for LatAm wealth.”

One side effect of growing demand is that clients are resorting to more banks at the same time. A 2023 paper by the Capgemini Research Institute indicates that UHNWIs maintain relationships with seven wealth management firms on average, up from just three before the pandemic.

Against this backdrop, banks have been stepping up their game when it comes to customer retention.

“It’s not just a question of footprint and scale,” argues Alfonso Castillo, global head of Santander Private Banking. “The value proposition includes innovative global investment products and goes beyond private banking services such as banking for the clients’ companies, real estate advisory, and day-to-day banking.”

“Banks that don’t offer the necessary expertise around trust, philanthropy, and even around very specialized asset classes, such as alternatives, are under the threat of falling short,” Trout warns.

Against this backdrop, the industry is increasingly prioritizing services and comprehensive planning as central components of its offering, aiming to strengthen customer loyalty in the long run. 

However, Trout notes, figuring out the staffing model might pose the most significant challenge for banks looking to “support very specialized needs without being killed by the costs.”

The solution to that problem may be in technology, says Gonzalez: “Artificial intelligence can create models based on the client’s investment preferences and past behavior, then make recommendations and dynamically rebalance the portfolio based on new information or changing market conditions to correct any drifts from the core strategy. As a result, advisers can concentrate on the human-dependent aspects of client relationships: making big decisions, building trust, and understanding client needs and goals.”