Fintech

Chilean Fintech is growing a triple-digit

The Fintech sector in Chile is the most mature in Latin America, according to the latest edition of the Fintech Radar in Chile by Finnovista.

Finnovista is an organization that encourages investment and development in this sector of the digital economy. The Chilean fintech won this attention thanks to the longevity they have shown their companies in the last three years. Two-thirds of Chilean startups were founded more than three years ago.

The success of these startups contrasts with the low investment, support, and, sometimes, the problems that entrepreneurs face to find the talent they need to start their business, according to a study conducted by the consultant EY Chile together with FinteChile in May. The May’s report indicated at that time that Chilean fintech grew 94% in the last year.

Finnovista data is more moderate but no less encouraging. Fintech Radar estimates that the sector grew 114% in the last three years, with a death rate of just 12%.

The accelerated growth of Chilean fintech is far from being an atypical situation in the region. On the contrary, this is the general rule. In July, Fintech Radar said that Costa Rican fintechs increased 400%, while Mexico regained regional leadership by surpassing Brazil with more than 400 ventures in the country. Technological gurus were not wrong to point out that the low banking of Latin America, rather than an obstacle, is an opportunity to innovate in financial services.

What makes Chile’s Fintech ecosystem so unique?

The Fintech Radar study identified 112 Chilean startups in the fintech sector, of which 44% were consulted to collect data from their research.

Comparing the numbers with Finnovista’s report last year, 46 new startups have emerged in Chile. Payment and remittance services are the most popular services and represent almost a third of the country’s startups. Business Finance Management follows with 19 startups. Practically all Fintech sectors grew in Chile, highlighting the Business Technologies segment for Financial Institutions. This segment surpassed Crowdfunding in the last year, which in Chile has companies such as Fondeadora that compete internationally. Crowdfunding fintech in Chile slightly decreased its presence in the country, with a 9% drop, one of the few segments that contracted.

Fintechs that work on Score, identity, and fraud also had a bad year. These startups had a resounding drop of 50%, a situation that contrasts with the boom in business technologies. In 2018, only two startups were working on this turn. Now there are thirteen companies identified by Finnovista.

Chilean fintech has its own trend

The distribution of segments in Chile differs with the other three most important ecosystems in the region. In Brazil, Colombia, and Mexico, the Loan companies usually occupy the first three places, while Chile these startups maintain a relatively marginal presence. This difference may be because, in Chile, banks offer loans with lower interest rates. Online loans have not been able to find a way to gain the trust of the population.

Another critical difference in Finnovista’s report is the maturity of digital financial companies in Chile, where more than 69% have more than three years of operation, while in Colombia 55% of the businesses in Fintech have less than one year.

The survival of most Chilean startups is a good sign for investors, but it also explains why 91% of Chilean companies are preparing to expand their operations both in Chile and in the rest of the continent.

The expansion to new markets is a common-sense decision in the South American country. Chile has strengths to compete on the level of development, infrastructure, or standard of living that most of its inhabitants maintain. However, it is a relatively small market compared to Brazil and Mexico. Internationalization, rather than a matter of ambition, is a necessity for Chilean businesses. This context explains why 53% of Chilean fintech companies are international, while this figure does not exceed 32% in the region, according to data from the Inter-American Development Bank.

Mexico, Colombia, Peru, and Argentina are the countries where Chilean companies tend to look for new opportunities.

Job creation of Chilean fintechs

The presence of fintech in Chile is still reduced to talk about a significant impact on job creation. Almost half of these startups work with a workforce of fewer than ten employees, while only a quarter of companies work with more than 25 employees. Gender equity figures are also not the most encouraging in the region. In Chile, 24% of women occupy executive positions in the industry, a considerable difference compared to the rest of the continent, where this figure rises to 35%. Even so, Chile is above the international average, where only 7% of women have the opportunity to develop in managerial positions.

Chilean companies in this sector have also had to deal with the problem of finding the talent they need. According to the report made by EY Chile in May, 50% of these companies have these kinds of issues.

The development of the Fintech ecosystem in Chile has also become a job-creation engine. Today, 25% of startups surveyed said they had more than 25 employees and another 31%, said they had between 11 and 25 employees. At the other extreme, 47% of companies still have less than ten employees. In terms of gender equity, it is estimated that around 24% of Chilean Fintech startups have female members within their founding teams. The figure is below the average observed at a regional level that is 33% and could be a symptom of the efforts still needed to promote female inclusion in technological or financial sector ventures.

Currently, about 4 million Chileans are active users of fintech and move nearly 600 million dollars, according to the survey conducted by Finnovista. For understanding these numbers, The report indicates that in Mexico fintech trades close to two billion dollars. This figure is 3.3 times higher than in Chile. However, the Chilean ecosystem is 3.3 times smaller.

In 2018, 120 million dollars were generated by this sector, according to economic estimates. On average, each Chilean startup earned $ 1.1 million in revenue. This amount is a great number, but many of these startups are still far from reaching the breakeven point. So far, Chilean companies have received 175 million dollars in financing, and 80% of them claim to have received investment outside the company. These numbers are more optimistic than those delivered by EY Chile in May, where they indicated that only 65% had received financing, and 71% thought that there is a lack of investment in the sector.

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